Wang Bin — an unknown from a small book-publishing house who was hired in 2001 to run Beijing-based China CITIC Press — oversees the publication of an enviable list of national business bestsellers, including Jack Welch’s autobiography, Who Moved My Cheese and Warren Buffet’s biography. With that list, Wang has turned the country’s first joint-stock publisher into a business sensation, while also helping budding entrepreneurs in China get to grips with a new free-market world.
Now, he’s in the thick of things as the entire publishing sector in China grapples with two major challenges: Privatization and the digital age. What effects are these challenges having on the sector and how is CITIC addressing them? China Knowledge at Wharton sat down with Wang to find out.
An edited translation of the conversation follows.
China Knowledge at Wharton: Why did you choose to focus on business publishing?
Wang Bin: I became president of CITIC Press in 2001. Previously, I had been in charge of a branch of China Machine Press, which published business and computer technology books. In the late 1990s, a number of business and economic textbooks were introduced to the Chinese market.
When I oversaw the publication of 120 foreign MBA textbooks at China Machine Press, the amount of translation work that was needed was so large that it was difficult to find a qualified team to take on the work. Meanwhile, we had to rely on photocopies of the works instead of original copies at the beginning as it took a considerable amount of time to persuade famous publishing houses, like McGraw-Hill and Pearson, to give us the copyright to the texts. They were worried that copies would be resold to overseas markets.
It took several years, until about 2001, before all the books were printed and ready to be sold. Around that time, demand for business and management [advice] had begun to take hold in the public. With the rapid development of private companies and the reform of state-owned enterprises [in China], entrepreneurs were at a loss as to how to handle the new market-oriented business environment. They had neither access to information on, nor familiarity with, the necessary tools to work in such a system. We thought it was a good opportunity to provide thought-provoking, forward-looking books, which could help entrepreneurs build a framework for solving the practical problems of surviving and thriving in their business environment.
Additionally, CITIC Group [the parent company] is a well-known financial institution, and publishing business texts is in line with its branding. We had very good luck with Welch’s autobiography and Who Moved My Cheese, which both became bestsellers. The main reason they sold so well is that we did the right thing at the right time. As China was moving into a market economy … we provided what people needed to satiate their thirst for business knowledge, something that also supported the CITIC brand.
China Knowledge at Wharton: Jack Welch’s autobiography was so popular in China that university students often gave copies of it to each other as gifts. What is it about this businessman’s book that made it such a hit?
Wang: The sales of the book exceeded our expectations. When we prepaid US$30,000 for the copyright, the Chinese public had no idea who Welch was or even what General Electric was. However, the Chinese love a hero and fortunately, that’s what “Neutron Jack” is. In his 20 years as CEO [of General Electric], he was never without a backup plan, pushed GE to new heights and became one of the most influential CEOs on the planet. This is an example that Chinese entrepreneurs find inspiring and want to emulate. The title of the autobiography in English is Jack: Straight From the Gut, and this is reflected in the book’s clear, concise writing style, which allowed people to make sense easily of practical commercial operations and what it takes to be a CEO.
More important, in China today, many people are eager to increase their wealth and find success, and the most feasible means of attaining both is to go into business. Welch’s autobiography described how an ordinary child from humble beginnings grew up to become a powerful CEO, and this struck a chord with many Chinese.
China Knowledge at Wharton: Last year, CITIC Press published a biography of Warren Buffet, The Snowball, which was also very successful. How do you predict trends and publish books that become so popular?
Wang: We paid US$200,000 for the copyright to The Snowball and sales quickly covered our initial investment. We judge the value of a book by first examining the content. Both Buffet’s life and investment career are extraordinary and unique, and [the author] Alice Schroeder’s observations of them are excellent. These things were key to the book’s success. I believe this book will continue to sell well for at least the next three decades. The concept of a “snowball” is one that lends itself well to marketing campaigns and describes a philosophy applicable to both investment and life.
Just as important as the content of a book in business publishing are who says it and how it is said. Business books are a bit like the concept of web 2.0 — the value of the content has developed between [the content provider and the content user]. This makes it difficult for a publisher to be successful by only investing heavily in marketing. A good business publisher has to not only be professional, but also understand how to grab the attention of business people, to spark their interest to read a book in the first place.
