On the seventh anniversary of the founding of ChemChina, Mr. Ren Jianxin, President of the company, wrote an article entitled, Big Corporations: Traps for Their Growth which was published in the Information Morning Post. In his article, Mr. Ren cautioned us to stay vigilant in spite of the great headways we have made and keep a sober mind about the risks and challenges we face as a middle-sized corporation. He urged us to achieve quality and sustainable growth by changing the mode of development and structural adjustment and optimization so as to lay a solid foundation for a world-class chemical corporation.
In the first year of the 12th five-year plan period, Mr. Ren pointed out that this year is the 7th anniversary of the founding of ChemChina and the first year of the 12th Five-year Plan period of China. Like playing chess, it is very important for us to make careful and meticulous planning from the outset for anything we intend to do. As ancient Chinese philosophy goes, “He who can't plan the whole can't plan the parts. Thus he who fails to plan everything fails to plan anything”. At the Central SOE Managers Meeting, Mr. Wang Yong, Chairman of the State Assets Supervision and Administration Commission (SASAC), cited that ancient philosophy and urged us to plan for future development from a global perspective and make greater strides in building central SOEs into world-class corporations. Indeed, macro strategy and planning are built on fine details and will have a significant bearing on the overall and long-term development of any company.
At the CPC Representatives Meeting of ChemChina last year, the “2215” strategic development objectives were clearly defined for the company. This states that by 2015 both the assets and sales of the company will exceed RMB 200 billion, total profits will exceed over RMB 10 billion and the company will be among the global top 500. The closure of the acquisition of Elkem early this year, among other M&As, has already cleared our mind of any doubt that we can achieve the “2215” objectives ahead of schedule. In comparison, however, we have just made the first step in building up ChemChina’s core competitiveness and sustainable competitive advantages. To be ultimately strong and excellent, we need to seriously review the overall competitive landscape and engage proactively in strategic adjustment and transformation. Taking scientific development as our central task and staying focused on changing the mode of development, we shall prioritize the structural transformation and optimization in capital, business portfolio, organization and human resources. By honing our core competences in business portfolio, world class manufacturing (WCM), investment and project management as well as marketing and application development, we strive to become an efficient, environmentally-friendly and intrinsically-safe world-class corporation committed to continued creation of economic and social value.
Citing the “middle income trap” theory from the developmental economics, Mr. Ren argued that it is not uncommon developed countries, after reaching middle-income level, to become bogged down by long-term economic stagnation or, in worse cases, societal turbulences, as a result of their failure to effect successful change in their mode of development. Corporations up to certain size and scale will face similar huge systemic risks as a result of obsolete mode of development, fixed ideas, indecision in the face of challenges as well as an inability to adapt to rapid evolutions in external factors. Now that ChemChina has reached a point of “seven year itch”, only by staying in the megatrend of global industrial restructuring, enhancing our capacity in self-innovation and structural readjustment can we maintain lasting success with accelerated pace of internationalization, improved governance and implementation of breakthrough business models.
Mr. Ren elaborated on the major measures for quality and sustainable growth from three aspects:
Improvement of capacity in self-innovation: As a company fully exposed to market competition and without any luxury of resource supremacy, we will not be able to survive the fast-changing market without innovation and hence differentiated advantages. As a result, we need to enhance cost control through WCM practices and continuous improvements (CIs). Focusing on WCM practices, we strive to achieve safe, stable and sustainable operation of our facilities, increasing their underutilized capacities by a large margin without additional new investment. In tandem with this, we shall forge our differentiated advantages through innovation and structural adjustment. As the cost-effectiveness of our production factors gradually disappears, the low cost advantage of ChemChina will also fade away and a weakness in our ability to innovate will become an “Achilles’ heel” when trying to compete successfully on the international arena. Therefore, we need to start strategically from enhancing our innovative capacity, draw strength from institutional innovation and build on management creativity in order to boost technological innovation. Innovation depends first and foremost on creative people with innovative ideas. Therefore, business managers shall take innovation as their first priority and try their best to cultivate the spirit of and enthusiasm for innovation. In the meantime, we will not relent in our efforts in hiring professional managers and talents, providing rigorous training to work team leaders and building an in-house university to develop out skillful people and guarantee steady supply of professionally trained resources for an innovation-oriented business.
