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Focus on Transformation of Development Model and Independent Innovation

Date:2011-10-08 Source:Sinochem Group

By Deshu Liu, President of Sinochem Group

Giving priority to the transformation of the development model when enhancing its core competitiveness, Sinochem Group has, in recent years, made great efforts to explore a development path with its specific features, and finally got fast improvement in its operation performance and performed well its functions as a central state-owned enterprise.

First innovation: to organize global resources and market in a smart way
 
Relocate itself in difficult transformation. In the past, Sinochem Group was a specialized state-owned foreign trade company, with its operations based on its monopolization of the operating and import and export rights of bulk stocks such as oil and fertilizer. In late 1990s, as the constraint on import and export rights was gradually broken and the system reform went further, it was difficult to develop under traditional operational model. Over years of efforts, the Group has made its position clear: to improve the industrial chains for its major businesses, serve as an excellent organizer for global resources and build a stronger and larger corporation, while taking the overall global and domestic situation into account, making full use of the “two resources and two markets”, leveraging the market operation and services and relying mainly on the means of “merging and acquisition, integration and collaboration”.
 
Focus on enhancing the Group’s operational and service capability based on global markets. The Group competes with other global counterparts based on first-class products and excellent services and gains growth space by creating value for customers. After losing exclusive resources, Sinochem Group has realized more sustainable growth in oil, fertilizer and other major businesses, with many chemical products ranking ahead in terms of import and export volume in China, rather than suffered heavy loss. From 1998 to 2010, the Group has achieved a 306% increase in operating revenues, or RMB335.3 billion; 984% increase in gross profit, or RMB9.1 billion; and 389.8% and 800.8% increase in total assets and net assets, respectively, or RMB211.5 billion and RMB76.3 billion. As a result of which, Sinochem Group has been listed as one of the 12 Grade-A enterprises under the supervision of the State Council by the State-owned Assets Supervision and Administration Commission of the State Council for six years in succession.
 
Focus on enhancing the Group’s organizational capability based on global resources. In recent years the Group has “went global” to merge and acquire a number of oil and gas and rubber assets which are heavily demanded in China. Also, the Group has strengthened its cooperation with upstream and downstream partners at home and abroad by means of stock equity and covenants, enhancing its capability for organizing global resources. On one side, it tries to establish long-standing strategic league with international suppliers and organize excellent potassium and phosphorus fertilizer resources from abroad to meet domestic demand; on the other side, it  takes the initiative to participate in deep development of domestic potassium and phosphorus resources, hold shares in or control 14 fertilizer manufacturers, and build a marketing and service network consisting of more than 2000 sales terminals and covering the major agricultural production areas, in order to provide peasants with “secured and effective fertilizer”. With fertilizer sales of about 15 million tons per year, Sinochem Group helps increase the grain output of China by 50 billion kilograms.
 
Focus on enhancing the Group’s brand influence. Since 2002, it has been exploring a Sinochem-specific development path for an independent petroleum company. Up to date, the Group has possessed 25 contractual oil and gas blocks, and the remaining recoverable oil and gas reserves within its equity exceeding 400 million barrels, marking the preliminary formation of the strategic pattern of Sinochem’s upstream oil assets in South America and Middle East. The UAQ Offshore Gas Field in UAE constructed independently by Sinochem in 2008 by means of organizing international service forces and technical resources, for which Sinochem has 100% operating interests, is the first offshore gas field project independently developed and constructed overseas by a Chinese oil company, which brings successfully China’s physical exploration service and pipeline suppliers to the UAE market. In October 2009, Sinochem acquired 100% shares of Emerald, an energy company listed in UK’s main board. Later in May 2010, the Group purchased, with USD3.07 billion, 40% interests held by Emerald in the Peregrino offshore oil field in Brazil. At present, this project is one of the largest offshore oil field under development worldwide.
 
Second innovation: to facilitate the industrial restructuring and technology advance
 
Drive greatly the technical reconstruction and structural adjustment, to enhance market competitiveness in all respects. At present, the capacity for nitrogenous fertilizer in China is high enough to meet domestic needs, but the market is dominated by small and medium-sized enterprises with poor market competitiveness. In recent years, Sinofert Holdings Limited, a subsidiary of Sinochem Group, has restructured some companies in Jilin Province, Shandong Province, etc. and implemented large-scale technical reconstruction against these acquisitions by new technologies and processes, allowing the product structure to serve the market better. In 2007, Sinochem Group reorganized two enterprises which are under the supervision of the State Council - Shenyang Research Institute of Chemical Industry and China National Seed Group Co., Ltd, followed by the reorganization of Zhejiang Petrochemical & Building Material Group Co., Ltd. in 2008, which has enhanced rapidly the Group’s R&D and formed a complete industrial chain. Its efforts also go to the acquisition and reorganization in fertilizer, pesticide, seed and other sectors, with a view to build a “national team” and “main force” of the agricultural input industry.
 
