On the 5th anniversary of the founding of ChemChina
Ren Jianxin
Today marks the fifth anniversary of the founding of ChemChina.
The past five years have been extraordinary for ChemChina! Five years in which the company has been on a roller coaster ride of development and consolidation.
In these five years, the total assets of ChemChina increased from RMB22.96 bn to RMB156.9 bn while its prime operating income jumped from RMB15.2 bn to RMB122.6 bn, rising by 5.9 and 7 times respectively since its founding. Meanwhile, the total profits of the company have grown by factor of a dozen.
Currently, ChemChina is ranked 19th amongst the top 100 chemical companies in the world, 28th among the top 500 Chinese companies and No.1 among all the Chinese producers of chemical raw materials and chemical products. The company was recently recognized by senior officials from the Chinese Central Government to "have achieved outstanding leap-forward development" - high praise indeed, and something we should all be proud of.
However, the past five years have been far from smooth for ChemChina. They were years in which we needed to surmount numerous difficulties and scale record-breaking heights.
During these years, we were focused on strengthening our core businesses and raised funds totaling RMB32.3 bn to complete 85 key construction projects.
During this time, we adhered to the strategy of internationalization and successfully acquired four overseas businesses including Adisseo in France, Qenos in Australia and the organic silicone business of Rhodia in France. We then integrated the acquired businesses with the company's existing businesses in advanced chemical materials, and additionally introduced into BlueStar the strategic investment from US-based Blackstone through overall restructuring.
During the last five years, we persevered in scientific and technological innovation and mobilized significant resources to achieve breakthroughs in a number of projects. These included the enabling projects under the state's 11th Five-Year Plan, the 863 Projects, key specialized R&D programs and other projects in energy conservation and emission reduction. More than 600 research findings passed authentication checks and 148 won provincial or state-level awards for science progression.Currently, ChemChina ranks 4th among all the central state-owned enterprises (SOEs) in the number of patents owned.
While experiencing rapid expansion and development, we also came across difficulties and needed to face new, and tougher, challenges. For instance, compared to global leading chemical producers who generally have no more than four business units, ChemChina, in spite of its painstaking restructuring efforts, still has six business units today, which makes us obviously over-stretched. In introducing global best practices, continued structural adjustment is a test of our resolution and responsiveness. In IT construction, over-complex human resource structure and the lack of skilled personnel are hurdles for management transformation. Safe production and environmental protection have historically been weak while "chemical production equals pollution" in some ways remains part of reality for us. As such, we still have a long way to go to meet our objective of energy conservation and emission reduction. Worse still, the sudden onslaught of a financial crisis presents yet another challenge for us: prices falling, facilities running at half capacity or closed temporarily, plants struggling to break-even, will indeed test our resolve.
The question being asked is, "Is ChemChina strong enough to withstand the global financial turmoil and what are the prospects for ChemChina?" A global crisis of this magnitude is not only a tough test of the resilience of the company, it also conceives changes in the industry. How can we, having battled forward amidst intensive competition, answer the call for change?
To seek change in a difficult situation is the eternal philosophy. However, it is always easier said than done. The global financial crisis, at first glance, appears to be the result of the "bubble bursting" in the financial and real estate sectors. However, it is my belief that what we are witnessing is symptomatic of the disorientation of the economy as a whole. In an unbalanced global economy, investment, albeit ample, suffers from a blurred sense of direction while innovation lacks sources and impetus. In fact, ever since the end of the 18th century, every wave of economic boom has come with a landmark in innovation. For instance, the first economic boom was marked by the advent of the spinning machine and steam engine; the second and third booms came with the appearance of steel and railway, electrical, chemical and automotive industries respectively. These were swiftly followed by the coming of the automobile, computer, information and biotechnologies, which heralded the last two waves of great economic prosperity. Commercialization of technological progress and the deepening of the division of labor constitute the driving force for the global economy.
However, today when the world’s workshops like China are running at full steam and it has been nearly two decades since western consumerism, typically represented by the US, began to prevail, the world should be suffering dearly from the imbalance between real and virtual economies, sluggish market demand and lack of traction. Until now, there is no obvious strong point of economic growth that can contribute to wide scale employment and active consumption. Yet, as I witness all the financial bail-outs of the money-hungry companies responsible for the crisis, one can only believe that the world economy, once it emerges from this crisis, will find new sources of growth. As Keynesian theory suggests, consumption is "the obvious end and object of all economic activity", and we can be sure that there will never be an end to human consumption!
To seize the initiative and survive further intensified competition in the post-crisis era will depend on our ability to forecast trends and adjust our future development accordingly. Every crisis creates opportunities for economic restructuring; therefore, I believe, the best policy for us is to avail ourselves of the favorable condition and accept and embrace the opportunity that now stands before us.
We have noted the focus on alternative energy as a highlight in the economic policies of the new US administration. And, although somewhat overshadowed by the economic crisis, global climate change, and the environmental challenge it presents, it will undoubtedly remain a thorny problem for human kind in the 21st century. For China, as a late developer in the process of industrialization and urbanization, the major sources of economic growth are likely to be the safety, environmental protection, and energy consumption and emission reduction businesses. In tandem with this, related life science, environmental science and material science sectors will be the focus for further industrial expansion. In line with the new growth point of the world economy, these three areas are where the future of the global chemical industry lies. As such, in the forthcoming 12th five-year plan, we shall position the basic chemical business as our foundation while fully tapping the potentials in life science, material science and environmental science to form the "3 plus 1" industrial pattern. With a strong focus on these sectors, we will speed up restructuring of our business composition and seek to exploit our differentiation as a latecomer by seizing the opportunities of the global shift of production and IT-based management transformation.
