Background
Pan Ning was born in 1937,China.
宁 潘
Pan Ning was born in 1937,China.
Though only attending school until the fourth grade, Pan developed an exceptionally forward-looking mentality.
During the mid-1980s, township enterprises grew like mushrooms after rain in Guangdong Province, China. As the deputy director of the Industry and Transportation Office in Ronggui, a small town in Guangdong, and together with two partners, Pan founded the Zhujiang Refrigerator Factory in October 1984, and named their brand Rongsheng. The factory sought technical assistance from Beijing Snowflake Refrigerator Factory, and experimented financially with funds of only RMB90 000 from the township government. This unique combination dictated the nature of the factory as a township collective enterprise, which was what led to Pan’s downfall almost two decades later.
Initially it was difficult for Pan to market his new products. People looked down on township enterprises at that time, and he was refused numerous times when trying to introduce his product at big department stores. However Pan was not discouraged by those setbacks; instead, he and his team strove to counter the prejudice against township enterprises by demonstrating the high quality of their products. Pan was very strict with quality control and put a great emphasis on innovative technology. He insisted on purchasing the best equipment available, and his assembly lines were as long as 6 km, imported from Europe, North America, and Japan. In the late 1980s, all well-known brands of refrigerators in China were manufactured on imported assembly lines. During a period when about 79 imported assembly lines were active, a war on refrigerators broke out. At that time Pan’s factory was among the least known, but with strategic marketing his products stood out for their attractive and innovative looks, and high quality. By the end of the 1980s, Rongsheng refrigerators were the best-known brand in Southern China, often compared with Haier, a famous Northern Chinese brand.
In January 1992, touring the Zhujiang Refrigerator factory and impressed by the most advanced assembly lines of the time, Deng Xiaoping uttered his famous saying ‘Development is the hard truth,’ which has been widely circulated since. After Deng’s visit, Rongsheng emerged as the first among the top ten household appliances list in China, an honor that the company held for the next eight years. The success of Rongsheng made Pan a famous national public figure.
At 60 years of age, the normal retirement age in China, Pan himself did not feel the need to retire, and no one in the company dared to initiate this sensitive topic. However, a more significant issue was the property ownership of the enterprise. Though the Zhujiang Refrigerator factory was founded by Pan, it belonged to the town government. Even as the company grew over the years, the management team did not hold a single share of the enterprise. Pan raised this issue many times to the town government, but never received clear answers. A further problem was that many other small township-owned enterprises began to take advantage of the Rongsheng brand by manufacturing household appliances with the same name, generating negative responses to the reputation of the Zhujiang Refrigerator Factory. In 1994, Pan decided to rename the company as Guangdong Kelon Electrical Holdings, and to free the enterprise from the control of the local government, and venture into the air conditioner industry. But Pan’s plan for independence had aroused suspicion within the township government, and Pan and his enterprise were doomed.
In 1995, Kelon sold more than one million refrigerators and had 13.4 percent of the national market share, which rose to 18 percent in the first quarter of 1996. In the same year, Kelon went public, becoming the first Chinese township enterprise listed on the Hong Kong Stock Exchange. With newly raised funds of RMB1.2 billion, Pan expanded the production bases to two other provinces, Liaoning and Sichuan, in order to reduce transportation costs. He made another strategic move by investing RMB1 billion to build a technology center for Kelon in Japan, with the aim of strengthening the domestic research and development capability in the refrigerator manufacturing industry in China. Though regarded as a costly investment, it was an important strategy, since the core refrigerator technology was all controlled by Japanese companies, such as Toshiba, Sanyo, and National, and Chinese refrigerator factories were nothing more than assemblers. Pan believed that his company needed to acquire the core technology in order to maintain and grow its market share. Pan once stated: ‘If we cannot manufacture a 100 percent made-in-China refrigerator in our lifetime, we would feel shameful to our later generations’ (Economics Observer News, 2007). However ten years later this ambition was still not fulfilled.