YIWU, CHINA — A Chinese entrepreneur with a humble beginning as an involuntary middle school drop-out. A businessman who built the world's largest manufacturer of plastic drinking straws from scratch and earned the nickname “king of plastics straws.” A forward-thinker who opted out big name American customers like Wal-Mart and Kmart. An ahead-of-time adopter of factory sustainability in China.
Just before the Chinese New Year, Plastics News sat down with Lou Zhongping, founder and chairman of Soton Daily Necessities Co. Ltd., in his office at the company's Yiwu campus.
Q: How did you develop your unique business practices?
Lou: I think [using the] computer and Internet since the mid-90s changed me. It opened a window to the world, and showed me how Americans, Japanese, Europeans run their businesses. I also visit these countries in person to observe firsthand.
My goal is very simple. Save money. It doesn't matter what the government says I am, or what media tries to say about me. I do things this way to make conditions better for my workers so that my labor force is more stable, and to make more money. That's not so idealistic as they make me out to be. My biggest goal is to make more money, but that's not a bad thing. The bad thing is to earn less and consume more. If I consume less and earn more, I think that is good for society and good for me.
Q: Why have you focused on straws and not diversified your product line?
Lou: I really believe that a country's continued prosperity depends on the success of small- to medium-sized enterprises, not huge corporations, especially in China with such a large population. If you only depend on big corporations, that's not enough. A small- to medium-sized enterprise's success depends on how well it focuses. You can't diversify too much. You need to focus on one industry. If you can do that well then you can be sustainable.
Q: What was behind your risky decision to refocus your client base in China?
Lou: By 2002, we had almost no domestic orders. But since we had a well-established brand in China, we thought it was a shame not to make use of it. I made a conscious decision to focus on smaller customers and drop big customers. The big customers were just too big. If we lost just one of them, one fifth of our business would be affected just like that.
So starting in 2003, we stopped with Dollar Tree, and then over the next few years we dropped Wal-Mart and Tesco and the others. Actually we didn't drop them; we just raised our prices and then they didn't want to do business with us anymore.
We need to make a profit. We have an unspoken rule. A customer can't take up more than 2 to 3 percent of our business. If they take up more than that, then we need to consider whether they are worth our business. Because they will push our prices down, and also will want more bargaining power.
Q: What's your strategy for dealing with the rising cost of labor in China?
Lou: In the past 10 years, we've quadrupled the number of our extrusion lines, but we've cut the number of workers to between 400 and 500, down from between 700 and 800.
But it isn't as big a change as you would imagine. There aren't any machines or production lines that are running without workers. It's not like in the U.S. where you go into a factory and there are only a few workers on the line. This product needs workers, it's pretty complicated. Quality control is difficult. In one day we might manufacture for 50 clients, but for each client there are 200 types of products.
I believe strongly in the broken window effect. Now I focus on our workers, influence them, and lead them by example. If a manager is good, his/her workers will be good. Our workers are all from the countryside, places like Henan and Anhui provinces. But through working here they've improved themselves greatly. There's no spitting or littering here. We need to improve workers' quality of life. We do this not to follow a call from the government. We do this to save money.
We aren't willing to compete on how much manufacturing we do and then treat our workers poorly for just a little profit. We do the opposite. Our products must make money so that we can improve conditions for our workers and thus improve the quality of our products. That's what we do. I think that is similar to how Americans run their businesses.
Q: How is your company affected by the current economic slowdown in China?
Lou: Whenever there is a financial crisis, it's a great opportunity for us. I figure it's like this. The economy isn't good. Maybe your salary has dropped. So maybe you won't buy a house, and you won't get a new car, but you'll still eat. You won't go to expensive restaurants, but you'll still buy groceries and everyday necessities. So we're not affected that much.
The government is always talking about what makes a good business and what makes a bad business. I think it is very simple. A good business is one that does well even when everyone else is doing badly. Our orders are full. Most companies in Yiwu have already gone on vacation for the Chinese New Year holiday, but we'll be running for another 10 days or so.
Q: Do you worry about the possibility of restrictions on use of plastic, including drinking straws?
Lou: Straws won't go out of style. Consumers will always want straws. In both developing countries and developed countries, we've seen slight increases each year in straw usage. Even though there are calls around the world for restricting the use of plastics and plastic bags, there hasn't been a country that has completely outlawed the use of plastic.
I think the problem isn't with plastics, but with our habits and how we use plastics. In Japan, there are no regulations restricting plastic products, but they recycle up to 80 to 90 percent of their plastics. This has to do with our personal usage and the government's management of plastics. Plastics isn't bad, it's the way people use it that is the culprit.
I think that possible restrictions would be an opportunity for us, because in the past years our R&D team has been working on developing new materials including natural materials. Restrictions on plastic would give these straws a bigger market opportunity. Of course we still need more time to work past some design issues.
Q: With your company's continued success, will you consider going public?
Lou: Many, including the government, encourage us to go on the stock market. But I wonder — why should I? If we go public, then I can't control this company. Our profit is relatively small. Chinese products can't compare to U.S. or Japan's. We do small commodities at a low-to-mid level. We need to stay simple. So we think it isn't appropriate to go on the stock market, because our profit margin is low and also because of the structure of this industry.
Q: What are your plans for the future of your company? Will you pass on your company to your children?
Lou: My goal is for it to last at least 50 years, until I'm 80. My children have no interest in the day-to-day operation of this business. That's why I'm trying to develop a second-generation, professional management team. I hope that this business outlasts me. I want it to continue as the best straw company in the world.