57

PERFORMANCE EVALUATION OF CHINESE PRIVATE

ENTERPRISES: A COMPARATIVE STUDY OF SUNING AND GOME

Ruilin Chen, BSc, Researcher

Yuhan Hu, BSc, Researcher

Yuting Wu, BSc, Researcher

Xiaosong Zheng, PhD, Professor

SHU-UTS SILC Business School

Shanghai University, China Abstract

In China the current development of private enterprises has encountered the

problems of gradually decreased survival rate and the development bottleneck, thus

can hardly maintain the truly sustainable development. However, the development of

private enterprises plays a pivotal role in the Chinese economy and exerts great

influence in stimulating the development of socialist market economy and it seems

especially important for private enterprises to develop the core competitiveness and to

establish the suitable managing strategy development system. Based on a detailed and

critical case study, this paper studies how Gome and Suning deal with the development

bottleneck and explore innovative methods through two performance evaluation

models Balanced Scorecard and Economic Value Added (EVA), and give three

appropriate suggestions for China’s private enterprises on how to develop effective

strategic management objectives in order to improve the corporate performance.

Keywords: private enterprises, performance evaluation, strategy development,

China

JEL Codes: L25, G32, P31

Received: April 05, 2019

Revision: May 09, 2019

Accepted: May 15, 2019

Chen, R., Hu, Y., Wu, Y. and Zheng, X. (2019), “Performance

Evaluation of Chinese Private Enterprises: A Comparative

Study of Suning and Gome”, Journal of Applied Management

and Investments, Vol. 8 No. 2, pp. 57-70.

Introduction

Since 1978 China has implemented the reform and opening up policy, the

economy has achieved unprecedentedly development and obtained a fast growth

with worldwide attention. Among these, the private enterprises have developed

and expanded rapidly, becoming the main force and important power in the

economic growth of China and exerting great influence in stimulating the

development of socialist market economy. Until 2005, private enterprises have

reached around 65% of China’s GDP (Yang, 2012). In addition, after China

became a member of WTO in 2001, the proportion of exports of state-owned

enterprises declined from 42.5% to 18% during 2001 to 2008, while the proportion

of private corporations increased from 7.4% to 26.7% (Tian, 2010). Generally

speaking, private enterprises are now playing an irreplaceable role in national

economic growth and social development, creating a large number of employment

opportunities for the country, releasing the burden of public economy and

providing more diversified services and products than before.

However, the private enterprises in China has currently encountered the

problems of gradually decreased survival rate and the development bottleneck,

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thus it is tough to maintain the sustainable development. Judged from the

perspective of historical development, most of the private enterprises develop in

the traditionally simple and extensive form, lacking core technology, science and

innovative ability and strategic development system (Tian, 2010). Seen from the

economic status in the current period, factors like the constant rising of raw

material and labor cost, the entry of foreign enterprises and the changes in

economy status of international foreign trade are all restraining the stable long-

term development of private enterprises. In order to ensure the development of

private enterprises in a more reasonable and scientific direction, it seems

especially important to upgrade and transform the industrial structure, to develop

the enterprise core competitiveness and to establish the suitable managing strategy

development system.

Focusing on the problems of the current period, this paper will discuss the

problems that Chinese private enterprises have recently encountered, analyze

examples based on two performance evaluation models and give appropriate

suggestions on how to develop effective strategic management objectives and

programs to improve the corporate performance. This kind of issues is seldom

investigated in the previous researches and the feasible suggestions are almost

unavailable. The possible findings might imply the future trend and bottlenecks

for Chinese private firms and provide some strategies to help them obtain higher

performance.

