Mr.
S.C. Liu took a long look down the fairway of the Lu Hu Golf and Country Club’s
first hole. There, hundreds of Chinese
laborers, mostly fresh from the countryside were weeding, planting, digging and
repairing divots. A friend asked whether
or not we should yell, “fore” before teeing off, but S.C. said that they
wouldn’t understand what it meant – and in any case we were unlikely to hit any
of those working at over 220 yards in the fairway.
And
S.C. was right. All the opening tee
shots landed in the rough far from the workers.
As the players walked to their balls, S.C. started to recall the events
of the past few years that had led him to this moment, and it was clear that he
also had his future, and the future of his company, Pearl River Hang Cheong
(PRHC) on his mind.
PRHC was at one time an
extension of S.C.’s first business, Hang Cheong of Hong Kong. But now PRHC was taking on a life and
identity of its own. Located in
First, there was the matter of
growth. It was not obvious how PRHC
should grow and in what areas. Should it
continue to grow as a consultancy, or as a real estate brokerage company, or as
a real estate fund management organization, or as an investor with important
information and relationships in the industry?
And then there was the possibility of diversification. As the company started to branch out, it had
developed the resources and capabilities to do sophisticated technical
analyses, and had the ability to provide information technology products and
services that were among the best in all of
Second, was the question of how
to manage the process of growth? What
were the optimal organization structures and designs? How was the work to be organized and how was
the company to be staffed and managed?
Since the beginning of the company there was a strong influence of
Lastly, what was S.C.’s role to
be in all of these? He was, all at once,
an entrepreneur and investor, the Managing Director (equivalent to Chairman and
Chief Executive Officer), the personal leader of the firm, and an avid promoter
of
With this in mind, and a bogey recorded on the first hole, we walked to the second tee.
Company
Background
After a par on the second hole,
we started for the third and S.C. began to talk about his roots. S.C. Liu was born in
S.C. received his first degree from Hong Kong Polytechnic in 1977. He had studied in surveying and immediately went to work learning the surveying and real estate business. Over the next few years, S.C. made invaluable contacts in the Hong Kong property development business as he worked for Swire Properties, Hsin Chong Holdings Ltd, Wayfoong Property Agency, (a subsidiary of the Hong Kong Shanghai Banking Corporation) and finally made a Partner in 1990 at Knight, Frank, Kan and Baillieu, one of the major real estate management and agency firms in the Colony. In 2001 S.C. was made a fellow of the Hong Kong University of Science and Technology. The introduction of S.C. at that ceremony is included as an appendix.
In his own words:
I graduated from Hong Kong Polytechnic in the year 1977, and then worked for Swire Properties for five years. After that I joined Hsin Chong, one of the biggest local contractors here for three years. And then I joined Hong Kong Bank, and was actually responsible for setting up of the agency company. I stayed there with the Bank for another two years. If I could add anything, I would say that I didn’t like working for a large corporation though I made some very important contacts. I also enjoyed the working relationship I had with most of my previous colleagues. I still keep a very regular contact with them, and some of them are now promoted to very senior positions.
Before S.C. left Knight, Frank
in 1992 he managed three separate departments for the company. He managed the real estate agency (broker)
business, which had turnover of over HKD 1 billion (1
But S.C. was dissatisfied
working for a larger firm even though he was quite successful and had developed
an excellent reputation in real estate circles.
So in 1992 he founded his own company, Hong Kong Hang Cheong. (Hang Cheong means Eternal Prosperity in
Chinese). The purpose of the company was
to help wealthy
We bogeyed three and four
before making a par on number 5. S.C.
continued the tale of Hang Cheong. The
business was instantly successful. In
Just as in any economy, supply and demand are the primary determinates of the price of land. The supply is clearly limited by geography and the government made sure that it stayed limited with its very restrictive policy of allowing no more than a few hundred acres of new land to be developed each year. With a growing affluent population, plus the countless speculators, the price of land and property skyrocketed. And many thousands of people became very rich in the process. S.C. Liu was one of these people.
