Suning joins reorganisation crowd

Suning's high-profile reorganisation is designed to win investor confidence for its campaign to transform itself into a general merchandise seller with a strong focus on e-commerce.

Doug Young

Published: 12:09pm, 22 Feb 2013

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I recently wrote that 2013 could well become the year of the reorganisation for China's vibrant Internet sector, as many of the nation's top companies look to make their increasingly complex operations more efficient. Now another major player has joined this growing trend with the announcement of yet another major overhaul by Suning (Shenzhen: 002024), operator of one of China's top e-commerce sites. The Suning announcement follows similar moves by just about every one of China's Internet sector leaders, including online game and SNS giant Tencent (0700.HK), dominant search engine Baidu (Nasdaq: BIDU), e-commerce leader Alibaba and top portal operator Sina (Nasdaq: SINA).

A number of factors seem to be driving this sudden series of reorganisations, led by the fact that many of these companies have grown quite a bit over the last a few years and have added many new products and services to their original business lines. Another driver is the rapid rise of the mobile Internet, as China set to become the world's largest smartphone market. A third factor is also the equally rapid rise of social networking (SNS) applications like Sina's Twitter-like Weibo and Tencent's WeChat mobile instant messaging service, which both now boast hundreds of millions of users.

Unlike the other recent reorganisations, which have mostly been low-key internal moves, Suning has taken the higher profile approach of holding a press conference and executive interviews to announce its overhaul. This louder approach could reflect Suning's effort to convince increasingly skeptical investors about the correctness of the company's longer-term strategy over the last two years. That vision has seen Suning try to transform itself from a traditional electronics retailer to a more general merchandise seller with a strong e-commerce focus.

The transformation process has forced Suning to sacrifice profits and also to raise more than US$1 billion (HK$7.75 billion) last year through its first-ever corporate bond offering since going public. Investors have been increasingly impatient with the changeover, with Suning shares losing about a third of their value since last April.

Let's take a closer look at this latest corporate reorganisation, though I'll admit I found the details a bit boring from the viewpoint of a general observer. According to the reports, Suning will shift from a matrix-style organisation to one aimed at giving more autonomy to its growing number of individual business units. Suning has also added three new divisions at the company's headquarters, including ones to oversee brand and e-commerce management. In a separate interview, a Suning executive said the company will spend 22 billion yuan (HK$27 billion) through 2015 as it expands its online business at Suning.com and tries to transform itself to a general merchandise seller from its roots as an electronics and home appliance retailer.

As I've written previously, I do think that this kind of reorganisation is probably necessary for China's major Internet companies, as many have grown and expanded considerably from their original product lines and need to create new management structures that can accommodate those changes. At the same time, however, I do also think that such massive management overhauls are extremely complicated, and are quite likely to create discord and even fail in half or more of these cases.

In Suning's particular case, the company is a bit older and has more managerial experience than some of the other younger web firms, which might give its reorganisation a better chance of success. I also think that investors probably need to be a bit more patient with the company, giving it at least another couple of years to demonstrate whether it really can transform itself into a general merchandise seller. But its share may continue to come under pressure until it starts to show some positive results, meaning Suning stock is unlikely to look very interesting for at least another year.

Bottom line: Suning's high-profile reorganisation is designed to win investor confidence for its campaign to transform itself into a general merchandise seller with a strong focus on e-commerce.

To read more commentaries from Doug Young, visit youngchinabiz.com

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