Fortunately, CITIC has a strong team in the whole process, from choosing the right topic, editing and marketing campaigns. Our slogan is, “We provide knowledge and skills to help you deal with a changing world.” The Chinese public today is thirsty for external knowledge. We start from what readers need, collect premium content on those topics from around the world and make it available to everyone who wants to read it.
China Knowledge at Wharton: How much of CITIC’s books fall into the business category?
Wang: We have widened our scope of publishing. Now, only 50% of CITIC’s sales come from business publishing and the rest from culture, architecture, fiction and so on. We will also begin publishing children’s books later this year.
China’s publishing industry is worth about RMB 80 billion (US$11.7 billion) and the retail market accounts for around RMB 35 billion, with business publishing roughly 10% of the retail market.
Why is CITIC’s brand so influential? China is in the process of economic transformation. Economists and entrepreneurs have a strong say in society. However, in the long run, business publishing will become too restrictive for us, so we have begun to expand into other segments.
China Knowledge at Wharton: Is horizontal growth difficult? Isn’t it confusing for consumers if a publishing house that’s famous for books on corporate magnates like Welch and Buffet switches to pushing Pinocchio comic books?
Wang: Our vision is to serve mainstream readers by covering their lifecycle needs, including investment, career, lifestyle and children’s education. But we are not that prominent in non-business publication ventures yet. Our advantages are limited by economies of scale…. Success in business publishing doesn’t necessarily translate into success in others. The capability can’t be directly duplicated. We have to figure out what works best for each segment and look for the right products to enter different segments.
For example, we have tried publishing children’s books, hoping to promote basic knowledge of science and help develop the character of children through reading. However, Chinese kids are more focused on exam-based reading as soon as they are in middle school. It’s difficult for high-quality books to be compatible with the textbooks in the current education system. In other words, good ideas from these types of books aren’t a profitable venture. This year, we will introduce some new popular science books in order to enter the market gradually.
In terms of branding, Chinese publishing has limited knowledge of it. Theoretically, if CITIC publishes children’s books, we should create a subsidiary brand, but under current regulations, it’s not allowed. So the CITIC Press brand has to cover all our product lines.
Knowledge at Wharton: Have you considered acquiring other publishing houses?
Wang: Theoretically we can, but it’s almost impossible to do it in reality. During today’s publishing industry reform — which is driven by local governments — several local publishing houses are being consolidated into one big group and few smaller publishers will be left to acquire.
Regarding publishing houses that originally belonged to central ministries or other public institutions, there are a number of policy barriers preventng them from being acquired. For example, China has a “monitoring authority system,” which requires a publishing house to work with an authorized administrative agency. If you acquire a publisher, what is the relationship between your acquisition and its monitoring authority? Under current regulations, the termination of such a relationship would result in legal risks. And who wants to take on administrative duties without any economic benefit? The problem has yet to be resolved.
In recent years, we have been searching for merger and acquisition opportunities. After all, we are familiar with the publishing business and synergies could be beneficial. However, negotiations with some state-owned publishing houses often show positive progress initially, but then it becomes difficult to get approval from the relative authority at the regulatory level. This means an M&A strategy is still unfeasible given the present framework of regulatations.
China Knowledge at Wharton: In 2009, the General Administration of Press and Publication, which manages and supervises China’s publishing industry, pushed hard for industry reform. As China’s first joint-stock publishing house, what is your take on the reforms?
Wang: To give you an analogy, a car can drive faster if roads are improved. This round of reforms is similar to creating an upgraded traffic infrastructure. The regulators aim to foster the growth of between 50 and 100 large publishing groups or professional publishing houses by introducing preferential loan policies, IPO applications, and so on, and setting up the basic dynamics for market players….
Some people believe the reforms will unleash an unlimited potential of industry creativity and commercial imagination, but I’m not optimistic about this. How many listed companies can survive in a market of RMB 80 billion? Ten, at most? Even if you go through an IPO, how do you spend the money? It would not make much sense if you simply expanded product lines because the overall size of market is still small. It would actually cause a downturn of the market if you did that. Some companies that are flush with cash choose to diversify, getting into real estate and other types of investments.