And so S.C.
became very successful in the real estate business. It was not only a case of being in the right
place at the right time, but also a case of doing things well. S.C. returned to school in 1992 to work on
his MBA at Hong Kong University of Science and Technology. All the time he was running his company, he
was also going to school part time at nights and weekends. He was an astute student, with a keen sense
of how economics worked. This enabled
him to be ahead of the crowd on many buying and selling decisions. His analysis of the
And it was this analysis that
led S.C. to look towards
The Founding of
Pearl River
Hang Cheong (PRHC) had its beginning in a chance meeting between S.C. Liu and
Mr. Z.W. Li in early 1993 at a study tour.
S.C. was invited to deliver a lecture to a group of Chinese real estate
executives in which Mr. Li is a member.
Mr. Li was the Deputy Development Manager of Guangzhou Pearl River
Enterprise Group Ltd. His firm was
looking for a partner to help develop and manage properties in
S.C. has his own special philosophy about forming alliances and picking partners and it has served him well over the years:
You need people to find the right site to start with. The right people to come up with the right design. The right people who can actually build the building within the budget. The people who can sell the finished product at the highest possible price. And then finally the people who can manage properties.
Question: So why is it important to find those people and know those people before the deal? Why can’t you just find a good deal and then try to find the right people?
Answer: No way! Because, if you can find a good partner, and by this I mean people who share your business philosophy, basically people who can understand each other, then sooner or later given a reasonable market condition you will find the suitable project. But if you try to do it the other way round, we find the project first and then we are forced to find the partner, (or worse if you are forced to work with someone who owns the project) then usually it will lead to disaster because you often won’t share the working mentality of the partner. And you will have a different way of thinking in terms of how to decide what to build etc. Then there will be enough arguments. Once the arguments start, I don’t see any good chance of building a good project together.
At the eighth hole, a long par five, S.C. gave me
a recent PRHC document that helped to describe the company and the
Every
new industry has experienced its growing pains before reaching prosperity and
maturity. The
Before
Pearl River Hang Cheong was established, there were no organizations in
Since
its inception, PRHC has made tremendous progress in many areas. It is a unique organization in the sense that
it is prepared from time to time to take on lesser financially rewarding
projects and assignments if they are considered to be valuable contributions
towards furthering the development of
Apart from handling government consulting work, the firm also acts as an agent/advisor on real estate matters to well-known corporations such as the Hong Kong Bank, Singapore Government Investment Corporation, and the Guangzhou Metro Corporation. The firm has been very active in the agency business as well. Major real estate investment deals have been successfully handled by the firm on a regular basis.
Although
everywhere real estate development is similar in techniques and operation
principles, it is really a localized business in which local expertise,
intimate knowledge of the rules of the game as well as good local connections
are vital factors that provide the competitive edge. PRHC is the local consulting firm that
possesses these important attributes and is in the position to help developers
and investors operate successfully in the
After many mulligans on eight and nine, we made our way to the clubhouse. The clubhouse was ornate and well decorated. It showed the wealth and privilege of its members. S.C. was a prominent member and we were offered cool drinks and dim sum before making out way out for the back nine.
Current Activity and Track
Record
Since its inception, PRHC has a steady record of achievement. In consulting services it has been the primary real estate development consultant to the Guangzhou Metro Corporation (GMC). GMC is building a new underground train line through the city and plans to develop most stations as a shopping mall, financial center or office complex. In addition PRHC has completed the following studies for clients over the past few years:
q Study of the Guangzhou Real Estate market
q
Study of Service Apartments Market in
q
Study of
q
Study of Service Apartments Market in
q
Study of
q
Study of
q
q
q
q
Quarterly Reports on the
Many of the projects that PRHC participates in are related to government work. Working for the government means developing guanxi for PRHC. Guanxi loosely means “relationships” but it specifically refers to the goodwill and trust developed in order to do business. In the world of raw capitalism, the relationships one has with business associates help to smooth the way.
PRHC established guanxi in a number of ways. First, they started off doing the government work for very low price. This enabled them to show what they could do – but it also made their counterparts in government look good and smart to get such value for so little cost. According to S.C.,
On the one hand, we needed information. We needed more raw data that we could work on…and all the raw data was in the hands of the government. And also, Mr. Lee, our general manager, enjoyed a very good relationship with various government departments, on a personal basis. He knew what the government wanted and what the government lacked. Expertise was one of the things they lacked. So we started doing small projects for them for very little money. But with the understanding that we would be getting some information in return so we could use the information to improve our product.
