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Craftiness and Prudence, the Inevitable Course to Transformation and Upgrade——Speeding Up the Mutual Integration between Quality and Management
XIZI UHC Chairman Wang Shuifu

Dear Xizi colleagues, Happy Chinese New Year,

At the New Year beginning, I would like to, on behalf of Xizi UHC board, express my sincere gratitude to my colleagues and also your families. You have been working very hard in the past year and made great contribution to the continuous development of the company. I also want to extend my appreciation and good wishes to all the leaders, partners and friends who care about and support the development of Xizi.

In 2016, facing the difficult economic situation of continued sluggish market demand, Xizi people fight against the hardship and spent great efforts to carry out the weight reduction work, after going through the painful process of transformation and upgrade. We successfully re-shaped a flat management system featuring good coordination between the headquarter and member companies, well implemented management and control, and effective execution. We firmly push forward the organization reconstruction, to make the management team fit with the company development needs, firmly deepen our work in both domestic and international markets, and actively adjust the product structure, business structure and market structure; firmly integrate manufacturing resources, improve the fast response mechanism, and adapt to the new requirement and trend of customized production; firmly accelerate the research and development work and launch a series of intelligent and green products in the high-end market to lead the industry technology. In 2016, Xizi UHC realized a total sales revenue of 25.6 billion, achieving a 8.5% increase over the previous year. These are hard-earned fruits, by the hard work, wisdom and dedication of all Xizi people.

Right now, China’s manufacturing industry faces the labor pains of restructuring and enormous pressure of sluggish economy. At this critical moment, we especially need to have firm faith and fearless spirit to face all challenges bravely; need to deeply understand the arduousness of transformation and upgrade, analyze all adversities using scientific methods and pull together our wisdom to find the solution; need to keep our culture of strong passion for work, good skills at work and the capability to accomplish the goal. With a strong will of fighting and progressing, we open a new prospect by meeting the challenges and achieve new development by overcoming the difficulties.

Chinese economy has entered into an “L” shape path, with industries being shuffled at an accelerated pace, people getting eager for quick success and instant benefits, and manufacturing not favored by many people. Some complain that the best era of development for China has passed, because the fast growth of the macro economy and the dividend period for many industries has gone forever. In fact, the best era of China is right here, because those who only seek short term benefits have all left, and those who stick to the manufacturing industry are people who have real passion for it. I believe that holding on to high-end manufacturing will be finally paid off.

In 2017, we must hold on firmly to our strategy, and stick to high-end manufacturing, under new economic normal, new orientation and new dynamism. We will actively follow the call of President Xi Jinping and the central government that we shall roll up our sleeves and start working right away. Therefore, to transform and upgrade to high-end manufacturing, Xizi must attach great importance to these two principles that we need to make products by paying attention to every detail, and give enough prudence to our management. The following five aspects are very important for us.

  1. Have firm faith and take the “long march” of high-end manufacturing

    We all know that the Red Army was forced to take the long march at that time in a very difficult situation. However, it was indeed the exceptional hardship of the long march that fostered the victory and glory of our party. If not for long march, the history of Chinese revolution might be rewritten.

    Xizi has now taken the first step of the long march. We are gradually transforming from traditional manufacturing to high-end manufacturing by entering into aviation manufacturing industry. Xizi Aviation has obtained 256 certifications of special technique qualification for five major aviation companies in the world, including European Airbus, American Boeing, Canadian Bombadier, China COMAC, and China AVIC. It has successfully delivered the first piece product of front landing gear compartment for Airbus A320. Now the world’s best-selling airplane is equipped with parts manufactured by Xizi. This was a new starting point for Xizi Aviation as the supplier of Airbus. It indicated the advancement of Xizi Aviation’s manufacturing capability from component to large and medium complex structural pieces. Shenyang Xizi Aviation signed a pilot cabin interior decoration project agreement with Boeing, signifying that Shenyang Xizi Aviation has become the first private Chinese company among Boeing’s 2nd-tier suppliers in China. Along with Zhoushan being chosen by Boeing to become its first and only overseas assembly and deliver center, Xizi Aviation will meet the once in a blue moon opportunity. We can only become better by working with great companies. As the top level manufacturing industry, aviation manufacturing can reshape a company and guide a company to overcome the difficulties in transform and upgrade. Xizi Aviation’s entrance into the international aviation manufacturing supply chain indicates that Xizi UHC now has the capability to become a world class company.

