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Interview

with Dag Skindlo, President Asia Pacific, Kvaerner China

06.02.2012 / Energyboardroom

Mr. Skindlo, you have held your position as regional manager for Asia Pacific for Kvaerner for approximately 8 months now. In our interview with Arjan De Jongste, a fellow North European and head of Phillips in Russia, he said, “What you immediately see, when you step into this national market, is that products are only half of the story. Locally relevant actions are key, and you must understand what drives the local market and local stakeholders. As a regional executive, the product essentially becomes an instrument to create necessary solutions.” Has this been consistent with your experience in China?

You must look beyond what you offer, to what clients need.

In my career, I have mostly had regional and global responsibilities. I have found it very difficult to cater to all nationalities in a team. You must understand your domestic base in depth, and in certain places—for example, China and certain other Asian and South American countries—relationships are perhaps more important than the products themselves. You must build trust.

Here, you have to understand the socio-political context, the company context, and the project context. Too often, the inclination is to focus on the project context, rather than fully consider the country and company contexts, which are quite important here.

Kvaerner was recently demerged from Aker Solutions as a specialized EPC player, and the company was listed in Oslo on the 8th of July of this year, adding another chapter to the history of a 160-year old brand. What was the reason for the restructuring, and what is the mandate of this company today, globally and in China?

I will focus first on the mandate, which is to become a top league, global EPC player over the next few years—with a focused and experienced management group, from the CEO all the way down, that focuses on the EPC business. Our strategy is to maintain our stronghold in traditional markets, but also to really develop, over the next years, a more global approach to the international market—rather than a project-based approach.

I believe the demerger is recognition of the fact that the EPC business has some unique drivers which differs from other oil service deliveries. It requires flexible delivery models that meets low cost and local content requirements as well as focused and experienced management to meet market requirements for dedicated EPC contractors. To enable further growth it was deemed necessary to establish this part of the business as a separate company.

We say that we are “old and new.” We have a strong brand, and a tremendous market. We are well-positioned to take advantage of the opportunities ahead of us. However, we need to grow in a focused manner. We are too small, today, to be truly global, and we need to evolve our international capabilities.

Kvaerner initially came to China to locate a partner for fabrication for the international market. We have seen how the industry has developed here, and watched China evolve excellent capabilities, a strong track record, and a good resource base.

The Chinese have become major players in many industries. Our strategic thinking is that China will develop this same expertise in the offshore industry. We came here not necessarily to address the Chinese market, but to utilise China as a center for fabrication, and materials and equipment procurement, for our global offshore network. That focus has remained the same both before and after the demerger.

Our objective is to bring quality talent into China, and work with our partners to take advantage of the best of their capability, and the best of our own Norwegian heritage in project execution. I think Kvaerner is very well known for delivering projects on time, and with high quality. We want to combine this capability with China’s strengths of good facilities, competitive labor, and an eagerness to learn and develop.

Our main partner in China is COOEC. We chose them for many reasons: first of all, it is the only company in China that has experience in engineering offshore production platforms in any significant scale. It is our understanding that COOEC is well ahead of its competitors.

Together with COOEC, you developed a demonstration module that you presented to business partners in Qingdao on August 25th of this year. What was the purpose of this demonstration, and how are such domestic partnerships strengthening Kvaerner’s market position?

As we are focusing on international development—rather than specifically on the Chinese market—the purpose of this demonstration module was to demonstrate to ourselves, and to our clients, that, together with COOEC, we are able to deliver the quality that is required on a global level. Our work meets the highest standard for offshore production: the North Sea standards (NORSOK).

This model demonstrated that not only is our joint workmanship capable of generating the quality we want, but also that our whole execution model is functioning at a high level: including engineering, hand over to procurement, logistics in and out of China, follow-up, HSE, etc. We learned much from this project, which we are now implementing in other projects.

At the end of the day, working together can be a challenge. Through this prototype, we have laid the groundwork in getting to know each other, and we now know COOEC very well. This will be a great strength going forward.

We are targeting projects together with our partner. One is a very large project in Australia, where we are a Chinese/Norwegian constellation competing with a Japanese/Korean constellation. Clients in the offshore oil & gas industry are in the business of developing large projects, and your viability as a service provider depends a lot on the timeliness and the quality of your delivery.

On the subject of quality, China, has for many years been a low-value manufacturer, but today is shifting towards the higher end of the value chain. In light of your fabrication work with COOEC, and your efforts to make China a global sourcing center for this company, are you convinced that this country has today evolved an international standard of quality? Is up to standard for a company whose tagline is “Made by Norway”?

It is of course difficult to comment on the general level of quality output of a country with such a large population and a wealth of various industries. However, to speak to what we know: our focus is to discern whether our partner, COOEC, can deliver the quality that we expect, and that we believe our customer expects. We believe that together—not alone, but together—we can achieve this level of quality. We have a very integrated approach.

