Compared to Alibaba chairman and founder Jack Ma’s marketing skills and media savviness, SF Express’ founder Wang Wei is very much like the logistics service his company offers–low-profile, boring but indispensable. So indispensable to the growth of China’s economy and ecommerce market that after its February 23, 2017 IPO in Shenzhen, SF Express now has a market cap of $38 billion. FedEx, the quintessential delivery company founded in 1971, has a valuation of $51 billion for comparison.
Owning a whopping 68 percent of shares, Wang Wei’s net worth beat out Jack Ma’s earlier this month to become the 2nd richest person in China with 198.5 billion RMB (about $28.7 billion USD). He has already surpassed Tencent’s Pony Ma, whose company is behind the popular WeChat platform.
The Birth of A Logistics Empire
Despite being less known than Jack Ma in mass media and tech circles, Wang Wei’s story and slow grind to become the king of logistics in China is nonetheless as interesting and inspiring.
The son of a Russian language interpreter in the People’s Liberation Army and a university teacher, Wang Wei was born in Shanghai in 1971 and followed his parents to Hong Kong soon after. Growing up there, Wang Wei only finished high school and then started working for a local Hong Kong ‘uncle’ eventually ending up in a small printing shop in the city of Shunde in Guangdong province.
While sending printing samples to Hong Kong for clients to review, he noticed the increasing volumes and lack of available delivery options – the glimpse of an upcoming opportunity in logistics.
During his time in Shunde, China itself was going through a transformational process of opening up to the world under the leadership of Deng Xiaoping. Deng helped initiate the concept of “Special Economic Zones (SEZs)”– pockets of China that would be experimentally exposed to free-market forces. The Pearl River Delta (PRD), an area encompassing cities such as Shenzhen and Guangzhou, became part of the first SEZs and stimulated increased trade between it and Hong Kong.
Many Hong Kong businesses then decided to set up factories in Guangdong province leading to an increased demand for delivery services between Hong Kong and the mainland.
In 1993, at the height of China’s economic reform, Wang Wei at age 22, decided to partner with five friends to start Shunfeng (SF) Express. His dad provided a 100,000 RMB loan, about $13,000 USD, to get Wang Wei’s business off the ground.
Like the Ubers and Airbnbs first starting out, Wang Wei’s business model straddled the grey area as private courier businesses were ruled illegal in China until 2009. The only legal option was China’s inefficient national post office system but this didn’t stop SF express.
The early days consisted of Wang Wei personally hauling suitcases and backpacks across the Hong Kong border, working 15-16 hour days but he was determined to build his fledgling startup into China’s largest logistics company.
Shunfeng Express and Wang Wei’s Business Philosophy
For 20 years since the company’s founding, Wang Wei personally controlled 99.99% of SF Express and avoided any raising external funding. The lack of public exposure and venture capitalists has led to legendary stories of VCs offering around $70,000 USD to “bounty hunters” who could successfully broker a dinner meeting with the elusive SF founder.
Asked about his reasons for shying from media, Wang Wei once answered: “I believe in a higher power, I think, a person’s success has nothing to do with talent. Success is related to doing good deeds. Having a lot of money isn’t something to brag about, nor is having talent.
Being successful and making money is just a matter of fate. That’s why I don’t think people should brag about achievements in their career. Being low-key also brings benefits from a management perspective — if employees don’t recognize you, you are able to dig deeper and get to understand the real situation.”
In a move signaling an inevitable IPO, Wang Wei sold a 25% stake to a consortium of investors led by CITIC Capital Holdings Limited in 2013.
“I believe a company’s objective shouldn’t be making money. I want to create a platform through which I can express my values and thoughts. The sole purpose of going public is to get funding, which can then be used to fuel a company’s growth. SF needs funding too but SF cannot go public just because of the need for money. After an IPO, a company will be turned into a money-making machine with the daily ups and downs of the share price affecting the company’s morale, this makes it very hard to manage the company.”
“For me to run a business, I’d like to develop a business for the long-term, to provide people a means to a better and respectable life. But after going IPO, things will be different. You have to account for shareholders, you have to make sure your share value keeps increasing. Earning a profit becomes the company’s sole mission. This way, a company becomes very fickle just like today’s society.”
In a very Bezos-esque and Spiegel-esque move, retaining full control of his company allowed Wang Wei to execute his long-term strategies – mind you, SF was founded 24 years ago, before eBay and Amazon even existed.
“In order to run a successful business, you’ll need to relentlessly focus on the long-term. Once you go public, every penny, every small decision will be scrutinized by your shareholders. This is not something I can accept. I cannot promise short-term returns if I’m optimizing for the long-term. In addition, once you go IPO, you’ll need to start disclosing information. In order to compete with global giants, we need to keep our secrets. As a business owner, you need to really understand why you want to go public. Having said that, in the short-term, SF won’t go public. Even in the long-term, if we decide to go public, it won’t be for the sake of going public or for making money.”
IPO and International Growth
Despite Wang Wei’s well-intended efforts to keep his firm private as long as possible, the brutal reality is that his company operates in the commodity last-mile delivery space with quickly eroding margins – down to 5% from 30% 10 years ago according to analysts.
Alibaba’s push into aggregating all delivery services in China through its Cainiao platform has only exacerbated this. As a result, delivery companies in China have recently started their frantic race towards raising as much capital as possible, as fast as possible in order to get to scale in a winner-takes-all-market.
“SF Express, YTO, and the other China express delivery majors have all been racing to go public. Faced with shrinking profits and mounting competitive threats, the dream of being the “Fedex of China” has morphed into an arms race in capital and capabilities,” commented Jeffrey Towson, Professor at Peking University’s Guanghua School of management.
SF competitors such as ZTO Express and Alibaba-backed YTO Express all have recently gone public, with ZTO raising $1.4 billion at $12 billion valuation through its listing on Nasdaq and YTO achieving a valuation of almost $10 billion through its backdoor listing on the Shanghai Stock Exchange.
With competitors raising more firepower, SF had little choice but to follow suit and go public in Shenzhen via a reverse merger with a local mining company. This move turned Wang Wei into the third wealthiest individual in China and was richer than Jack Ma for a couple of days until SF shares dropped but this doesn’t signal the end to China’s logistics arms race.
According to Investment Professor Towson of Peking University, in order to keep scaling, China’s logistics leaders should look at international expansion – the rest of Asia being the most obvious initial step.
STO already has its biggest overseas delivery center in Hong Kong to enable pan-Asia deliveries within 24 hours and SF Express has been strategically located since the early days with its headquarters in Shenzhen, close to Thailand, China’s gateway to Southeast Asia.
With Alibaba’s acquisition of Lazada in Southeast Asia last year and JD’s entrance into Indonesia in 2015, it’s a no-brainer for the likes of SF to follow its largest Chinese customers into the next largest emerging market.
If SF led by Wang Wei enters Southeast Asia, expect a logistics war to be fought between Chinese entrants, local incumbents such as Ninja Van and Kerry Logistics, as well as global players like DHL and Singpost.