Within a few years, these free projects were replaced by commercial ones that enabled PRHC to start to make a profit. PRHC had also participated and managed the marketing and sales of large property market projects, such as:
q
Tinahe
q
q
q
Wing
But S.C. makes an important point where he says that guanxi is not the same as corruption. Although there are elements of Chinese society where corruption is prevalent, S.C. holds no illusions: -
If a company gets into the habit of solving its problems by paying other people, mainly government officials, then the organization concerned will have low incentives whatsoever to develop its own cutting edges or competitive abilities. So one day, suddenly, if competitors come along and manage to come up with a larger amount of money to pay off the same group of government officials, the company will suddenly find it has lost its competitive edge.
Question: Because someone can always pay bigger bribes?
Yes, because by nature we are a very small company. There is no way we can compete with others just by the quantities of money that we are able to pay. Some people might say, ‘Fine, if I pay some money to get all the necessary licenses or whatever so that we can start our business in China, and then from there onward we will work hard and honestly and set up our core competence.’ But my argument is that this is like being addicted to drugs. Once you start, there is no end. Because you will very soon get into the habit of solving your own problems by paying someone else.
Current Operations and Staff
Mr. S.C. Liu
is the Managing Director of PRHC and his working background has been detailed
above. In addition to being a successful
businessperson and investor in his own right, Mr. Liu gives generously to
charitable causes and higher education.
He donated scholarships to allow young academics from leading Chinese
Universities to do researches in his alma maters. In addition to being the Chairman of the
Advisory Board of the Real Estate Department of his alma maters, he also serves
in various capacities in three other universities in
Of late, S.C. has also become somewhat of a pundit and celebrity. He is often quoted on various real estate and economic development issues and is sought after as a teacher, lecturer and speaker. In late 1998 he was interviewed in a HSBC Securities publication called Cook’s Stew. S.C was also featured in Business Week Online. The article can be found at: http://www.businessweek.com/technology/content/jul2001/tc20010725_381.htm
Zhen Wei Lee is the General Manager and
director. He graduated in mechanical
engineering and management. From
1982-1987 he worked for Guangzhou Peugeot and in 1987 joined
Francis Chan has his first degree in
economics from
Raymond Chan is now the head of the research department. But he was with PRHC even before there was an Information Technology Department. He has been with PRHC for five years (since 1993) and originally came when he was still a student of electronic engineering at Zhong San University. When he started with PRHC the company was very small, only three small rooms and he was doing data collecting, some market surveys, and some data analysis. But what he liked best was sitting in front of a computer. He is recently married to a girl he met while working at PRHC.
Jeff Ruan is the software-engineering manager of the computer department. At Zhong San University he studied electronics and majored in electrical engineering. When he graduated he worked for a major telecom company. But he always loved software programming. He was a classmate of Raymond’s at Zhong San and joined the company before there was an Information Technology department. He says that primarily his job is to program the software for the research department.
Emily Ma is the Human Resources manager
for PRHC. She came to PRHC along with
Mr. Lee when the company was first formed.
She has a bachelor’s degree from
The IT Department
The IT department grew out of the need that PRHC had to process its real estate data. According to S.C.,
The
more we approached clients to do feasibility studies, the more I realized that
I had a need to assess and assemble a comprehensive data bank for the
Jeff and Raymond started the IT department in 1996. PRHC had done a market research study and had collected so much data that it required the use of computer technology to make sense of the database. Raymond and Jeff wrote programs to help to analyze the data set and PRHC then approached the government to see if they were interested in this sort of analysis.
Initially the department wrote programs that analyzed real estate transaction data. This gave PRHC a competitive advantage in its real estate business because it has first access to all the data about real estate prices, values, plans and projects in the area.
The government then asked for its own proprietary systems so that it could keep track of all of these transactions for planning and tax purposes. PRHC won the contract and began to develop a number of programs to help the government.
One of these was the Graphical Information System (GIS). The GIS provides basic information about real estate sites and adds maps, graphs, pictures and layouts to the data set. The program enables the user to ask many different questions. Now available only in Chinese, it will soon be translated into an English version. The GIS system uses a platform called MAPINFO.