Upgrade greatly the Group’s R&D strength and the capability for independent innovation, to realize technical advance in related industries. Sinochem Group has, since 2008, defined its strategic planning as “independent innovation, breakthroughs in key fields and supportive development”, strengthening continually its capability for scientific and technological innovation. It boasts of two specialized research institutions - Shenyang Research Institute of Chemical Industry and Zhejiang Research Institute of Chemical Industry, three state-level engineering technical research centers, two state-level pesticide formulation centers and some key scientific research institutions such as state-level safety assessment centers, standardization centers, quality testing centers, key laboratories and academician workstations, which is a scientific and technical innovation team dealing with every aspect of its major businesses. In 2009, the Group was appointed as an innovation pilot enterprise in China. The “China’s key laboratory for formulation and development of new pesticides” built by Sinochem Group with RMB30 million investment represents the highest pesticide R&D level in China. the Group also invested RMB60 million in deeper construction of the GLP system and in international certification, laying the foundation for future growth into a first-class safety assessment institution in the world.
 
Boost greatly strategically emerging industries, to seize the key opportunities of future development in an active way. The Group boosts greatly strategic emerging industries, including bio-breeding and fine chemicals, through cooperation with external scientific research units. It takes the lead in creating China Strategic Scientific and Technical Innovation League for Breeding Industry and China Strategic Scientific and Technical Innovation League for Dye Industry, respectively including 53 well-known enterprises and scientific research institutes dealing with breeding, and 16 leading enterprises and scientific research institutes in the dye industry, enhancing strongly the overall technical innovation level of China’s breeding and dye industries. To promote the development of the bio-breeding industry and safeguard national breeding industry, China National Seed Group Co., Ltd. initiated the creation of China Technical Center for Seeds Life Sciences which has become a world-class scientific and technical innovation platform for transgene technologies and conventional breeding. In addition, Sinofert signed a cooperation agreement with China National Hybrid Rice R&D Center led by Academician Yuan Longping, generating a strong combination of super rice and high-quality fertilizer.
 
Third innovation: to practice the philosophy of low-carbon economy and green development
 
Move towards green development, to be a resource-saving and environment-friendly enterprise. Sinochem Group adheres continuously to the operation philosophy of greenness, safety and environment protection. Sinochem’s productivity for HFC134a, an internationally recognized effective and environmental substitute for ODS, for which the Group has independent IP right, has reached 30,000 tons, with comparable product quality compared with other top manufacturers in the world and the highest market share in China. The “high-activity and long-time effective fluorating catalyst and production process thereof” developed by Sinochem, which was awarded with the Excellence Award in the 11th China Patent Award, breaks monopolization of this technology by developed countries and leads to a big leap in the 134a production technology of China, allowing a reduction in the annual emission of ODS substances by 30,000 tons. Devoted to R&D and industrialization of effective, low-toxic and environment-friendly pesticides with broad spectrum, the Group has already owned a variety of newly developed and produced green pesticides, all with independent IP rights.
 
Facilitate greatly the energy saving and emission reduction and accelerate the transformation of development model. For example, Sinochem Fuling Chemical Industry Co., Ltd., one of the largest production units of Sinochem Group, is committed to advocating recycling economy in the phosphorus chemical industry and implementing clean production. It has succeeded not only in developing the wet-process phosphoric acid purification technology with complete independent IP right, but in realizing the successful transfer of this technology, achieving win-win of economic and social benefits. It introduces the state-of-the-art large lower-grade heat recovery system for sulphur-burning sulphuric acid which can save standard coal by more than 40,000 tons and reduce greenhouse gas emission by over 200,000 tons per year. Faced with the mass adjustments and changes occurring to global economy in the post-crisis times, Sinochem Group takes the initiative to promote the transformation of its development model, in order to realize harmonious development with resources, environment and the society.
 
Advance strategic transformation, to enhance international competitiveness continuously. So far, Sinochem Group has set up 44 operation offices in 19 countries, and become a world-class national oil company with a complete industry chain and outstanding marketing capability, as well as China’s largest operating entity integrating the fertilizer, pesticide and seed services. In response to the prevailing trend of increasingly growing economic globalization, the Group is now going in for carrying out “the Third Great Leap-Forward” plan. According to the plan, within another ten years, the Group manages to enhance major businesses’ industrial position, comprehensive strength and international competitiveness, to build it to be a large multinational corporation with leading position in China and significant presence in the world.