CP Group's FDI learning curve
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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Last week, the Bangkok Post featured two articles on Foreign Direct Investment (FDI) by one of Thailand's largest conglomerates, the Charoen Pokphand Group (or CP Group).
FDI by companies within Asia will become more and more common in the near future.
These two articles provide a good introduction to this future business trend, the problems that FDI encounters, and the best ways to solve these problems.
Today's article is the first of the two articles.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What is the CP Group's main business?
2. Has CP Group's successful expansion of their business outside of Thailand gone perfectly, without any problems?
3. What might have prevented the problems that CP Group encountered in China and Portugal?
4. What kind of business did CP Group want to start in Portugal? Why?
5. What kind of problems did CP Group face in Portugal? What was the result of those problems?
6. What kind of business investment did CP Group make in China? How much and when did they invest?
7. Were the prices offered for the China shopping mall business good enough to sell it?
8. Has the China investment been a success?
9. What kind of business situation leads to success, according to Chinese tradition?
10. Is more of CP Group's business inside or outside of Thailand?
11. How much are CP Group's investments in China?
12. What other countries does CP Group have investments in, besides China?
13. What kind's of loans does CP Group's bank in China make?
14. How many Lotus hypermarkets does CP Group operate in China?
15. How many years ago did CP Group open their first Lotus hypermarket in China?
16. How many stores does CP Group want to expand its retail investment to? Over what period of time?
17. What is the key to maintaining sustainable growth over a long period of time in a business?
Bangkok Post Article: November 18, 2006
CP leads the way overseas
UMESH PANDEYThe Charoen Pokphand Group, Thailand's largest agriculture-based conglomerate, offers the quintessential success story for Thai companies looking to venture outside of the kingdom. But the present success has not been painless.
"We have learned our lessons the hard way as well, as we have burned our fingers in the past," says Sarasin Viraphol, executive vice-president of the Charoen Pokphand Group.
CP, as the conglomerate is called, got scorched in countries such as Portugal and China when the company tried to set up subsidiaries abroad without studying the market or country-specific rules and regulations.
Since then, the company has shifted its strategy to move slowly but surely. It also vigorously studies markets before taking the plunge.
CP wanted to set up operations in Portugal because of the cheap labour, and set up a feed mill without doing enough market research to back its investments. The company soon faced heavy labour problems and eventually had to withdraw from the country.
In another instance, CP put $500 million into a major shopping mall in China in the hopes that demand for the high-end shopping malls would surge.
The 250,000-square-metre complex that opened in 2002 has still failed to reach its projected revenue or customer targets.
"We did get ourselves burned in China with the mall. Although it is now doing fine, it still has not reached the level that we intended," he says.
"We have learned our lessons well and I think one mall in China is good enough," he says, adding that it was in such bad shape that when CP had put the complex up for sale a few years ago, it attracted little interest and the prices quoted were similar to distressed asset fire sale prices.
CP has learned to focus its resources on areas where it is strong. The company also has a heavy reliance on astrology, and the stars now say that the time is right for a major expansion into China.
"The Chinese have a saying that for something to click it must be the right time, right location and right harmony of human relationships, and we think we have that in China now," he said.
CP has come a long way from the days when its core operations were in Thailand. According to some estimates, the company's assets and revenues outside Thailand are far greater than those within the kingdom.
Today, CP has more than $5 billion invested in China alone. It is also invested in India, Turkey and other Asean countries. "It is often quoted that we have about $5 billion invested in China, but our business is probably 10 times this figure, and we also have a small bank in China," Dr Sarasin says.
The bank, with a loan portfolio of a mere $100 million, helps small and medium-sized enterprises that support CP's various operations in China.
CP hopes to retain its banking license, a rare commodity in China that is commanding high premiums from international banks looking to tap into the country's robust growth.
"We want to continue to hold this licence and do not want to expand the bank too aggressively either, as we are not experts in banking. The only reason why we have the bank is to support and work out programmes with our nearly 4,000 SME vendors that are supplying goods to our Lotus Supercenters," he says. CP currently has about 80 Lotus stores across the country after openings its first store in 1996.
"If possible, we would like to increase it to 800 stores in 20 years, maybe. We are bullish on that. But China today is changing as the consumer behaviour changes in line with the increase in wealth," he says.
The key to maintaining sustainable growth in the business is to have the love and affection to keep it going, he says. "All these operations [in China], we built them with tender loving care and with lots of effort. And most of the people who built these assets are still around helping the companies move forward," he says.