Literature Review

The Performance evaluation models

Business strategy is management strategies about how to complete the

company’s mission and objectives through a series of policy and action plans (Ma,

2005). To achieve successful strategic management (Svieshnikova and Zelenaya,

2012), performance management (Alsharf, 2015) of enterprises plays a vital role,

which is used to assess and monitor the feasibility and applicability of strategies. The

strategic performance evaluation mode could be explained as the set of methods and

procedures of all official, informative technology that enterprise managers use to

maintain business activities (Dodd, 1932). Performance evaluation system is the core

system in corporate strategic management system under the modern economy, playing

an essential role in corporate strategic management, which is also the organic whole to

achieve the goal of performance evaluation of enterprises (Xu, 2002). However,

enterprise performance evaluation (Goncharuk, 2014), especially the domestic

performance appraisal, is still insufficient for enterprises to adapt to new changes and

challenges (Bi, 2005). There are many errors in establishing the performance appraisal

compliant with the business strategy. First, not all performance indicators are critical in

corporate strategic management (Krýslová, 2018), and only those affecting long-term

development of corporations need to be considered. Second, companies should not

only focus on financial factors when setting Key Performance Indicators (KPI) (Hou,

2013). Financial data is more of a summary of historical data with a certain time lag.

Also, financial figures easily cause managers to pursue short-term interests, failing to

focus on long-term development. Third, the company’s KPI should not only aim at a

single functional department because the enterprise strategy is based on the

development of enterprise as a whole. Fourth, the company’s KPI could not only focus

59

on internal business-related interest groups, but also take external stakeholders such as

customers, markets and society into account (Luo, 2004).

Among various kinds of performance evaluation models, Balanced Scorecard

and Economic Value-Added Model (EVA) are most commonly applied (Chinese

Institute of Certified Public Accountant, 2018). They are relatively scientific and

comprehensive strategic performance evaluation models recommended by business

executives.

Balanced Scorecard is a strategy performance management tool proposed by the

famous American management accountant Robert S. Kaplan and the President of

Renaissance Solutions, Inc. David P. Norton in 1990, which can be used by managers

to keep track of the execution of activities by the staff within their control and to

monitor the consequences arising from these actions. It consists of four aspects:

financial performance indicators (Florin, 2013), customer performance indicators

(Sulphey and George, 2017), internal business performance indicators (Zheng and

Alver, 2015), and learning and growth performance indicators (Sulphey, 2015;

Kurnosova and Zdor, 2012). Balanced Scorecard not only can correctly assess the

performance of enterprises, economic strength and competitive advantage, more

importantly, it can intuitively show the enterprise’s goals (Goncharuk, 2014), which is

conducive for managers to set strategic goals and plans, and could help employees to

understand the enterprise’s strategic goals and create personal value for the company in

accordance with the goal (Ma, 2009).

EVA is an indicator of enterprise operating performance evaluation proposed by

Stern Stewart Consulting Firm, a residual income method based on economic profit.

EVA can simultaneously consider the company’s own capital costs, debt costs, input

costs and the future development potential. Meanwhile, EVA can cover various

management levels to achieve more scientific management and decision-making (Nie,

2007). As the added value allocated to stakeholders other than shareholders increases

significantly, the profitability and stability of the enterprises increase as well. Value-

added distribution and the stability of profitability should be used as sustainable KPIs

for comprehensive reporting (Oshika and Saka, 2017).

Combining two models together, more comprehensive analysis in this study can

be made to understand the operation situation of different stages of business.

Researches on Chinese private enterprises’ bottlenecks

Merely a few scholars investigated the underlying reasons for the risky situation

of private companies in China. Tan (2013) stated that there are three main problems in

the development of private enterprises. First, the overall size of private enterprises is

growing together with the total tax expense and the number of employees, while the

rate of economic efficiency is slowing down. In addition, the corporate profitability

showed a downward trend. Furthermore, manufacturing industry still accounts for the

major share, and economic transformation and upgrading showed initial results. Liu

(2011) pointed out that a critical reason for the slowing economic efficiency is that the

strategic development of enterprise and talent pool failed to follow the pace of

economic development, especially due to the paternalistic management model common

seen in private enterprises. In the process of rapid and long-term development of

enterprises, such management model will arbitrarily lead to business decision-making

mistakes due to the individual limitations of entrepreneurs, and thus affect the

60

development of enterprises.

