Former state-owned chemical enterprise ChemChina is operating in a dynamic, fast-moving market. Here, president of ChemChina, Mr. Ren Jianxin, explains hot it underwent radical transformation to become a true international business.
Q What changes do you expect to see in the market over the next five years?
The world’s chemical industry is evolving from being capital-intensive to technically-intensive, driven by the restructuring of the economy and high-tech industry. The chemical industry in developed countries is maturing but in developing countries is only just beginning to take shape. The United States, Europe and Japan are the most important industrial chemical production countries currently and will continue to be in the future. About 60% of the world’s chemical industry is located in developed countries. However, their market - raw materials - and production continue to shift to developing countries.
Within China specifically, the chemical industry will continue to see rapid development. It is expected that by 2010 the domestic petrochemical market will reach 8.5 trillion Yuan (US$1.2 trillion), and in 2020 the size of the market will reach US$2 trillion (about 20% of the world). At the same time, the domestic chemical industry is optimistic about market prospects and will remain at about 20% high-speed growth, much higher than the global market, which is on average at about 6%. The pace of restructuring will also accelerate noticeably. Internal and external pressures encourage changes to our country’s chemical industrial structure and the whole industry will become more focused on new material industries. With the challenge of environmental protection and the lack of energy and water resources, industry development will focus on upgrading to high-tech content, with high value add and low power consumption and pollution. The Government’s basic development strategy on resource conservation and environmental protection will be expanded; the ‘11th Five-Year Plan’ requires that unit GDP energy consumption is decreased by 20%, with related regulations on binding targets. Resources and environmental policies and regulations will present a challenge to environmental and energy conservation for the chemical industry.
Q How will ChemChina respond to these changes?
We will further grow in size and strength, and expand our main strengths to become a dominant domestic and foreign market force. We will also take full advantage of the current restructuring of the industry, the excellent opportunity of the increasing influx of foreign capital, raise the level of our technology and product quality, and enhance the overall competitiveness of the Group.
In order to actively respond to current fierce international competition, against a background of strong reorganization, we will intensify our monopoly, seize some major corporate restructuring business opportunities through mergers at home and abroad, and follow the path of international operations. We will also increase our investment in R&D in order to keep up our pace of innovation. With an eye on sustainable development, we need to develop or introduce advanced new technologies around environmental protection and energy conservation. Projects not conducive to sustainable development will be strictly controlled or even banned in order to ensure we can build a company that is environmentally friendly and helps to conserve natural resources.
Q What new methodologies will the company apply?
Its aim is to comprehensively promote the Group’s management and processes to meet international standards. Via the introduction of global chemical industry best-practice and via information technology upgrades, we hope to achieve globalization of scope, flattening of the management organization, centralization of our core business, co-ordination of production operations and standardization of business processes.
In addition, we will also be able to greatly improve operational efficiency and lower enterprise costs after a move towards shared services in finance, human resources and information technology. ChemChina is looking to study and make good use of proven results to reach international standards. We are also looking to promote business process re-engineering. We need to standardize practices and promote them across the whole Group. Where there are gaps in our global chemical industry best-practice, we must improve quickly.
Business styles may differ with different leaders, but management cannot vary from person to person, we must be highly consistent. ChemChina should also establish business processes in line with international trends and fitting with its own characteristics. As the largest chemical enterprise in China, ChemChina takes the role of building an environmentally friendly enterprise very seriously. To achieve harmonious development, we need a high-quality team. To achieve this, we shall train a number of people in information management and technology, and bring in a number of talented people in a variety of disciplines. For example, we shall improve the professional level of our financial officers through financial reform projects, to enable them to adapt to international demands. We will establish standard purchase management processes through a procurement reform project aimed at training high-quality purchasers. We will establish flow mechanisms of responsibility through ERP implementation in order to ensure that we have multi-skilled people who are familiar with both business and information technology. And we will induct profit management and Six Sigma management principles and methodology through continuous improvement projects to cultivate a production management elite who are skilled in both advanced management and actual operations. With such a high-quality personnel team in place, our development will have a solid foundation.
Q What are the first steps on this journey?
To design a new business model, aligned to ChemChina’s strategic objectives and completely incorporating all business outcomes: to address poor business performance in three poorly performing strategic business units, for both the short- and medium-terms; to deliver a strategic diagnostic, as well as process improvement and performance improvement; and to provide some clearly defined quick wins.
In addition, phase 1 was about designing an ERP blueprint against global chemical best practice processes, supporting the assessment of IPO target candidates, considering structural IPO options. A target list of three was recommended, supported by strategic diagnostic output, ERP selection criteria and structural considerations. The end result was an IT strategy plan covering 60 key subsidiaries.
Q What specific benefits do you hope to achieve?
To train up an internal team with knowledge of chemical best-practices, based on advanced management experience and methodologies, and using technology, tools and processes.
Q What will be the result of this change?
To enable ChemChina to realize its business vision, which is to become a truly globalized. fortune 500 company and have an overseas IPO within two years.