Based on the strength of 25 ChemChina R&D institutes and technologically advanced overseas businesses, we will build up a centralized R&D center to help leverage all our resources across the enterprise for technological innovation. In addition, we will continue to increase our input in R&D to a level commensurate with our sales, i.e., above 3.5% of total sales revenue of the company.
Structural readjustment and optimization through overseas M&As: From “traditional chemicals, advanced materials” to “new sciences, bright future”, structural readjustment and going global has always been the DNA of ChemChina. Technological progress, industrial upgrading and market globalization all require us to not only go global but strive for excellence in everything we do. Through overseas M&As, we endeavor to expand our global presence, further consolidate resources and bring out best synergies so as to facilitate structural readjustment and optimization. We need to further improve our portfolio and product mix to increase the value-added and technology content in our products and services. We have to carry out careful technological validation and market analysis before launching new products and give serious consideration to the overall operational capacity of any business in continuous market expansion. In optimizing product mix we will resolutely phase out those products that have neither market nor economic returns. This is necessary to avoid seeking volume for volumes sake. Rather, we shall optimize the industrial layout and stay focused on our core businesses through improved investment control while continuing to consolidate and clear up of underperforming and nonperforming businesses (projects and assets). Equally important, we will encourage all efforts to extend the industrial and value chains of our core businesses to fully capture the benefits from both ends of the chain and cultivate new points of growth. This can be achieved particularly through overseas M&As, capturing backward and forward integration as well as breakthroughs in core technologies. All of which would allow us to move towards more efficient and cost-effective production with increased value-added and reduced resource consumption and develop a number of self-independent IPRs and instantly recognizable brands.
We shall accelerate the adjustment of our organizational and human resource structures and address such problems as overstaffing, sluggish response to market changes, complicated management hierarchies and layers, etc. We will remain resolute in eliminating the enterprises at or below tier-3 and active in proceeding with the centralization of legal entities so as to gradually flatten our organization, clarify the governance structure and associated rights and responsibilities between parent companies and subsidiaries, with management processes and job responsibilities clearly-defined. Enterprises already under a centralized umbrella need first to set up business or region-based PBUs where business management functions translate fully into concrete action. Second, they need to hire professional managers who will make sure that production and operation functions are well executed at sites level.
Talents play a fundamental yet also strategic and decisive role in business development. The introduction of professional managers and talents serves the purposes of not only bringing in advanced managerial philosophies and expertise, but more importantly breaking down old-fashioned mindsets and systems. This will make our human resource management more market-oriented and facilitate greater talent mobility. In other words, we will reinvigorate our human resource system by means of the “catfish effect”: through institutional improvement, downsizing, structural optimization and survival of the fittest, we will set up a talent selection, development, utilization and retention mechanism. Particularly we will encourage micro-management capabilities of both managers and ordinary employees.
Establishment of a mode of sustainable growth based on scientific development: business management is like long distance running, which competes not only in speed but more importantly in stamina. We need to enhance our business and organizational adaptability, changing from the pursuit of short-term profits to long-term development, from capacity expansion to enhanced responses to market changes and from standalone business to fully integrated business along the value chain. Meanwhile, we shall make the best use of information networks and systems to forge our cross-regional management capabilities underpinning a globalized portfolio for resource allocation and globalized organizational structure for market expansion. For instance, our organic silicone business has reached scale of economy in monomer capacity but is still weak in downstream deep-processing and related technologies. Our “marriage” with BSI provides the right recipe for developing the downstream silicone business. In the same fashion, the acquisition of and consolidation with Elkem will strengthen the supply of silicone metal in upstream. That is how we can forge our competitiveness in silicone business through synergized resource allocation on a global dimension.
Corporate governance, business model and portfolio all count for scientific development. Essentially, however, it is the core values, philosophies and ways of conducting business that determine our direction going forward. An everlasting business will always stick to its core values---- more focused on prime businesses, more pragmatic in pursuing innovation and excellence, more customer-oriented, cherishing basic logics for business operation and staying loyal to brand and quality. In fact, only by establishing a vantage point with its brand and quality excellence can a company win market initiatives and form its core competitiveness.
A human-oriented approach is the key to scientific development. A hundred-year undertaking has to rely on the very fundamentals of human endeavors. Employees are at the heart of running any business. Therefore, we shall always keep the well-being and benefits of employees in our hearts and minds. Eventually we need to grow together and share a common future with our employees, business partners, communities and all the other stakeholders.
Mr. Ren wishes that we at ChemChina will be able to avoid the traps for big corporations, and sail smoothly and successfully into the future