In order to overcome the bottlenecks, it is important for enterprises to be

forward-looking, scientific, measurable and sustainable in decision making. Thus,

strategic management and scientific enterprise management system become effective

ways to improve the level of enterprise management.

All the studies above provide helpful materials for this paper and the analysis of

the research questions will be given in the following sections.

Research Model and Hypotheses

This paper uses a standard research method, based on the introduction of basic

theories, using data analysis and case study methods to analyze and answer the

research questions. As is indicated in the former part, the combination of Balanced

Scorecard and EVA can be comparatively scientific and comprehensive, so they are

employed as evaluation tools to analyze the operational situation and strategic

development of two Chinese electronics retailers: Suning and Gome.

Case study is an empirical inquiry and exploration of cases mainly through

analysis on why the problems happened and how to solve them. This study will apply a

scientific method invented by Yin Robert, a famous scholar, who developed a

relatively complete knowledge structure and system regarding case study. Yin (2003)

believes that there are six sources, which are the documents, archives, interviews,

direct observation, participatory observation, and physical evidence. They need to be

carefully read and interrelated to ensure that the results and quality of the case analysis

are greatly improved. Specific analysis study is based on the following steps: clear

research questions, pre-constructs according to research issues and related theories,

explanation of theories, predictions based on theories, multi-case analysis, specifying

the analysis objectives and the replicable logic of multiple cases. In the theoretical

analysis, the detailed description of case is based on the theoretical point of view and

hypothesis. Then, the quantitative and qualitative information should be collected,

sorted, processed and evaluated in order to detect the rationality and applicability of the

perspectives and models (Yin, 1981).

Case Background

With the continuous growth of Chinese electrical industry and improvement of

consumer spending, electrical retail industry has also been vigorously developed. From

the initial manufacturer of the supply and marketing department to the growing number

of dealers and then to the rise of private chain retail enterprises represented by Gome

and Suning, among which electrical retail industry chain of private enterprises has the

most impact on Chinese market economy.

Figure 1 shows the sales growth in the rapid development and competition stage

of Chinese electrical retail industry. The year 2005 becomes the milestone in the

development process with the electrical retail sales of 556.8 billion yuan. Until 2009,

the sales have reached 869.8 billion yuan, showing the fast development of electrical

industry.

In the current stage of competitive integration, leading enterprises suppress other

small and medium-sized competitors through the advantages of their enormous capital

size and extensive regional coverage to conduct resources integration within the

industry. As shown in Figure 2, in the initial stage of competitive integration, Gome,

61

China’s largest electronics retailer reached the sales of 86.9 billion yuan, with 13.4% of

the market. Suning, as the second largest electronics retailer, had 60.9 billion yuan

sales revenue, accounting for 9.3% of the market (Yuan, 2007). With the continuous

transformation of China’s economic situation and the pressure from foreign

enterprises, China’s electronics retail industry is unable to rely on the advantage of

scale to win. They have to develop corporate strategic objectives and core

competitiveness based on the economic environment, in order to maintain the leading

position in the industry and achieve the enterprise’s sustainable and long-term

development.

Figure 1. The market sales scale of China's electronics retail industry

in the initial development and integration stage

Figure 2 Comparison of market share between Gome and Suning

in the initial development and integration stage

Case Analysis and Discussion

The main research question of this paper is how to effectively link the

enterprise’s strategy and performance management. Then two performance evaluation

62

models will be used to analyze how Gome and Suning achieved effective integration of

strategic and performance management and accomplished development goals, thereby

improving the business performance.

Figure 3. Suning Balanced Scorecard Strategy Map

Suning Appliance Group Co. Ltd is a domestic electronics retailer, which was

63

founded in 1990 and listed in 2004. By the end of 2012, the number of Suning physical

stores in Nanjing has reached nearly 90, with the sales revenue of 80 billion yuan

(Suning, 2010-2015). In 2013, Suning has repositioned, transformed from the original

pure electronics retailer to a high-tech company, and the products were also changed

from tangible electronics to intangible service. Gome, also a domestic electronics

retailer, was founded in 1987 and successfully listed in 2004. It has developed into the

largest electronics retailer in China until now. In the end of 2006 when Gome listed, its

sales have reached 86.9 billion yuan, over 2 million yuan high than that of Suning, the

second largest electronics retailer, and the number of its shops reached 820 across

around the mainland and Hong Kong (Yuan, 2007).