    The transformation from traditional manufacturing to high-end manufacturing is an inevitable path for Chinese companies. It not only means a process of overcoming the difficulties, but also a process of reinventing ourselves. We can only succeed when we have good preparations for the hardship on the long march. This is also a glorious historic mission for us.

    China has been good at traditional manufacturing, while developed countries have been good at high-end manufacturing. As a supplier of Airbus and Boeing, Xizi Aviation now faces competitions from other aviation suppliers from the whole world, who have been in the industry for 50 to 100 years with lots of experiences. We can only be competitive if we can offer the best quality, service and price. Otherwise, it will be very hard for us to be a real player in this industry.

    For Chinese manufacturers, who are used to extensive management and impatient mindset, to fight with competitors in developed countries in Europe and America is an ill matched life and death combat. Our competitors will spare no efforts in defeating us. It will be a tough test for both our will and wisdom.

     

  2. Local production of core components is the breakthrough for Xizi to enter high-end manufacturing

    In 1996, Xizi elevator was the No.1 Chinese brand. However, because of various kinds of defects in domestic components, the elevator quality was often complained by customers. We could only rely on imported components to improve the overall elevator quality and stability. In 1997, Xizi established a joint venture of Xizi Otis with America Otis Elevator Company. In more than ten years after that, Xizi has been spending great efforts in the research, development and manufacturing of core elevator components, and has now become the largest supplier of core elevator components in China and even in the world.

    The 10m/s super speed elevator product developed by Xizi Elevator not only realizes the independent intellectual property rights of super speed elevator core components, but also indicates that Xizi has obtained the key technologies of super speed elevator (such as safety, vibration reduction and noise reduction technologies). The elevator performance has reached top level in the world; and breakthrough was also achieved in double layer elevator technology and products; 208m super high speed elevator testing tower was constructed in Linping and was approved by National Elevator Product Quality Inspection Center.

    Xizi Forward has sold in total 650,000 units of permanent magnetic synchronized gearless tractors, which can save energy by more than 30% and is more reliable. Each year 3.5 billion kilowatt of electricity can be saved, equal to the electricity used by the total population of Zhejiang for one month. In 2014, Xizi Forward successfully developed 10m/s super high speed elevator tractor, taking the leading position of the industry. In 2014, Xizi Forward was the only small and medium sized company to receive the Zhejiang Government Quality Prize.

    In the past, the square tubes of escalator truss produced by Xizi Heavy Industry were all bought from suppliers. In 2015, Xizi Heavy Industry invested heavily in the square tube production line project. It started production and reached the planned capacity in 2016, and is expected to be self sufficient in 2017. The operation of square tube production line enables customized production of required raw material, reduces significantly material waste and material cost, and thus enhances the core competence of the company. Even under the severe market situation, Xizi Heavy Industry not only wins back the lost orders gradually, but also strengthens cooperation with class A clients such as Kone, Hyundai and Toshiba and enlarges its pool of high quality clients.

    I firmly believe that the local production of core components is definitely the opportunity for Chinese manufacturing, including car engine, car gearbox, medical instruments and device, robots, etc. The special material and processing technology of these components are the key of high-end high precision manufacturing. Taking the car manufacturing as an example, the traditional gearbox produces high noise in operation, but the noise is covered by the noise from the engine. In the future, electrical car engines will replace petro car engines, which will make the gearbox noise a prominent problem. Research and innovation is the precondition for the transformation toward high-end manufacturing.

