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CP Group rides China Dream with cars, telecom, development

Sarasin Viraphol, CP Group's executive vice president

BANGKOK -- Thailand's conglomerate Charoen Pokphand Group is well-known as one of the most successful foreign businesses in China. It entered the market in 1979 backed by China's then paramount leader Deng Xiaoping and ever since has been building up its foothold in the country. Now it is lending a hand to the Chinese side, helping them expand their business.

     "Shanghai Automotive Industry represents 'zhongguo meng,' or the Chinese Dream," Sarasin Viraphol, executive vice president of CP Group said, referring to its Chinese partner in an interview with the Nikkei Asian Review on Tuesday. "China Dream" is a pet slogan of Chinese President Xi Jinping.

Wu Huan, president of SAIC Motor-CP, a joint venture with China's leading carmaker, unveiled the MG6 in late March.

     Last month, a joint venture between CP and Shanghai Automotive started production of right-hand-drive cars under the English "MG" brand in Thailand. Shanghai Automotive acquired the brand in 2007 through a takeover of Nanjing Automobile, which had bought the brand from Britain's bankrupt MG Rover. It is producing left-hand-drive MG cars in China for the local market but is making Thailand the production hub for right-handed cars.

     The initial launch will be for the Thai market but by the end of 2015, cars will be shipped to other Asian countries that also drive right-handed cars such as Malaysia, Myanmar, Indonesia and Brunei. "We may ultimately sell them in the U.K. too," Sarasin said.

     Thailand's auto market is 90% dominated by Japanese cars. "It's going to be tough," Sarasin, said, adding: "The Chinese are now a superpower like the U.S. Anything is possible."

Chinese push

Not only Shanghai Automotive is making a move into Thailand. Sarasin, a former diplomat who worked at the Thai Embassy in China in the 1970s, acknowledged that many other Chinese companies are looking for opportunities to expand in Southeast Asia. He revealed that CP recently signed a joint-venture deal with Shanghai-based property developer Greenland to develop shopping malls and other facilities in Thailand. CP will hold a 60% stake and Greenland the remaining 40%. "Thailand is a favorite destination for Chinese companies that want to develop resorts," Sarasin said.

     In another move, True, the mobile service operator of CP Group, announced in June that China's largest mobile operator China Mobile will be acquiring 18% stake in the company. True was in need for cash, being in the red for three straight years. Its shares soared after the announcement was made.

     The objective is not so clear on the China Mobile side, but Sarasin, who accordingly was not involved in the deal, said, "It makes sense because they are in line with the general trend of Chinese companies wanting to invest overseas." China Mobile has grown mainly in the domestic market. Sarasin added that True and China Mobile may expand overseas together.

New challenges

CP's long history with the Chinese community has been full of ups, but also downs. The recent collapse of a partnership attempt between its Chinese affiliate CP Lotus and local retailer Wumart Stores was one of them.

     It was to be a cross shareholding deal with CP Lotus buying a 13.77% stake in Wumart and Wumart acquiring 9.99% of CP Lotus shares as well as 36 of its supermarkets in China. They were also planning to hold hands in operations such as developing products and logistics but the attempt failed in less than two months after it was announced. Wumart, which was strong in the northern part of China, wanted a nationwide presence too by teaming up with CP Lotus.

     "The model seemed OK but it was all too hastily conceived and hastily executed," Sarasin recalled. "It was a mistake." He said that the CP Lotus management, which at that time consisted of executives of various nationalities, and of course various voices, could be one reason for the failure. When CP entered the retail business in China in 1997, Thais dominated the CP Lotus management. They were bracing to compete with U.S. and European retailers such as Carrefour, Walmart and Metro, which entered the market and rapidly expanded by bringing "Western management" with them. But now, as local talents are emerging, CP is letting more local Chinese run the business in the local way.

     "We had three layers within the management. Can you imagine how challenging it was?" Sarasin said. "We wanted to get rid of the problem by selling stores to Wumart, but we couldn't." He said the company learned a lesson and reshuffled its management. It took out most of the Thai and Western components, to leave the business to the Chinese. Today, 90% of CP Lotus management is Chinese.

     "CP business is always facing tough challenges, but this is the corporate philosophy. If we want to do all the things we do, it's not easy," Sarasin said. Currently, CP group has investments worth $8 billion to $9 billion in China. It has 80,000 employees.

     Fifty percent of the group's revenue is generated in Thailand, but Sarasin said the ratio of overseas business, which spread around the globe, could increase in the future. "The room here is getting less and less," he said. The company also has a philosophy of not holding more than 30% market share in any of its business. The group is challenging the Indian market too, with its Five Star Chicken shops, which sell fried chicken. It has already opened 40 outlets.

     At home in Thailand, it has been revealed that the fishery industry had allegedly been involved in slavery and human trafficking of workers on its boats. CP Food, the agribusiness arm of the CP group, was reportedly purchasing fish from these boats, and was hit by international criticism. Carrefour announced that it will stop buying fish from CP.

     Sarasin said that fish procurement is one of the few areas that the giant group does not own and has to outsource. He says that solutions could be either to develop a substitute of the fish meals or become more stringent in the outsourcing. "We have to act very, very fast and come up with a solution in couple of months. Otherwise we will suffer more," he said.

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