with Paul Eveleigh, Executive Vice President, AVEVA China
Mr. Eveleigh, let’s please begin with a bit about yourself. Prior to taking on your current role, you jointly developed China’s only successful foreign-owned wind power producer from the ground up—building, after nearly 6 years of work, a $350Mn business. Firstly, how did this experience influence you as a manager in the Chinese market? And secondly, what about AVEVA attracted you to step away from entrepreneurship and re-enter the corporate fray?
First, about managing a Chinese enterprise, I think that the advantage of starting a company from scratch is that you get to manage people at a speed that is in your comfort zone as supposed to be thrown into a pool of managing a lot of people at once. Because it was a start up, I was also the HR manager so I was able to pick the people I wanted. I ended up finding people that matched my personality and were going to be able to work under my way of doing things, which was a big plus.
But obviously as the company grew larger, and we had offices in different places it became more difficult to interview every single person and to oversee every appointment. I started running an increasingly big Chinese organization that had started from a very small-westernized kind of organization.
I had a very good partner who taught me a lot of the insights into Chinese thinking and Chinese culture for instance, the way the Chinese conduct business, and the reasons why they conduct it in such a manner. Sometimes some differences can be very frustrating but if you erase your westernized memory and set to start anew you can see where the logic is in how business is conducted here. It was a great experience and it continues to help me in what I am doing today.
I met the CEO of AVEVA, Richard Longdon 7 years ago. He was recommended to me to become my previous company’s non-executive chairman, because at the time we were thinking about listing in London, and he was managing a rapidly growing business that had good exposure in China at the time. He and I became friends and although we never listed in London, he and I stayed in contact. As I was getting out of the wind business he called me for some advice to find someone to run his business here, so I told him I would be quite happy to help him myself, and that is how this new tenure at AVEVA started.
What I liked about AVEVA was that it was in a transition period, going from being a small company to a big one, but in many ways it is still very entrepreneurial, making the company special. Richard gave me a lot of freedom within the confines of the corporation to run this business as if it was my own so in a way, I still feel like an entrepreneur.
I am happy to help this company grow in China as I don’t think it has reached its potential yet.
Your biography states that your task today is to make China this company’s biggest market—although Europe, the Middle East and Africa continue to account for nearly half of group revenues. What is your growth strategy, and how has the recent restructuring of the China subsidiary better positioned you to achieve your targets?
The restructuring has allowed me to have the right platform in order to grow and get to the goals that I want to achieve, which we have not done yet financially. Traditionally, China represents 5% to 10% of revenues for AVEVA.
On the power side in China, the country is increasing its power grids base by the size of the UK every year. The top 100 shipyards worldwide are all in Korea, Japan and China, and China probably has around 65 of those. Looking at all these facts combined, I think this is way too small of a contribution to our overall revenues when this company is all about petrochemical, power, and marine.
I think we need to be doing a lot more than what we have been doing in the past so in addition to restructuring I was trying to analyze where else we were not maximizing, for instance we had been focusing too much on smaller projects. I am now trying to fatten up the sales and business analysis teams to ensure that we can engage in good dialogues with people that are higher in the decision-making food chain within our customers’ organisations. Teams are now in charge of multiple projects instead of only one, and we are trying to find the right partnerships such as CPCESDA. We intend to form working joint ventures and engage with a lot of these kinds of associations to ensure that we can get scalability in some of these big companies rather than just project by project.
So you see your partnerships with organizations like that as a foot in the door to build a bigger business with the local companies, is that right?
My underline approach is that I really want the Chinese to feel like AVEVA is almost a Chinese company. The only way we can do that is by dramatically increasing the localization that we do for our software.
One of the things I am looking at this year is to potentially open an R&D center in China, that is going to further localize some of the products that we are doing overseas. The future of the center is to also start developing products and services that are built from the ground up here based on the market in China. The logic behind that is that as the Chinese are going increasingly to other countries to build and to manage infrastructure projects they are going to take their software platforms and solutions along with them. The other side of it is that there are also a lot of emerging countries, that have similar characteristics to China, that are going to want to buy software developed in a country similar as theirs before they will buy one from the US or the UK.
We can provide training and know how to them but also get requirement know-how back from them: if we want to design a new product for the oil business, what key things do CNPC and SINOPEC for instance want to see and use? We will engage not only with the company directly but also with their consultants, as they tend to think a little bit more outside the box.
A recent article compared AVEVA’s momentum with that of its one of its rivals, Invensys. The article confirmed a bullish outlook for AVEVA, noting that it is not expected to suffer the setbacks in China that Invensys is currently undergoing. What do you believe are the fundamental underpinnings that enable AVEVA to achieve sustainable growth in a challenging market?
What I try to report back to the UK is that China should be the focus of our business, and that Chinese companies in the oil and gas industry are quintessential customers for AVEVA. We started off primarily as a design tool company, our biggest product being a 3D design software allowing companies to design plants, but in recent years we have got into enterprise solutions on how to manage a business in a better way.
Oil and Gas companies in China are fully integrated from top to bottom. They have a subsidiary that does the design of a refinery for instance, and then they have a construction division and of course operation division. Where AVEVA is missing a big piece of this is that the average western oil and gas company does not have a design company and so they go out to a global engineering firm to do the design, then they go to local construction firms. They are more concerned when everything is handed over to them and how they are going to manage that.
In China AVEVA can help by being the only partner all the way from design through to operation. This is also why China needs to be a central focus of our company because this is where we can get the most exposure and traction, and if we can make this model successful here, not only can we make a lot of money, but we can also go to other countries that have similar corporations and structures. India, Mexico could be examples where they also have more vertically integrated oil and gas companies. We would be the best partners for those companies whereas for oil companies such as BP or Chevron we are among many companies bidding for the same things. If they were integrated like here in China, it would be a much easier decision to say, “we can have AVEVA because we can use solutions all the way from the start to the end.”