When the offshore industry moved it’s industrial base to new countries, say, Korea, they faced some challenges as well—this is very natural. Furthermore, look at China’s success record in some other industries: how many countries in the world have been in space? Where are Ipads manufactured? If we are talking about quality, you can get it China if you have the right set-up!

What does Kvaerner bring to the table in your relationship with COOEC?

We see that our partner has excellent workmanship. We compliment that with our management expertise in large projects, planning, integration, and so forth—elements that are still new for COOEC. Kvaerner also has a strong brand, and extensive experience in execution of major projects. Our people are known industry representatives, and clients are confident in their knowledge. We know what it takes to execute.

There are two drivers in the North Sea, which we carry with us. One is the fact that, since labor is quite expensive, we have to be very efficient. How do you become efficient? It has a lot to do with planning, and your building method. When you do things right the first time, your quality increases dramatically.

We also have a passion for delivering on time. This concept has not fully matured in China as of yet. In offshore projects, the variables are constantly subject to turbulence and change. This is typical for such projects all over the world. In the North Sea, we have demonstrated again and again that we are delivering on time, despite changes. We take pride in that, and we believe this culture brings value to our partner.

In 2007, Aker Solutions predicted that the deepwater segment in China was set to expand, and the company was preparing to work with CNOOC on the Chinese offshore giant’s first deepwater project. Nearly 5 years later, CNOOC has said they may sink their first deepwater well early next year. Why do you believe the deepwater segment has taken so long to develop in this country?

This is a difficult question and I might not be the best one to answer this, but it is my understanding that many aspects have contributed to this delay. Firstly, the Chinese have been quite busy in shallow water. Secondly, China is developing their resources and industries themselves. Many countries, when they want to go offshore, decide that they can simply buy most of the services—they bring in the large international oil companies, and these companies bring with them the full range of services, expertise, and technology. This is perhaps a faster route. However, in China, my perception is that they want to take a leading role in their own offshore development . They want to build their own drilling rigs, conduct their own seismic surveys, develop their own production platforms, etc.

Developing into a fully fledged offshore industry takes time. In Norway, we have developed these skills over four decades. Nonetheless, we see today that CNOOC is planning to invest actively in the South China Sea over the next few years. Their main base will be in Zhuhai.

Kvaerner has a lot of experience in deepwater floaters, founded on our projects in the North Sea. Not many other regions have the wealth of deepwater projects that Norway’s continental shelf offers. We bring this with us to China.

What are your ultimate ambitions for the Asia Pacific region, and for China in particular, over the next five years?

As I have mentioned, one of the key strategic objectives within Kvaerner is to create a sustainable international delivery model. Asia Pacific is one of the key markets that Kvaerner has decided to focus on in order to build up the organization and our capabilities.

I would say that today, the two key markets in this region where Kvaerner fits best are Australia—which has a number of remote deepwater assets, with harsh wind and wave environments reminiscent of North Sea conditions—and the South China Sea. In both cases, as Kvaerner builds up its strengths, we have something unique to contribute. I mean this not only as a brand name, but as an enterprise with experienced staff that know how to execute complex projects, and have executed many of them before as project managers, engineers, etc.

When we establish the right fabrication model with our engineering partners, we have great prospects. The market is quite large. There are not many companies that have managed to become very sizeable in our segment—the projects are complex, and it is not only about capacity but also about experience, and ability to handle risk on behalf of your own organization and on behalf of your client.

What kind of dialogue are you holding with your headquarters given the importance of this region?

Our CEO was here a few months ago, to meet with our partners and examine our fabrication yard. Last week, we were in Australia together. Our top management is certainly focusing on this region.

When you are in this type of business, you need strong support. It is important to have a top management team that wants you to succeed, and are there to help you and guide you. It is a great comfort that the company is supporting our implementation of the strategy in this part of the world.

What is your advice to a fellow expatriate manager who has been parachuted into Beijing on assignment?

There are many, many good opportunities here. On the other hand, it takes time to fully understand China—perhaps even more than one would think. You must experience it yourself to get a feel for it. Deepwater in China is a young industry, and currently not many people have the background and experience from major offshore projects; this takes time build up. It takes time because China also must learn and get to a point where they can be confident in their decisions, choice of partners, and so forth.

It can be very personally rewarding to work in China: you can learn a lot as an individual. But do not set yourself up for failure by having overly aggressive targets and short deadlines—you will find yourself in a constant dilemma between the expectations of your headquarters and those of your local partner or local clients. You have to manage expectations, and there is not always a straight line to the goal. You must be prepared to adjust your plans.

Lastly, from our experience, we find the domestic companies that we are dealing with quite open, and we have had good, trustful dialogues.

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