According to the idea of Balanced Scorecard, the organization of Suning will be

divided into four dimensions: financial strategy, customer strategy, internal operating

strategy and learning and growth strategy. Figure 3 shows the balanced scorecard

strategy chart of Suning.

From Suning’s Balanced Scorecard chart, it is easy to see how Suning should

develop its strategy in each dimension to improve business performance. This chart is a

quantitative indicator and only the combination of both quantitative and qualitative

indicators can help to achieve the ultimate corporation goal. Suning’s Balanced

Scorecard table is shown in Table 1.

Table 1. Suning Company BSC Scale Scale Name Scale Description Evaluation Index Evaluator

Customer

Satisfaction

Evaluation of Suning’s

service, product quality and

other aspects from

customers

Company image, and

department images of store

service, after-sale service,

customer service, distribution

Customers

Employee

Satisfaction

Employee's evaluation of

corporate management

policies, personal work, and

collaboration with other

employees

Job satisfaction, personal

income and development,

satisfaction with parent

supervisors, firm execution, and

management information

systems

Employees

Personal

Performance

A survey of employees’

working skills, working

efficiency and working

attitude

Motivation of work, and

mastery degree of personal

skills

Heads of

department

Enterprise

Atmosphere

Corporate culture, corporate

leaders’ image, the

collaboration between

departments and employees,

and working enthusiasm

Corporate culture and

atmosphere; staff morale

Functional

departments

Communication

between staff and

leaders

Summary Table

The number of

recommendations and the

situation of adoption

Vice

president

Mutual evaluation

form of departments

Evaluation of collaboration

and working effectiveness

of other departments

Interdepartmental satisfaction Employees

Staff training

assessment

Evaluation of the effect of

staff training

The improvement of staff

working skills and participation

rate of training

Department

heads

64

Gome is committed to becoming a leader in the world’s electronics retailers in

China’s private enterprises. However, Gome used to take measures after the problems

arising, rather than formulating the overall development strategy from all angles to

analyze the operating situation of the enterprise. Therefore, it underwent a low period

when the arising of e-commerce. After introducing the Balanced Scorecard into the

development of strategic objectives, the company’s management system can be more

mature and its performance will gradually increase. Figure 4 is Gome’s strategic

objectives at all levels and Table 2 shows the Gome’s Balanced Scorecard of various

dimensions.

Figure 4. Figure Strategic Objectives at All Levels of Gome

Table 2. Gome’s Each Dimension Balanced Scorecard Design Financial indicators Customer dimension indicators

Asset turnover

Return on sales

Comprehensive contribution

Customer retention rate

Customer acquisition rate

Customer profitability

Internal operating indicators Learning and growth indicators

Inventory turnover ratio

Purchase price

Delivery efficiency

Employee satisfaction

Staff retention rate

Talent introduction rate

Similarly, the qualitative indicators need the cooperation of quantitative

indicators thus making Balanced Scorecard play its effectiveness. Table 3 shows

Gome’s key performance evaluation indicators.

According to the evaluation index of Balanced Scorecard, it is possible to

analyze that the current strategic goal of Gome and Suning is reasonable to meet the

current economic market environment and is able to help enterprises to achieve

international development and maintain the leading position in the industry. According

to the needs of performance evaluation and the actual survey results, combined with

the strategic development situation of Suning and Gome and the strategic objectives of

each stage, the paper analyzes and classifies the four dimensions of Balanced

65

Scorecard Weight distribution analysis table, seen as Table 4 (Hou, 2009).