The GIS is a powerful system developed to assist the Property Market Division of the Guangzhou Municipal Government carrying out administrative and regulatory functions such as the collection of land and property taxes, control of pre-sales of “commodity” properties, real estate appraisals and control of real estate agency practices.
The system handles information concerning the registration of sales and purchase agreements on land sales, collection of land sale proceeds, and the control and issuance of property pre-sale licenses. This is done using MAPINFO as the platform and SQL Server of Windows NT as platform for the database. The main attraction of the system is that all property data and information are searched, sorted, analyzed and presented on a graphic mapping screen. The system was installed by PRHC for the Property Market Division in June 1997 and performance is highly satisfactory. Currently PRHC is developing GIS Version 2, which will possess a more powerful mapping analysis capability with the possibility of adding vertical 3D effects. And the PRHC website will soon be established and the GIS system will be accessible through the Internet.
Another program was a management information system used by the Guangzhou Property Transaction Bureau. The Property Transaction Bureau has two major functions to perform: the administration of property transactions and real estate appraisal. On the transaction side, the system manages the control and administration of property licensing, registration of titles and deeds, and is capable of handling huge volumes of information with accuracy, speed and efficiency. On the appraisal side, the system tracks transaction prices and comparable sales to help determine what market prices might be for yet unsold properties.
As we trekked around the back
nine at Lu Hu we could see the furious urban mass of
Should the IT department be an independent business? If so, what would be the proper relationship with the parent company and how would it be governed? There were good reasons to make the department independent: differing management approaches, recruitment of new people, salary equity (IT people make more than real estate people), and security considerations.
How far into
the mainland should PRHC go? Office in
What role
should S.C. play in the future of PRHC?
He was already very wealthy with a fine spacious house on the Peak in
At the clubhouse, over drinks we pondered the future of this company and the future of the most populous country in the world.
Appendix to the Hang
Cheong Case
He is a self-made man, an inspiring, home-grown success
story. His company in
Indeed, few would dispute the fact that Mr. Liu is an astute
businessman. Born and educated in
Thanks to his wide experience and business connections, Mr.
Liu earned significant profits from the local property market in the early
1990s. He established Guangzhou Pearl River-Hang Cheong Real Estate Consultants
in 1993 and later decided to re-direct his business focus from
His perseverance in following his personal vision and professional insights not only shielded his business from what could have been a significantly negative impact as a result of the bursting of the real estate bubble during the Asian financial crisis, but also created an award-winning real estate operation in Guangzhou.
From the initial market-entry phase of his
Mr. Liu also earned
the respect and trust of his colleagues by investing heavily in staff
development and research activities while the company’s books were still in the
red. He believes that in order to achieve efficiency and long-term success,
localization is crucial. After eight years of training and development, all
staff, from drivers to directors, of his
To date,
Pearl River-Hang Cheong has made tremendous progress in many areas. It is the
only non-local company to be awarded, for
six consecutive years, the prestigious class-A property consultancy/agency status in
The leader leads. Mr. Liu continues to explore new frontiers
for his business. In the mid 1990s, he set up Information Technology Company,
which specializes in the implementation of large-scale management and
information systems for real-estate-related companies and government
departments in
Business aside, the company is also making significant
contributions to the further development of
Mr. Liu is a staunch supporter of continuous education. Not
only does he provide his staff with various learning opportunities and
sponsorships, but his company has also endowed scholarships to sponsor
promising young academics from leading Chinese universities to conduct research
on the
The list of Mr. Liu’s public service involvement does not
stop there. From his busy schedule, Mr. Liu finds time to offer advice and provide service to
a number of other educational institutions and public organizations. He is
Honorary Fellow of Hong Kong Polytechnic University, Honorary Professor of the
Mr. Pro-Chancellor, I have the honor to present to you, on behalf of the Hong Kong University of Science and Technology, Mr. S C Liu, Chairman of Hang Cheong Surveyors Ltd, for the award of Honorary Fellowship.
1 Copyright ã 1999-2000 Marc J. Dollinger. This case was prepared for classroom use rather than to illustrate effective or ineffective management. The author thanks the Kelley School of Business, Indiana University, CIBER for its support and contributions.