Head attributes company's success to strategy of limited diversification

In the 28 years he served in the People's Liberation Army, one of the most important things Chen Hongsheng learned was how to shoot straight; in the past 15 years as a businessman he has learned how to choose the right target.

Chen, 63, is chairman of China Poly Group Corp, whose military roots are as deep as his own, but which like him has grown to grapple with the challenges of the commercial world.

"Every challenge is a new growth opportunity and a new starting point," Chen said. "It is this perseverance that has helped us overcome many challenges and made us into what we are today."

So what exactly is Poly Group today? The company is so big that if you name any pie you can think of, the chances are that Poly has its fingers in it. It is the parent company of hundreds of subsidiaries whose business interests span sectors as diverse as international trade, real estate, culture and arts, and investment and exploitation of mineral resources.

That is where knowing how to choose the correct target comes in. Chen, sitting in the swish glass-clad building that is the company's headquarters in Beijing, recalled a time when Poly Group led an even more complicated life.

In the early 1990s it was involved in 10 industries, including pig farming. But the company then saw the light. While striving to spread itself, it was spending too much time, energy and resources for very little return, Chen said.

He and other leaders of the group took a new look at modern enterprise management and realized that the company needed to operate in compliance with the strategy of "following limited diversification and allocating enough resources to boost the major businesses", Chen said.

"This experience cultivated our sense of developing our major businesses - a painstaking, yet necessary, process."

After in-depth analysis, Poly Group decided in 2000 to choose international trade, real estate and culture as its major business focuses. It has been an arduous process for the group to turn itself from a conglomerate covering more than 10 industries into a more concentrated operation.

Eighteen small companies under the group were integrated into five major subsidiaries. "There has been a lot of pain because many of those who led the small companies had to relinquish their posts, and some quit because of the changes in the company," Chen said.

Poly Group is clearly one of the country's most influential State-owned enterprises, but Chen, firmly defends it against claims that it is just another pampered company that could not have got where it is without government help.

"Outsiders always think Poly Group's rapid growth has been the result of government support. The truth is that Poly Group's development has coincided with the country's reform and opening-up," Chen said.

Poly Group was founded in February 1992 on the basis of its predecessor, Poly Technologies, which was set up in January 1984.

The group's first major focus was on international trade and business, undertaken by Poly Technologies Inc. It later became the exclusive agent for luxury brands including Ferrari and Mercedes-Benz, giving Poly Group a strong backbone to develop its international trading businesses.

In March 1999, Poly Group was transferred from the supervision of the People's Liberation Army to the Central Large State-owned Enterprises Administration Committee, becoming an SOE.

When Poly first became an SOE, one of its biggest challenges was how to manage the large corporates, controlling the risks on the one hand and following the path to diversification on the other, Chen said.

"To build up the company into a huge group, it was necessary for us to go with the strategy of diversification, yet that carried many risks," Chen said, admitting that the group went through twists and turns in the initial stages of diversification.

Yet those risks and the lessons learned have paid handsome dividends.

The group's total assets 15 years ago were 10 billion yuan ($1.61 billion) and its profits 120 million yuan, Chen said.

By 2012, Poly Group's total assets had reached 380 billion yuan, ranking No 25 among the 116 centrally-administered SOEs. Its profits stood at 18.7 billion yuan in 2012, ranking No 12. Its ranking has risen from 51st to 25th in the past five years, with profit increasing from 4.87 billion yuan to 18.7 billion yuan with an annual increase of 40 percent. Tax paid in the past five years is 48.6 billion yuan.

"It's a huge leap from an 'underdeveloped' SOE to a leading one," Chen said.

After serving in the PLA for 28 years, Chen took a job as one of the first highly ranked officials with Poly Group in 1998.

Like some other SOEs, most of the group's investments and businesses remained low-key, and Chen and some other high-level company officials had never given media interviews.

The group became well known following its acquisition of Chinese zodiac animal heads in the early 2000s. The heads were lost cultural relics. Poly then discovered great potential in coal mining and nonferrous metals. In 2006, Poly Energy Holdings Ltd was established, specializing in coking coal and anthracite. Thus, the mineral resources industry became the group's fourth major focus following international trade, real estate and culture.

Chen said Poly Group has become so big, so fast not because it is an SOE and supported by the central government, but because it has immersed itself in the fierce competition of a market economy and followed effective strategies over the past 15 years. It will continue to adhere to the strategy of limited diversification, he said.

Unlocking the commercial value of the group's four major industries is not easy, considering the turbulence and changes in the global economic environment. Chen said that in the long run he expects Poly Group to maintain reasonable growth.

"Despite the challenges of changing macro-economic policies, and even some restrictions from foreign governments when we go abroad, we are bullish about the group's growth. Our optimism stems from the belief that the four major industries are quite profitable and there is still a lot of potential to be tapped."

To realize its targets, Poly has a few ideas up its sleeve, including developing its own financial investment company, tapping international markets further and even introducing foreign investors to diversify its ownership.

Its assets are now worth nearly 400 billion yuan and the volume of its loan balance is 120 billion yuan, "as huge as a small bank", according to Chen, which shows that the group is capable of developing its own financial business.

In terms of the international market, Poly has invested a great deal in overseas mineral resources. The group has also operated construction projects in some African countries.

Though revenue from its international activities is not big compared with its gigantic assets as a whole, with the growth of the group's overseas construction projects, its international trading business will continue to grow, Chen said.

huhaiyan@chinadaily.com.cn

(China Daily 06/05/2013 page16)