Table 3. Key Performance Index of Gome

Table 4. Weighting Analysis of Four Dimensions of Suning Yun and Gome

Balanced Scorecard

Index system Weights Gome Suning

Proportion Proportion

Finance 28% 31.44% 17.38%

Customer 16% 12.4% 13.22%

Internal operating 40% 44.72% 54.9%

Learning and growth 16% 11.44% 14.5%

Using the calculated data in Table 4, through the radar map presenting the way

out, the proportion of the four dimensions that Suning and Gome has developed

strategic objectives is shown in Figure 5.

It can be found from the figure above, Suning and Gome all focus on the internal

processes of strategic objectives with more than 40%, and Suning even reached 54.9%.

From the overall situation, Suning has more competitive advantage, with higher

indicators than Gome in the three dimensions: learning and Growth, internal processes

and customers. This is the good result of Suning focusing on building the core

competitiveness of enterprises, taking into account the brand building, service system,

the further construction of information technology and internal staff management and

energy distribution. However, Gome still has its own advantages in customer loyalty

Aspect Strategy theme Factors to success Key Performance Evaluation Indicators

Finance

Enhance the

sales of stores

and e-

commerce

platform

Adjust the structure of

electronic products The proportion of popular products

Sales promotion Promotion times per month

Introduction of new

products The rate of new products

Sufficiency of inventory

The rate of out-of-stock electronics

Vacancy proportion of both real and

virtual goods shelf

Increasing revenue Increase rate of revenue

Employees

Enhance the

popularity of

stores and

electricity

business

platform

Improve the sales

category

Number of types of goods compared

with last year

Increasing amount of

customer purchase

Weekly sales price compared with the

same period last year

More customers visiting The number of customers per week

compared with the same period last year

Customer satisfaction Customer satisfaction

Internal

operating

Reduce

operating costs

Reduce inventory Inventory turnover ratio

Reduce loss and return of

electrical appliances Return rate

Security Product loss rate in stores

Learning

and

growth

Enhance

working ability

and service

capabilities of

staff

Employees training Employee training time

Training fee per capita

Promotion opportunities

for excellent staff Staff promotion ratio

Material incentives Average employee income

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and management methods. Gome has higher proportion in the dimension of the

financial aspects than Suning, proving that in addition to the internal process, Gome

values the financial indicators most, with the proportion reached 31.44%. The

company's Profit and income are the most important indicators in assessing corporate

performance and will set the future strategic objectives based on these financial

indicators. From the analysis, Gome should balance the development by enhancing

several other dimensions in order to improve their competitiveness.

Figure 5. Four Dimensions Radar Chart of Suning and Gome

Furthermore, the evaluation of performance of the enterprise needs to refer to the

results of EVA, which can measure the true performance of enterprise and its real

value. Table 5, Table 6 and Figure 6 and Figure 7 below compare the EVA of Suning

and Gome from 2010 to 2014 and the corresponding net profit.

Table 5. Comparisons of EVA Value and Accounting Net Profit in Suning Yun

2010-2014 (Unit: RMB) Year 2010 2011 2012 2013 2014

EVA 835853470 603338320 -2445282330 -5520808170 -3008441139

Net profit 4105508000 4886006000 2505462000 104303000 824038000

Table 6. Comparison of EVA Value and Accounting Net Profit for Gome

2010 - 2014 (Unit: RMB) Year 2010 2011 2012 2013 2014

EVA 51227062829 42108176986 628805285 15285212472 45220377560

Net profit 1961654000 1801346000 -809991000 677445000 1018168000

67

8,36 6,03

(24,45)

(55,21)

(30,08)

41,06 48,86

25,05

1,04 8,24

(80,00)

(60,00)

(40,00)

(20,00)

0,00

20,00

40,00

60,00

2010 2011 2012 2013 2014

(Unit: 100 million yuan)

EVA

Net profit

Figure 6. Comparison of EVA value and accounting net profit

for Suning Yun's 2010-2014 (Unit: 100 million yuan)

512,27

421,08

6,29

152,85

452,20

19,62 18,01 (8,10) 6,77 10,18

(100,00)