    The home made C919 jumbo jet which finished assembly in November 2015 did not use much material produced by Chinese manufacturers. The development of civil aviation industry is the revolutionary opportunity for Chinese material industry. Shangdong Nanshan Aluminum has passed the certification by Boeing, and China Zhongwang acquired Aleris Zhenjiang Factory and also entered the aviation manufacturing field.

     

  3. Craftsman spirit and lean production are the powerful driving force of high-end manufacturing

    Nowadays, the social development is at a fast pace. New things emerge one after another, like the Internet, big data, robot replacing human, 3D printing, intelligent manufacturing, etc. In the future, the era of large scale production such as current car manufacturing will become obsolete, and the era of customized production has begun. People’s demand for customized production will become larger and larger. We cannot rely on new tool and machines for all the manufacturing needs. In the end, we still need skilled craftsman. Fundamentals are the most important thing, and our skill is the basic of the basic.

    The transformation from production by hands to production by robots is the inevitable process of traditional manufacturing. However, the simple replacement of human labor by robots can increase efficiency, but cannot realize high-end manufacturing. High-end manufacturing has its own specific requirements. The high-end manufacturing, as I understand it, is craftsman spirit + high precision manufacturing + lean production, for example Swiss watches, medical instruments, airplane engines, etc., 50% of which should rely on sophisticated machines, and another 50% should rely on special material, special processing technology and special assembling methods and quality control system, which is craftsman quality and skills.

    New craftsman is not the person who work behind closed doors or do simple repetition of the details same as the traditional approach, but the person who masters advanced management technique, has rich experience in operating advanced precision equipment, and also has the spirit of perseverance, perfection and continuous improvement.

    One type of problems of the manufacturing industry are visible problems related to equipment and material, and the other type are invisible problems related to lean production methods and quality control system. The lean production methods, pillared by zero defect, zero waste and continuous improvement is the effective method for Chinese manufacturing to improve its core competence, and is also the inevitable path for traditional manufacturing industry to move toward high-end manufacturing.

     

  4. Military and civil integration is the inevitable path of Chinese manufacturing transformation and upgrade

    On March 25, 2016, CPC Secretary General Xi Jinping hosted the meeting of CPC Central Committee Political Bureau, which approved the Opinion on the Integrated Development of Economic Construction and National Defense Construction, officially making the military and civil integration as the national strategy.

    30 years ago, due to short of supply, the manufacturing industry was driven by huge market demand. However, 30 years later, in the environment of supply surplus, only the high-end manufacturing which integrates military and civil areas can better drive the market, create profit and push the development of the companies and national economy.

    As military and civil integration officially becoming the national strategy, and related policies being released and moving forward of the legal system regarding the integration, companies will have good investment and cooperation opportunities in this process, which will be shown in the following areas: firstly, the military industrial complex will see stable increase; secondly, the participation rate of civil companies in military industry is continuously increasing; thirdly, the increase of orders will result in explosive growth of company performance; fourthly, extensive acquisition and industrial integration are deepening, and the participation of civil companies in military industry enters into a new development phase.

    From the perspective of industry categories, material, processing technique and information technology are the foundation of defense industry. They are at the upper stream of the military industry, with a low entry threshold, and are also the area of the greatest degree of market competition. In recent years, lots of private companies enter the military industry through internal development or extensive acquisition, helping the company to transform and upgrade. This is once in a lifetime opportunity for Xizi, and we must pay close attention to it and follow the trend of the time.

     

  5. Quality is the only pass for Xizi to go international

    Just after the New Year Day of 2017, we heard some news about companies shutting down or reducing capacity. On January 1st, Taiwan Tingyi company dissolved, and at the same day, Apple announced that it would cut about 10% of its iPhone production capacity in the first quarter of 2017, including its latest products of iPhone 7 and 7 Plus. This was the second year in a row that Apple significantly cut down the iPhone production capacity. Last year, it lowered the capacity by as high as 30%. On January 3rd, Korean Hyundai announced that starting from February 13, 2017 it will recall New Tucson cars produced from September 5th 2015 to May 11, 2016. The total number will be 96,094, which will be a serious blow to the already in trouble Hyundai company.

