No foreign investor is more powerful in China than Thai conglomerate Charoen Pokphand
By Michael Bucher
From humble beginnings in Bangkok ’s Chinatown back in the early 1920s, two Chinese brothers opened a storefront business selling seeds that evolved into one of the first massive Asian multinational conglomerates. This family-owned enterprise now goes by the name of Charoen Pokphand (CP), and a large part of its success story was founded on the ability to navigate the China maze during the days when the “Open Door Policy ” was a pipe dream and the megalopolis of Shenzhen was nothing but a village surrounded by lush rice paddies.
Dahnin Chearavanont, the youngest of four brothers, guides the Thai company and takes the lead in negotiating billion dollar deals at the age 76. Chearavanont received acclaim in Forbes Magazine after the Asian crisis as one of “Worlds Most Powerful Business Leaders”, making him the only CEO in the Association of South East Asian Nations (ASEAN) zone to be featured on the list.
Chearavanont’s two major China deals have made headlines worldwide. In late 2012, CP paid US$9.4 billion to HSBC for a 15.6% stake in Ping An Insurance, one of the world’s largest insurers. In early 2015, CP struck again in a US$10.4 billion co-investment with Japan’s Itochu Corp. for a 20% stake in China International Trust and Investment Corp. (CITIC) , one of the country’s largest securities and banking groups. These deals make CP the most powerful foreign investor in the Mainland, and illustrate acceptance in conservative China boardrooms.
The move into CITIC and Pingan are signs of an investor comfortable with the China story. That should be no surprise. After all, CP was the first foreign investor in the Shenzhen Special Economic Zone. Opening its China subsidiary in 1979, CP moved with a purpose other investors could not match. Chearavanont used his Chinese roots to dine with China’s paramount leader Deng Xiaoping and explain his vision to revamp the agricultural sector by introducing technology. With no business experience or legal structure in the 30 years since the founding of the People’s Republic of China, this advice was listened to with interest by the China leadership.
By the 1990s CP was making its mark across the nation. Fulfilling its pledge to bring a chicken to every pot by the 1990s, CP was widely credited with changing China’s dietary habits. Today, CP directly affects the lives of more than half the world’s population through its vertically integrated agricultural and food core business model. CP’s host of subsidiaries and partnerships are not just isolated parts of the food chain – they are the food chain.
The CP success story unfolds through vertical integration, innovation, diversification through partnerships and changing business models to fit the challenges of each decade since its humble Bangkok beginnings. In the early 190 0s, Thailand and the rest of Asia experienced an inf lux of Chinese immigrants bringing change to economic and financial systems. The drive, energy and talent for business by these expatriates, produced the conglomerates that rule the region. Chearavanont was part of this elite group, one of the world’s wealthiest men controlling a multinational that had grown from a small family business.
Two brothers, Chia Ek Chor and Chia Siew Whooy, came to Thailand from China in 1919. Two years later, they opened a small shop named Chia Thai selling imported seeds and vegetables from China and later exporting pigs and eggs to Hong Kong. When their children entered the business, expansion and diversification resulted. In 1946 Chia Thai changed the company name to the Thai Charoen Pokphand (CP), which means “prosperity in food”.
Animal feed became the focus when CP launched its first subsidiary in 1954 – CP Feedmill. By 1960, CP exported feed to other markets and the first foreign branch was opened in Hong Kong. Thailand operations were expanded and within a year CP became the country’s leading feed producer.
A New Leader
Armed with the best business acumen in the family, Chearavanont was the force behind CP growth. Chearavanont was just 25 when he started to guide corporate development in 1974, and did not assume the mantel of president until 1970. The new CP leader immediately set out to implement a strategy to develop connections to increase trading business and introduce new technology and modern management to the business.
Chearavanont focused on western poultry and feed industries. His technological improvements produced meatier birds in half the growth cycle and with a fraction of the feed. CP jumped into livestock and poultry production, forming partnerships in selective breeding, animal nutrition and nursery operations. Soon, CP had developed a bird that matured in seven weeks, compared to four months for other breeds. The new CP feed formula developed by nutritionists brought the bird to maturity with only half the feed.
CP brought his new chicks to Thai farmers and gave them the feed, technology and supplies to attract their attention. CP bought the grown chickens back from farmers, and encouraged them to build larger farms, which many quickly did. They were first in Asia to get these results. More than anything else this move prepared the road to the CP success in Thailand and by the mid-1980s CP had expanded to set up new feed mill and livestock operations.
CP reached US$4 billion in revenues before 1990 and early in the 1990s CP had 200 China subsidiaries. Diversification opportunities came from all directions as CP’s political connections made it the partner of choice for investors entering the Mainland. For the first time, diversified operations accounted for more revenue than the core food businesses in the Thai market.
CP then decided to do something to change the business climate of Asia by listing certain companies on the stock exchanges in Bangkok, Hong Kong, Shanghai and New York. Investors rushed to invest in one of Asia’s fastest growing conglomerates and they understood that the financial transparency needed in a public listing was a departure from the guarded secrecy of Asian corporations. It turned out CP’s public listings ended up being a fraction its total holdings.
Like everyone else, CP was blindsided by the 1997-1998 Asian Financial Crisis, a market crash led by the devaluation of the Thai baht currency. Diversification and expansion fever had caught up to Asia’s corporations, and they required reflection and new leadership. Chearavanont stepped up to the challenge. In an unusual move, he publicly apologized for his errors, promising to refocus operations and simplify structures to bring more financial transparency to the company.
The CP President set out on a new path by shedding non-core businesses. New joint venture offers requiring more debt were turned down. Group subsidiaries with debt-to-equity ratios of more than 1000% were required to pay down debt and balance books. CP refocused itself as “Kitchen to the World”, embracing the core agribusiness for growth. Thai agribusiness subsidiaries were merged into CP Feedmill, which became the company’s main focus once again.
The new focus did not keep CP from maintaining the diversified holdings it still had and entering markets like mobile phones, e-commerce, China’s commercial real estate and others. Nor is Thailand domestic market ignored.
CP took the franchise for 7-11 convenience stores and in late 2014 there were 6,986 standalone convenience stores and 1,141 inside Petroleum Authority of Thailand (PTT) gas stations, with 10,000 total stores forecast for 2018.
China is still the market to watch. With Pingan and CITIC under its wing, CP is positioned for a new era of growth as Thailand’s powerhouse evolves. CP has impacted our world from the farm to seed to salad bowl, revolutionizing agriculture, livestock breeding and feed formulas. Few companies have the breadth that covers so much and affects so many. A meticulously managed company, CP Group still strives to bring awareness of their stated mission to create a better life for their 3 billion clients around the world. And, that is a mission that the Thai leaders does not take lightly.
A version of this article appeared in print on November 1, 2015, on page 38-39 of the Shanghai Business Review. Click for PDF
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