Jeffrey Chen Wenhai – Chief Representative, China Petroleum Technology & Development Corporation (CPTDC) Indonesia
The chief representative of a subsidiary of China’s largest integrated energy company speaks out about introducing quality Chinese technology to the world and outlines his strategy for brand building in the Indonesian market. He also provides a compelling argument for Indonesia’s growing competitive advantage as a manufacturing destination.
With 70 overseas offices spread across some 53 countries, CPTDC maintains a stable marketing network in the world’s major oil production areas boasting an annual contract value of over 4 billion US Dollars in 2014. What, then, would you say is the strategic importance of CPTDC’s Indonesian activities relative to the company’s global and regional operations?
We first entered the Indonesian market back in 1992 and then in 1997 established our first footprint on the ground with the setting up of a representative office. Right now we are contemplating deepening our engagement even further by establishing a local legal entity, which would enable us to significantly expand our market offering. Our global management board is taking a keen interest in this market and in my personal opinion they are entirely right to do so. Signs are pointing to Indonesia enjoying one of the fastest GDP rates in the world in future years when you consider local demographics and the likely economic trajectory of the region.
Already we can witness a growing trend in which Chinese factories are relocating to other parts of South East Asia where the labour prices remain competitive and quality standards are on the rise. I’m thinking of economies such as Vietnam and Malaysia. This is an entirely natural process as China scales the economic value chain and delivers in ever more sophisticated production. Indonesia itself is increasingly becoming one of those destination countries. Obviously the Indonesian government will need to make some policy adjustments if they are to attract substantial investments and it’s a long process, but we can see the way the winds are blowing.
What benefits would setting up a local Indonesian entity bring to CPTDC?
When you are just a representative office supplying technology you have to deal through local agents so don’t enjoy the direct access to your clients and end-users that you would otherwise possess. This has an impact on many areas such as your business strategies. If you cannot contact your customer directly then it is more difficult for you to gauge their longer-term needs and requirements and understand their direction of thinking. Having our own local legal entity would empower us in a variety of ways and allow us to engage in the after-sales segment that CPTDC has become renowned for across the world.
You mention about bringing the local business closer to its client base. What is the make-up of that client base? Is your main customer account still PetroChina?
Actually no. Over time we have managed to expand and broaden our customer base beyond just the CNPC group alone. Obviously we traditionally specialize in the supply of equipment to meet CNPC’s needs, but focusing just on your core market is not enough when you have the grand aspiration of bringing quality Chinese technology to the entire world. Last year our biggest client in Indonesia was actually Chevron, not PetroChina. Actually, across the whole of CPTDC, 60 percent of our local revenues were generated from private sector clients which demonstrates just how far we have travelled in diversifying and expanding out that client base. The switching point was probably around 2012. Before that, CPTDC would have been fairly reliant from orders from within the group.
CPTDC round the world is continuously striving to strengthen its technical strength and improving specialized technical support systems for its technologies. How important is it for you to complement your provision of equipment with an after-sales and O&M component?
Normally a key part of our offering is indeed acting as a service provider. In Indonesia we have not yet developed that element, but it is certainly something we can contemplate doing in future years. It’s important to understand that in Indonesia there is already heavy competition in that area. Just looking at the Chinese companies active here, most of them are already deeply engaged providing a lot of those functions.
Mirroring what CPTDC is achieving worldwide, our intention is to broaden our offering from supplying equipment to providing integrated packages that encompass an entire solution. This is why it is fundamental to transition from a representative office to a local legal entity. We will also have to analyze the market well so as to identify which areas there are needs that are not already being adequately met.
My other priority will be to steer our products and identify the optimum balance between high quality and competitive pricing. CPTDC has an enviable track record worldwide for excellent technology. We have to demonstrate the real quality of our equipment to the local market and that can be difficult when you have unheard of brands, sometime Chinese, turning up to tenders with incredibly low prices.
What then is your formula for brand building here in Indonesia?
We need to make the local market understand the sophistication of our products. And we will achieve this by building up a strong track record. We have been present in the local market for over 20 years but can still do more to increase the confidence in our products. So the transition of role from a trading company to a solution supplier shall be very important. As I alluded to before, the challenge locally doesn’t come from companies like Baker Hughes that are also renowned for their quality equipment, but from those that undercut on price to the detriment of quality. We really believe we have great products that can contribute to Indonesia’s energy development and are keen to demonstrate that.
We know CPTDC maintains manufacturing sites all round the round. You have yourself today mentioned Indonesia’s growing potential as a destination for the relocation of manufacturing outside of China. What steps might CPTD take in this direction?
This is a concept we are certainly keen on. We are still analyzing the various possibilities out there. We are figuring out which kind of products there would be demand for and the requisite local content policies because each type of product is governed by different regulations. This is a matter that we will be discussing further with the relative government agents. We are also looking into the different scenarios for protecting any investments that we might make because setting up local manufacturing can be a lengthy process and is not a decision to be undertaken lightly.
Where are the areas where such investments would need more protection?
The big challenge is the bureaucracy and the length of time it takes to gain the requisite permits to be able to bring a project to fruition. Sourcing the right human capital can also be quite tricky for some specialist categories and that’s when changes to local content regulations can also prove problematic. Identifying the right human capital is of high importance to us when we are striving to build a brand and have a brand reputation to defend.
We do however notice a clear opportunity to establish a deeper footprint and engage in in-country manufacturing. At a strategic level, the Chinese government is encouraging Chinese businesses to engage more profoundly with the South East Asia region. The willingness is to see Chinese enterprise making material investments in nearby markets rather than just treating them as an export destination. If we establish a factory in Indonesia then that would align well with prevailing foreign policy. Our corporate strategy would be consistent and in harmony with the Chinese government’s bilateral and multilateral trade and investment vision. This provides a decent window of opportunity with which to act.
Only the other day, the Chinese State announced an agreement to construct the seaports across the Indonesian archipelago. Investments on this scale can potentially make Indonesia one of the high fliers in terms of economic growth and also suggests that the Indonesians are increasingly receptive to inward investment. This is good news to businessmen like us.
What are your priorities looking forward for the next five years?
In 20 years, CPTDC has never really fulfilled its true potential in this market. We have to set this right. My belief is that we can really become one of the lead equipment suppliers locally. We still have some strategic adjustments to make. I also intend to develop the business more deeply by establishing a local entity, broadening our offering, consolidating our brand identity and possibly even embarking on in-country manufacturing.