    The reason of Taiwan Tingyi shutdown is quality. Back in 2014, Tingyi was exposed by media to be suspected of using reclaimed oil from waste oil, and there were lots of reports in the media to call for people to boycott Tingyi products. The company endured for two years and finally was forced to shut down.

    The main reason of Apple reducing capacity is also quality. In recent time, lots of iPhone 6s users reported that the phone would power off automatically when the battery still had 60% capacity remaining, and it would need to connect to the power source to restart the phone. This kind of quality problem did great harm to the sales and also reputation of Apple products.

    The recall of Hyundai cars is of course due to quality problems. The car has safety risks. The explosion of Samsung Note 7 has made Samsung mobile phones dangerous products. For the company, it is not just economic loss, but also great harm to the brand.

    To the contrary, just one day before Apple’s announcement of reducing capacity, Huawei released its sales revenue of 520 billion in 2016. Why Huawei mobile phones got the market share so fast? They still rely on quality. On June 10, 2016, Huawei was the company in the CCTV program “Looking for Top Manufacturing”, in which it recorded Huawei’s extremely high requirements on each detail in the research, development, production and testing of mobile phones. The quality of Huawei products does not come from thin air, but from the endless pursuit to the details every day, every hour and every minute.

    Ren Zhengfei once said, we could never ignore quality in order to reduce cost. If we do that, we will be committing suicide or homicide. It is suicide if we put an end to our company development, and it is homicide if we destroy the industry and no company can survive. Because of Ren Zhengfei’s crisis thinking, Huawei phones not only commit no homicide, on the contrary they saved people’s lives by stopping the bullets for them thanks to their high quality.

    There is a swan lake at the Huawei headquarter, and there are 8 black swans introduced from abroad at a very high price. Black swan represents uncertainty. Huawei uses them to indicate that the future world is chaotic, confused, and dangerous. In a world full of uncertainties, we can only survive by keeping a keen sense of smell and the sense of crisis, and staying obsessed to the details. Without surprise, the first black swan in the New Year suddenly appeared which gives us a warning that for Chinese manufacturing industry to have further growth and be powerful in the world, quality is the key element, and quality problems will be one of the biggest black swans.

    Any great endeavor in the world must rely on the details. At this era, for a company strategy is the God, while detail is the devil. Without strategy, we will lose the direction to go forward. However, having the strategy but failing to pay enough attention to details and manage the quality risks well is very dangerous for the company. Even though the company appears to develop very fast, one day one sudden quality problem will make the company stumble or even collapse.

    In 2010, I delivered the new year speech on Xizi News with the title Selling Our Products to Japan; in 2011 the speech title was Quality Changes Destiny; in 2012 Quality Is the Most Effective Weapon to Peacefully Occupy the Market; in 2013 The Road from Quality to Brand; in 2014 It’s Time for Quality to Prevail. For Xizi, holding on to high quality will win us a rare opportunity of development. For all these years, we have been repeatedly stressing the importance of quality. I firmly believe that in the process of economic transform and upgrade, Xizi will have more opportunities than risks.

    Looking back at the year 2016, we have inspiration and regret, but we have more is harvest and joy. Looking into 2017, we need to be more determined to the development direction and goal. So long as we unite together, work hard, and be brave to take responsibility and to innovate, we will definitely overcome all kinds of difficulties, and push forward the tasks on hand. Let’s hold our hands together to build an even brighter future and enjoy the glory and success that belongs to all Xizi people.

    Finally, I want to send my New Year greetings to all of you and wish you good health, happy family and best luck in the New Year. Thank you.

 

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