In my opinion, the purpose of entering the capital market is to attract more talent to this industry. But many people are not keen to make the effort to do that.
So it’s still uncertain whether the reforms will unleash the vitality of the industry. However, after basic market structures are set up, we should see competition intensify over the course of the next three to five years and definitely see who is pulling ahead and who is lagging.
China Knowledge at Wharton: Which types of publishing companies will survive? And where do you position CITIC in the market?
Wang: Three types of publishing companies will survive: The giants with absolute advantages in terms of market share and influence, like Random House; service and information providers based on Internet-age technology, which use the capital markets to help upgrade themselves, such as Thomson Reuters; and publishers with a core competitiveness capable of capturing end users in a niche. The final market structure will be led by three to five giants, supplemented by around 50 brands, and supported by thousands of studios and planners.
To be honest, CITIC’s resources are very limited given the regulatory framework. We are not “national team players.” We do, however, have sufficient funds to build a business. It will be impossible for us to be in the first group. I hope we can evolve into a service and information provider over the next five to ten years. If not, we’ll fall into the third category.
China Knowledge at Wharton: CITIC is the first publisher that took advantage of the joint-stock reform. What advantages do you have since the reform?
Wang: Currently, it is a priority for policy makers to foster the growth of large enterprises. Reform at the micro level is still relatively limited…. There are no guidelines for acquisitions of magazine or newspaper publishers. Approval is on a case-by-case basis. Competitive advantages aren’t effective in this process. However, we are still in contact with a number of magazine publishers and some training centers to monitor acquisition opportunities.
Furthermore, we are not big enough. CITIC’s annual revenue is around RMB 600 million, with a growth rate of 20%. Our size puts us somewhere between 10th and 15th place among single publishing houses, and we’re even smaller if ranked against the giant publishing groups. We want to move up in the rankings to be in the top ten or even top five. To achieve this, we must broaden our scope. If there are ten different sub-brands with roots in different segments, our goal will be easier to achieve. Presently, local publishing groups have this advantage, but we do not, which is very painful.
China Knowledge at Wharton: It’s easy to understand why you are expanding horizontally, but what is behind your push into airport bookstores?
Wang: Being able to provide end users with services and brand awareness is very important to us. However, local publishing groups have already taken over the traditional bookstore network. We have no chance there. Airport bookstores are still fragmented and could be integrated into a national network, which also fits the needs of our target readership. It’s a good deal too. The overall market size of airport bookstores in China is around RMB 500 million or RMB 600 million. If the network can account for 3% to 5% of the entire retail segment, as it does in some advanced economies, the market potential doubles.
Over the next three years, we plan to open bookstores in 20 major airports nationwide and expect sales of RMB 600 million to RMB 800 million. But because airports are strictly controlled by a variety of owners, the integration process is long and challenging. But we will benefit from it eventually. Meanwhile, the government is investing heavily in constructing high-speed railway systems, so we are also targeting some express railway stations.
China Knowledge at Wharton: What is your take on the impact of the digital age on publishing? What kind of changes do you foresee?
Wang: The most fundamental issue facing the sector is how to create a positive incentive system for content providers. The traditional royalties paid to authors aren’t enough of an incentive because readers are mostly paying for the medium [that is, the actual printing, distribution and so on] rather than the content.
In addition, a traditional publishing house works like a high-risk investment. It makes decisions about the content and then invests in production, marketing and distribution. In doing so, it assumes all the risk.
The digital age has shortened the content delivery chain between the writer and readers. Readers can get content on an iPad or iPhone. The media used to disseminate content are diverse, and in the future, paper-based publications probably will no longer be the mainstream medium. At the same time, the traditional way a publishing house works will weaken enormously. The days of the traditional business model are numbered, and if it does not evolve, there will be no future for the industry.
However, two new opportunities are also present with the arrival of the digital age. One is services such as public relations, integrated marketing and content delivery based on the Internet; the other is the online copyright trade, which will produce several large copyright transaction platforms and related brokers.
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