with Fred Bai, President, Intertek China
Mr. Bai, you have been with Intertek since 1998, and were appointed China president ten years later. What kind of presence have you seen the organization develop on the Chinese market over these years?
Globally, Intertek is the leading third-party quality services organization. China is one of our largest markets and we have strong position. Why? Because we have taken a comitted approach to our development in this market over the past three decades.
Since commencing operations in China the nature of our services and the industries in which we have worked has broadened. Originally we provided pure ‘testing’ services, predominantly in the consumer goods area testing the safety or compliance of a product against a buyer’s standard. The expansion of Chinese manufacturing across new industries and more high-tech products and more Chinese consumers wanting higher quality goods, has allowed us to expand our services. Today we provide auditing, certification, inspection, advisory, training and consulting services around many different aspects of ‘quality’ which includes the accuracy, performance, sustainability of a product – as well as its safety. And we are working in many industries: food, electronics, IT & Telecoms, cosmetics household appliances, chemicals & materials, oil & gas and infrastructure markets.
Intertek China has a long-term stable management group, which is very important. Moreover, our top management in China is fully localized. They are familiar with Chinese culture, and Chinese rules of play. They are, of course, internationalized as well, and familiar with the international rules of play. This is valued by our clients, who are both local and international companies working here in China and they seek local knowledge delivered with global understanding and capabilities as well.
What are the main challenges you face in maintaining this leadership position?
The expansion of the Chinese market naturally is attracting new entrants into the testing market. However we do not see this as a threat. Increasingly companies want an integrated approach to quality across their organisations. We consider ourselves a full-service quality partner across industries, rather than only a testing service which is where new entrants are starting. We have long experience and some of the leading experts and technologies in the testing arena and a long-term knowledge of the Chinese market. This knowledge is highly valued by our clients, moreso than price and it takes time to develop a true understanding of China and the dynamics of the quality marketplace. We continued to develop and launch exciting new service areas here in China, which allow us to continually improve the support we can give our customers. Going forward, we are focused on supporting clients in response to where their needs are changing and growing
There are concerns that the global recession will affect China more than initially thought. From your perspective on the ground, how have you been performing in China in 2011, and what kind of performance do you expect in 2012 and 2013?
China remains a key growth market for the Intertek Group. Despite recent weaker economic indicators, Intertek grew revenue and profit in China in 2011 and increased investment in people and new services.
Even in a weaker economic period, the market and demand for quality services is expanding in China. Even in a downturn companies still need to develop new products and technologies, change designs and to innovate to stimulate sales. They also continue to want to assess the sustainability and compliance of their products with regulations and in many cases to increase the health and environmental qualities of products. We are also developing new service innovations and testing methodologies that help our clients to sell better products and operate more efficiently and safely – which services are always in demand.
What is your strategy to grow the business even when the economy is in flux?
In the past, we focused on import and export service. In the future, we plan to gradually pay more attention to the local market in China, where we see much room. Currently, revenues from local market services only account for approximately 10% of our total revenue. In the future we will increase this through specific services and adjustments to our organizational structure.
In addition, we can grow our presence in certain industries that we have been small in here in China historically. The oil & gas, renewable energy and energy infrastructure is one example.
Let us consider oil and gas specifically. In our interview with Mr. John Chan of Intertek Singapore, he commented that the segment represented 80% of his in-country revenues. What is the role of this segment for Intertek here in China, and how does it contribute to your performance?
In China, historically oil and gas accounts for only a small part of our business, as China’s economy in the past three decades has had a strong emphasis on manufacturing of goods for export. This is where we established our core business.
However, the past five years has seen us slowly extend our services into the oil and gas markets as the market itself has developed here.
There is some structural difference between China and Singapore in the area of imported oil inspections. In China, imported products like crude oil and gas have been included in the list of products to be compulsorily inspected, which is done by governmental organizations. In Singapore, this is done by private sector inspection companies like Intertek.
In mid 2011 Intertek expanded its capabilities in the energy infrastructure services and business assurance (systems certification) market with the acquisition of Moody International. We can now provide safety training & consulting and technical inspection around energy infrastructure projects in China. Our goal is also to expand our commodities testing and inspection capabilities around refining, blending and production – where this is not restricted to government labs.
But globally, oil and gas is very important for Intertek. How can you grow this business here?
Yes, the petrochemical and infrastructure segment provides good opportunity for us to expand steadily. We see opportunities in aero fuel testing as this is not limited to government-lab testing.
In the area of offshore oil exploitation in China, our industrial inspection services can play a role—from upstream areas like platform inspection and drilling. Intertek has good scope to provide more services to clients in this area in China.
Here in China, Intertek works not only with international clients, but also with China’s domestic champions. Many Western companies are leveraging their relationship with Chinese companies to help them enter third markets, as China increasingly internationalizes. Is Intertek China working in this direction? Are you partnering globally with Chinese enterprises?
Indeed, Intertek has international partners like the global oil majors, and they are also our clients in China. In the same way, we increasing our partnerships with major Chinese NOCs like Sinochem, CNOOC, and CNPC globally.
In fact, within China, our partnership with these domestic companies is sometimes limited, by the governmental monopoly I mentioned earlier. Internationally, on the contrary, our partnership is broader than in China. Internationally, few companies can match Intertek with respect to our network. Nowadays, for example, Sinopec is a significant client of ours both in Canada and the U.S.
Finally, let us turn to the environment. In June of 2010, Intertek announced a training program to help Chinese businesses to better understand greenhouse gas emission issues. At the time, you were quoted as saying, “The local industry has not developed a deep perception of sustainability, although ‘energy conservation,’ ‘emissions reduction,’ and ‘low carbon economy,’ as terms, are widely quoted.” Why are sustainability issues important for Intertek in China?
In terms of our future, several elements are quite important for us—first of all, sustainability. Carbon emissions reduction, and clean energy are at the forefront. Second, products like medicine, food, and cosmetics are important for our future. Third, e-commerce. These are small but fast growing areas of our businessesand they are a business development focus for us.
In terms of sustainability: in China, big oil companies are have close government associations . Last month I had a meeting with the vice president of China Petroleum and Chemical Industry Federation (CPCIF) in Shanghai, and we are about to cooperate with them to help these big oil companies and big oil refinery plants by providing training, services, and establish a system for low carbon and sustainability.
For NOCs to make claims toward “low carbon” and “sustainability,” they need to quantify the amount of carbon emissions, and make a plan for development to reduce emissions. To date, a lack of quantification and measurement has been a major problem. We will help chemical districts to evaluate carbon emissions for to-come plants and to measure present carbon emissions. We are going to establish a system for the groundwork.
What is your final message to the international readers of Oil & Gas Financial Journal, on behalf of Intertek in China?
Intertek has been established in China for over three decades which gives us a deep understanding of local business dynamics and market relationships.
Today our quality services business now covers all key industries and the oil, gas and energy infrastructure market is one we are excited about.
Some policies in China limit our work related to imported fuel inspection but perhaps this may change in future. In the meantime we also have a range of analytical testing services used by petrochemical and aero fuel clients.