Vocabulary
Foreign Direct Investment (FDI) - long term investment by a foreign company in foreign country, (the company owns assets and a business in the country, unlike just owning the stock of company; See Wikipedia)
learning curve - the progress made in learning something over time (like a rising curve, at first slow with many mistakes, later when you master it, you reach the top of the curve, and learning slows down)
x leads the way in y - x is the first to do y (the leader shows other companies how to do it)
Charoen Pokphand Group - one of Thailand's largest conglomerates (famous for its innovative fish and chicken raising programs with small farmers)
a conglomerate - a large company that owns many different kinds of businesses
quintessential - the perfect or typical example of something
a success story - was successful
venture outside of - to go outside of here ("venture" also means to start a new business)
learned our lessons the hard way - made mistakes before they learned how to do it right (learned by trial and error, learning from one's mistakes, learning from experience)
burned our fingers in the past - made mistakes (like fingers getting burned by fire, this is an example of simile in language)
country-specific - special rules that one country has
taking the plunge - making a big and important decision (like gettng married or opening a new business)
a feed mill - a large factory for raising chickens
high-end - more expensive products, for customers who have more to spend
surge - a sudden large increase (a large wave surges when it moves forward quickly and suddenly)
a complex - a shopping complex, a shopping mall (can also mean a "group of buildings for a special purpose", for example the "entertainment complex)
We did get ourselves burned - we lost money (like burning you finger in the fire or on the stove)
We have learned out lessons well - have gained a lot of experience (from the mistakes we made)
distressed - urgent
a sale - when the goods in a store are sold at a discount for a limited time
a fire sale - a sale with very large discounts and very low prices (like selling the destroyed goods in a store after a fire)
for something to click - to succeed, to work out
small and medium sized enterprises (SMEs) - See Wikipedia
a banking license - permission to open a bank in a country
commanding high premiums - people will pay an extra amount above the normal price (to get something extra)
looking to - planning to
tap into - to make use of a resource or situation to get something you need or want (here the rapid growth of China will provide both profit and experience that can be used in Thailand and Southeast Asia in the future)
robust - strong
bullish on x - optimistic about x, believe that x has a bright future
Answer Key:
1. What is the CP Group's main business?
Agriculture and agro-business.
2. Has CP Group's successful expansion of their business outside of Thailand gone perfectly, without any problems?
No, they have encountered and overcome many problems in the past.
3. What might have prevented the problems that CP Group encountered in China and Portugal?
They might have prevented problems if, before investing, they had:
a. Studied the market.
b. Studied country-specific rules and regulations.
4. What kind of business did CP Group want to start in Portugal? Why?
They wanted to start a feed mill. They chose Portugal because of the cheap labour.
5. What kind of problems did CP Group face in Portugal? What was the result of those problems?
They faced "labour problems" meaning probably that labor unions demanded higher pay making the investment unprofitable. In the end, CP Group had to give up its business in Portugal.
6. What kind of business investment did CP Group make in China? How much and when did they invest?
In 2002, CP Group invested $500 million in a high-end shopping mall in China.
7. Were the prices offered for the China shopping mall business good enough to sell it?
No, they were very low, so they did not sell the business.
8. Has the China investment been a success?
Not entirely, although it is "now doing fine," the shopping mall has not reached its "projected revenue or customer targets."
9. What kind of business situation leads to success, according to Chinese tradition?
"...it must be the right time, right location and right harmony of human relationships."
10. Is more of CP Group's business inside or outside of Thailand?
Not sure, but some estimates indicate that CP Group's business outside of Thailand is greater.
("CP has come a long way from the days when its core operations were in Thailand. According to some estimates, the company's assets and revenues outside Thailand are far greater than those within the kingdom.")
11. How much are CP Group's investments in China?
$5 billion, but their business may be as great as "10 times this figure."
12. What other countries does CP Group have investments in, besides China?
India, Turkey and other Asean countries
13. What kind's of loans does CP Group's bank in China make?
The bank makes loans to SMEs that "support CP's various operations in China." This includes the "nearly 4,000 SME vendors that are supplying goods" to their Lotus hypermarkets in China.
14. How many Lotus hypermarkets does CP Group operate in China?
80 stores
15. How many years ago did CP Group open their first Lotus hypermarket in China?
11 years ago. The first store opened in 1996.
16. How many stores does CP Group want to expand its retail investment to? Over what period of time?
Over the next 20 years, they wish to increase their number of stores from 80 to 800.
17. What is the key to maintaining sustainable growth over a long period of time in a business?
a. Have enough love and affection to keep it going.
b. Build the business "with tender loving care and lots of effort."
c. Continuity, long term investments in human capital, staff that builds experience over time in running the business, is also important.
("...most of the people who built these assets are still around helping the companies move forward")