We have also noted that it was during the economic recession in the 1870s that Rockefeller and Carnegie beat their competitors with new technologies and eventually ascended to the very top of oil refining and iron and steel smelting respectively. A century later, Warren Buffett successfully transformed a textile company named Berkshire Hathaway into a most reputable investment fund in the world through ingenuity and creativity.
Today, for ChemChina, the initiation of 2009 as a year of innovation is by no means "adding flowers to the brocade" but rather seeking changes and counter measures amidst difficulties and defining our orientation for the post-crisis era. The initiation entails innovation in organization, institutions and technologies involving changes in the way of thinking, philosophies and production technologies and processes. It essentially requires effective leadership in a crisis to provide impetus and the underpinning for successful corporate transformation.
The US-based Boston Consulting Group recognizes ChemChina as one of the 2008 BCG 100 New Global Challengers for our ambition and vision to go global through learning and adapting rapidly to new business models in a market of free competition. However, to be worthy of that citation, ChemChina managers need to fulfill three major missions on top of sound operation management, enhanced cost control and market growth.
First, to strengthen the core competitiveness of the company through self-innovation.
Self-innovation is an essential part of the transformation of our business model and the key to a enhanced competitive edge within our companies. We must proactively upgrade traditional businesses with high-tech and advanced technologies, build upon advantageous businesses with independent IPRs and raise the overall level of industrial technologies. We need to fully harness the key technologies obtained through overseas acquisition or, indeed, developed independently. Keeping aligned with domestic and overseas demands, we will develop and expand new businesses in biopesticides, animal nutrition additives, advanced chemical materials and specialty fibers, etc, and optimize our investment in silicone, water treatment and environmental protection businesses. Wherever possible, we will seek to increase the added-value that we bring to our customers and strengthen the competitiveness of our companies.
Second, to change the management model and boost intentional development.
We need to make the best of the ongoing IT construction to introduce global best practices, maximize business integration, realize synergies and increase our responsiveness to changing market conditions. Through accelerated organizational transformation, we will enhance corporate governance and restructure to meet market demand and improve the efficiency and effectiveness of day-to-day operations.
The management of capital, procurement, sales and logistics will be centralized to improve the efficiency of resources and fully tap the potential of management. In the meantime, the building of an information system with ERP at the core will be pushed forward vigorously to set up a unified management platform and achieve the integration of capital flow, logistics and information. The Lean Six-Sigma management method will be promoted while the continuous improvement (CI) approach will be embedded so as to establish a solid foundation for sustained development. Likewise, a market-driven technological innovation system has to be explored and fostered to allow our businesses to be more proactive. Resource allocation and utilization will be optimized to enhance the advantages in R&D and increase the contribution of scientific and technological innovation toward more effective product commercialization and economic growth.
Third, to further our mission of energy conservation and emission reduction. We will adopt the concept of "zero-emission" through product upgrading, process optimization and capacity centralization. This will be achieved by means of technological innovation, HSE enhancement, structural adjustment, enhanced management and business consolidation.
All the companies under ChemChina will be required to benchmark themselves against the leading chemical producers in the world in executing our "zero-emission" strategy in technologies, processes and post-process treatment. Rigorous measures will be adopted to save energy, reduce emission and prevent pollution from the very source of production in a bid to change the old practice of "treatment after pollution". This strategy will not only help us reduce cost, but also to protect the resources and the environment and contribute to safe production and well-being of the employees. This in turn will lead to a sustainable business that not only creates value for our customers and shareholders, but also for the environment and society.
Here I want to stress the fact that the economic crisis triggered by the assets value evaporation in major economies will leave the global economy struggling with recession for a long period to come. And in response to this, we need to reflect upon our conventional practice of expanding capacity when the economy reaches the bottom. We should maintain vigilance against the following risks. When re-adjustment in the inventory is gone, overcapacity may remain a long-lasting phenomenon. Therefore, instead of rushing into potential projects when capital is available, we must first judge seriously the market conditions and potential future benefits, as well as our ability to compete, as inflation is likely to remain a reality when the economy picks up as a result of ample liquidity.
I believe I proposed the right approach when I was asked to write a preface to the Collection of Works delivered to the Global Entrepreneur Summit at the end of last year. "This critical moment, more than any times in the past, calls for the Chinese entrepreneurs to go global and face up to the challenges of globalization. More importantly, Chinese companies need to take up the economic leadership when major developed markets in Europe and North America are in contraction. We are naturally aware of the risk of the winner today turning out to be a loser tomorrow due to dramatic market fluctuation. Nevertheless, we will never be afraid of challenges. We will remain as confident as ever. "
Today, within ChemChina, I reiterate that proposition I made last year and emphasize that we should have the heart and mind to go global. I believe that going out to challenge new heights is not a way of resting on our laurels but rather the best choice in dealing with the crisis and executing our correct operational philosophy and core value. The correct operational philosophy and core value are honesty and trustworthiness, mutual benefit, continued transformation, pursuit of excellence and contribution to society. More concisely for ChemChina, it is to create values for shareholders and create employment for society.
So, let us carry on with the ambition and leadership amidst the crisis and embrace our core operational philosophy to open a new vista for ChemChina in the next five years.