0,00

100,00

200,00

300,00

400,00

500,00

600,00

2010 2011 2012 2013 2014

(Unit: 100 million yuan)

EVA

Net profit

Figure 7. Comparison of EVA Value and Accounting Net Profit

for Gome’s 2010-2014 (Unit: 100 million yuan)

It can be seen from the above comparison that from 2010 to 2014, Suning's EVA

economic growth value is lower than the corresponding annual accounting net profit,

and from 2012 to 2014, EVA is even negative. It indicates that Suning's investment

Earnings is significantly lower than its investment costs, the corporate value is

damaged, and the corporate performance is reduced. On the other hand, from 2010 to

2014, EVA of Gome are all positive, and most of the year's EVA values are far beyond

the accounting net profit in the same period, which means that the value of Gome's

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business in this paragraph Period has been growing, and the corporate performance is

much higher than that of the Suning Cloud business (Gome, 2010-2015). This proves

the establishment of e-commerce platform and the positive integration with offline

stores show positive effect and set of the strategic development goals promotes the

company's good development.

From the above analysis of these data, the following conclusions and inspiration

can be drawn: First, no matter how the economic environment changes and how the

country's economic system changes, retail enterprises should always operate as the

essence of retail business enterprises. The internationalization of China's economy, the

networking of retail industry, the promotion of e-commerce platform, as well as the

rising living standards and the increasing demand for quality of products all remind

companies to make innovation on products, services and other aspects, and establish

the corresponding strategic objectives. During the transition period in order to meet the

environment, enterprises should take the advantages of previously accumulated

experience and the new technology to overcome the weaknesses of the original

operating model, thus achieving the maximization of advantages and enhancement of

business performance. Furthermore, the electronics retail enterprises should establish a

network information system to collect data, and use the data to analyze consumer

demand and business operations deficiencies, optimizing the entire supply chain

structure, improving the differentiation of product and service, reducing production

costs, optimizing the market structure and improving customer loyalty and satisfaction

(Hou, 2009).

Conclusions and Suggestions

This paper analyzes the state quo of the development of China’s private

enterprises and the problems they encountered, also predicts the future development

trends based on rational estimation, and then presents the bottlenecks in the current

development- business performance and strategic development. Meanwhile, two

performance evaluation methods Balanced Scorecard and EVA Economic Value

Added are used to analyze the performance of two largest Chinese electronics retailers:

Gome and Suning.

In the two performance evaluation methods, the Balance Scorecard is oriented to

the strategic management objectives of the enterprise, which are segmented from top to

bottom, then communicated and balanced, thus realizing the strategic management

objectives of enterprise. EVA is based on the return on investment, highlighting the

basic objectives of enterprises in modern economic society, and achieving the

distribution of limited resources and maximization of corporate value. Meanwhile,

EVA can cover various management levels to achieve more scientific management and

decision-making (Nie, 2007). Combining two methods together, more comprehensive

analysis can be made to understand the operation situation of different stages of

business thus providing reference for the strategic planning of the enterprise.

Based on the analysis of Gome and Suning cases about business performance

management and cooperation strategy, there are three main suggestions for all private

enterprises.

First, it is important for private enterprises to accurately and reasonably

determine their status and their own economic development environment. Different

development history, development stage, development direction and the current social

69

economic development trends of private enterprises, and current technical trends all

will affect the formulation of strategic development of enterprises.

Secondly, private enterprises should focus on performance management, and

conduct the divergence analysis and research based on it. Performance management is

an indispensable part of strategic management, which can effectively measure and

monitor the feasibility and applicability of the strategy. The commercial nature of

private enterprises means that the profit is the guidance, so the importance of

performance is self-evident.

Thirdly, private enterprises should conduct more research, using more

appropriate and scientific theoretical analysis methods. A variety of theoretical analysis

methods have different research focus, suitable for different types of private enterprises

or different development stages of private enterprises. When private enterprises

develop their strategic planning, it is important for them to learn, to conduct more

research and select the most appropriate ones, which are compliant with the current

development situation of enterprises and can reflect the theories.

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