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'10,000 Horses Galloping': Foxconn's ambitious retail project stumbles

  • Staff Reporter
  • 2012-03-13
  • 16:21 (GMT+8)
Foxconn's first employee-owned Wan Ma Ben Teng retail outlet opens in Shenzhen, 2010. (Photo/CFP)

Foxconn's first employee-owned Wan Ma Ben Teng retail outlet opens in Shenzhen, 2010. (Photo/CFP)

Taiwanese electronics tycoon Terry Gou said one of his dreams over the past two decades has been to help consumers in China share the benefits of the newest hi-tech products.

It comes as no surprise that the shrewd businessman has found a way to align that benevolent-sounding dream with the interests of his bottom line. His plan hinges on helping qualified employees set up stores as part of the so-called "10,000 Horses Galloping" plan that is trotting across rural China.

Gou's Taiwan-based Foxconn — the world's largest contract electronics manufacturer — has more than 1 million employees, most of whom work in China.

To cultivate markets in less developed areas of China, Gou developed the 10,000 Horses Galloping project to help qualified employees return home to set up their own shops and provide affordable appliances. The aggressive project was thought to be a win-win venture to help talented staff members launch retail startups of their own while extending the electronic conglomerate's marketing network in China.

A slow gait

Gou opened a new affiliate in Shanghai to handle the project and set a target of pouring NT$10 billion (US$340 million) to help employees open 10,000 stores throughout China by 2014. But the project has seen slow growth since its launch more than one year ago, according to analysis by the Chinese-language Economic Weekly.

Foxconn launched the galloping horses project to encourage employees who have worked with the group for at least five years, with annual performance ratings above the "B" grade for three consecutive years, to join the program. The group offers business training and seed capital of 300,000 yuan (US$47,400) in the form of interest-free loans to each participant. The workers-turned-businesspeople are required to rent spaces of 120 to 200 square meters in their hometowns.

Many skeptics declined the offer, thinking it could be a company scheme to lay off employees. Nevertheless, more than 6,000 employees hoping to own their own businesses signed up. Following a strict screening process, 50 candidates were selected.

One participant from a rural community in eastern China's Shandong province, who went by the pseudonym Chen Tianyu, was among the 26 who eventually completed training to become the first crop of entrepreneurs. His company spent 90,000 yuan (US$14,200) of the 300,000-yuan loan to furnish a 120 square-meter store. The remainder was used to purchase the initial batch of products.

The store is neatly maintained, with a full line of electronics and communications equipment ranging from Lenovo PCs, Haier air conditioners, Nokia mobile phones and Joyyoung soymilk makers. Chen has to prepare working capital to complete business registration and rent store space, as well as purchase a pickup truck for product delivery and find clerks. To save trouble for store owners, the project's corporate headquarters in Shanghai handles all procurements and distribution.

Store owners' profit margins are just 8% on average, and they face competition from giant retail chains like Gome and Suning. To guarantee quality, stores mostly offer products from well-known brands. But except for some handsets and PCs, it is a challenge to find buyers for high-quality products in rural areas. One of the six stores in the Heze area of Shandong has already closed.

The 10,000 horses are not galloping fast enough; the project looks ready to fall short of its goal to set up 10,000 stores by the end of 2014.

Changing horses in midstream

Gou and his staff have made modifications to business strategies to ensure the survival of budding entrepreneurs. More recently, the group set up regional headquarters to get closer to chain stores, offering more efficient support and catering to local consumers' tastes.

While slowing down the pace of cultivating its own staff, the Foxconn affiliate has opened its doors to other aspiring investors — who can open a franchise by paying a deposit of 20,000 yuan (US$3,160) — in a bid to increase the number of stores in the system. Franchise stores make their own procurements, but they have to agree not to sell counterfeits or low-quality products. There are now already more than 20 franchise outlets in Shandong, with several more set to open in the second half of 2012.

One of the franchisees said that only about 40% of the products on his shelves are made by Foxconn. The advantages of the franchise include relatively startup costs and affiliation with one of the most readily recognized business groups in China.

Chen Tianyu, on the other hand, is required to file daily business reports to his regional business center. He and his partner are not discouraged by the slow start. They are confident in the future of the 10,000 Horses Galloping project because of strong support from Foxconn, which he said has been constantly fine-tuning market strategies. The products at his store now match more closely with local tastes, he said.

Chen said that the vast rural market has enough appetite for his products. The major issue left is how long he will have to wait for sales to reach projected targets.

If they eventually do, Gou may be able to remain atop his high horse.

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