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Sinopec faces challenges after takeover

Updated: 2010-12-10 13:49

By Xin Zhiming (China Daily European Weekly)

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Sinopec faces challenges after takeover
Cultural clashes and language barriers are not the only hurdles for Chinese oil and gas companies, which have acquired international rivals. Political factors and talent shortages are also adding to the woes. Hu Qingming / China Daily

If you Google Sinopec, China's largest oil refiner, most of the results would be related to stories of its take-over moves abroad, as Asian oil companies accelerate their push into other continents. While beating international big names and securing one international contract after another, however, Sinopec has had to cope with many challenges that those who only eye its glowing acquisition and merger records would have ignored.

The latest oil contract that hit the headlines, reported on Dec 3 by the Wall Street Journal, involved two blocks in Venezuela, together with local national oil producer Petroleos de Venezuela SA. The Sinopec Group did not confirm the report.

"Sinopec's overseas expansion started five or six years ago and it has accelerated," says Zhang Zhiguo, deputy director of the group's general administrative office. "But we are in dire need of qualified professionals as expansion continues."

Adi Karev, Deloitte's global leader for oil and gas, agrees. "Africa, South America and Canada seem to be good places for the Chinese oil and gas companies to go and invest, but there is already a shortage of talent in the industry," he says.

"Engineers, scientists, analysts and technicians are in demand, which is also the problem Chinese oil and gas companies need to solve."

Sinopec has bought companies and assets in almost all continents, with diversified cultures, corporate management styles and regulatory environments. Chinese managers working for those new ventures have to adapt to local environment and management methods.

"Language is one of the most crucial challenges for us managers going abroad," says Zhang Yi, chief executive officer of Swiss-based Addax Petroleum, a Sinopec Group company.

Sinopec acquired the oil explorer for $7.2 billion in the summer of 2009. Zhang became chief executive officer after the deal.

People in Sinopec's other overseas ventures think the same way.

"Sinopec is a very professional partner. We are looking forward to more cooperation with Chinese companies. They are honest in their job," says Abdul Shakkour El Basha, chairman of Oudeh Petroleum Company in Syria. The company is a partner of Sinopec in developing the Oudeh block in the northeastern part of the country.

"The Chinese people are serious about their jobs and focused on their field, but if there's anything I dislike, it's their (spoken) English."

What could be more crucial than language is management expertise, something many Chinese companies lack.

Chinese managers must learn to adapt to the typical Western style of management. "Being a top manager dealing with European colleagues, I must be truly open in discussing questions with them," Zhang of Addax says, using English.

"And I show to them I care for them and care for the growth of the company."

Good management encompasses cultural understanding.

"You should find the commonalities between the two cultures and, most importantly, you should ensure the company remains an international one instead of a Chinese one after the purchase," Zhang says.

"Once it becomes a Chinese company, its growth potential could weaken."

Sinopec sent only 18 managers to Addax after the deal, accounting for 2 percent of Addax's overall staff. Thanks to the management expertise and the open and accommodating style of Zhang and his colleagues, the initial uncertainty of some foreign staff has turned into aspiration to grow together with the new company.

"There was a mixture of feelings (upon hearing about the purchase) - trepidation and excitement, a little bit of concern, but (now) I'm excited to be part of China's growth story," says Don Macleod, corporate head of human resources for Addax, who has worked for 18 years for international companies.

Yannis Korakakis, a senior Addax manager, says there's a lot of "mutual respect and willingness to learn from each other".

"Sinopec is a proven able investor," says Korakakis, who has worked for 10 years for the company and is now based in Nigeria.

As the world's oil reserves decrease, it is becoming ever more difficult to find new sources and bid for existing ones, which could prove much more challenging than technical issues such as language and expertise for Chinese companies, analysts say.

"The Western companies have taken the early-comer advantage and control many of the resources," says Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

"Chinese companies made some successful bids during the financial crisis period, but it will become ever more difficult for them in the future."

Many of the oil fields now available for exploration by Chinese companies come with complex underground geographical conditions, which increases costs of development, analysts say.

Political factors may also affect the overseas development of Chinese oil companies. The United States, for example, strengthened sanctions on Iran this summer, forbidding Western companies from having business links with the country.

"As a result, more than 20 experts from Shell, our partner in an Iran project, withdrew," says Fan Shengli, president of Sinopec International Petroleum Exploration and Production.

"We can still continue the project since we've learnt a lot from those foreign experts over the past two years, but the impact is substantial."

Du Juan contributed to this story.






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