Are your Chinese clients already recognizing that value?
They are starting to. One of the challenges is to increase brand recognition on our enterprise side. Everyone knows we are very good at design tools but they are not fully aware of what we can do on the enterprise side.
AVEVA achieved record sales for the year ending March 2011—revenue grew 17 percent to reach £174Mn, beating a consensus forecast of £167.1Mn. Richard Longdon, the company’s chief executive, cited the oil & gas business, and emerging markets, as principally driving this growth. In China, did the company continue to perform strongly for the year ending March 2012? What role did oil & gas have?
What we were successful in doing last year was a massive reorganization within the company such as changing staff, flattening the structure, making China an independent region whereas historically it was part of Asia Pacific. I built an HR team and a finance team, and so we made a lot of changes. Having done all of that, our results ended up being very similar to what we did the previous year, but this year we expect the results to be much better. They have always been in 5% to 10% range of global revenues but I want to break out of that 10 % range and start getting much higher results. Oil and gas is going to play a very big role in this growth.
Previously we were a plant and marine business where both divisions were very separate so what I have done now is to bring them together so there is a lot of cross-pollination between them. I split the group into five industry teams, so in addition to oil and gas, we have a chemical team, two different power groups, a marine team, and a new team focusing on mining and steel. The Oil and Gas team will eventually become the lion share of our business. Traditionally, AVEVA in China has been a strong marine business, but it is very cyclical whereas the Oil and Gas business in China is not, it is a big business that is not going to go away and the pressure on China’s energy requirements is going to get bigger.
For the “big three” oil companies and other companies below them, it is going to become increasingly important to ensure that they are managing the business efficiently because obviously with the swings in the oil price, they want to make sure that even with lower prices they are still making money. More importantly, they want to make sure that they are operating according to global health and safety standards. They do not obviously want to repeat what happened to BP two years ago so that is becoming an increasingly big factor, and again, we, AVEVA, provide solutions to help them manage those risks.
When we spoke with Mr. Dolman from Baker Hughes China, he said that what strikes him most about this market currently is the “sense of urgency.” Indeed, energy demand continues to grow—whereas resources are limited. AVEVA is looking at commiting to a very iconic investment in this market: building an R&D center. Such a choice proves that the company is very committed to this territory. Do you believe your headquarters is with you in terms of making China the single largest market for the company, or is this your own strive?
It is both. Initially it was my own goal but I think I have succeeded in convincing the executive team that it is the future for this company. Whether it is China by itself or a developing country focus, to me they are all beneficial and crucial for the company’s future success.
AVEVA has had these great gap-ups in its history where we started off as a private design company, then we became public and then we started getting to the enterprise side, and I think the next gap-up is going to be this focus on the emerging markets. China has to play a critical role in that.
Again I come back to the perfect type of customers that Chinese companies are for AVEVA and I can’t see why China should not be the biggest contributor to our revenues in the future. I would say that if we are not the biggest region within three years, I would be very surprised. If I put myself in the shareholders’ shoes, they see that we have been continuing a great growth achievement but they are going to wonder how we will sustain that, and the only way we can do that is to find a new market or a new magical product. We have to focus on delivering more out of these more critical markets.
Are you using China as a platform to reach other emerging countries in Asia?
The company’s restructuring is still in process so China might become a regional hub later on and that would be a logical step for the company. But we have not reached that point yet. The company will like to see how the restructuring goes on its first year after and then if everything goes smoothly, then maybe it will be the way to go. But I think it is a chicken and egg thing. If China grows the way we hope, it will become itself a regional headquarters.
As an expatriate manager with extensive in-country experience that spans nearly a decade, what would you say continues to attract you to the Chinese market, and what managerial qualities do you feel are necessary to achieve success here?
What attracts me the most is the pace of change, of opportunities, that we have here. When I go back to the West I find everything much slower and I find myself hungry to get back to China. It would be very difficult for me to move back quickly.
In terms of being a successful expat manager, it is the same advice that I would give to someone learning Chinese: you have to completely erase everything you have learned since you were 5 years old and start again. If you can do that you can learn the language incredibly quickly. Because actually Chinese is a far more logical language than English. It is the same thing for managing people, you have to erase all these ideas with which you grew up learning, thinking that the way we do things in the west is the good way, whereas there are other ways to do it and you have to keep an open mind for those. Part of having developed a little bit of knowledge here is to turn around and explain to your head offices that this is the way to do it in China, that we have to make exceptions here because doing things under one global way does not work here. China is a big enough place that it can justify having a different approach. Companies that can do that or managers that can convince their companies to do that will succeed.
What is your final message to the international readers of Oil & Gas Financial Journal?
The key for AVEVA is localizing ourselves and recognizing that maybe China really is the “Middle Kingdom” and that we should be looking outside from within China rather than looking at China. To key to sustain growth is to approach China as a new source of ideas and development, and not as a manufacturer or a sales market like it used to be. If you recognize that, I think you will succeed.
Going back to the wind company I was running before, when we started that business, everyone thought we were crazy, because there were not any subsidies, or abilities for small companies to get grid permits etc. I had this foolish idea at the time that if I would close my eyes and walk forward everything would fall into place, and actually it did. I think it is the same for this kind of approach toward the China market as a whole. If you stop thinking of China as an IP Pirate and a vacuum of ideas, and have a more proactive approach and have some faith in this place, good things will come back to you.
Here we have a team with only Chinese people, I am the only foreigner, they all want to make AVEVA big but they also want China to be a big part of AVEVA so they can turn back to their colleagues overseas and say “look what we have done” and finally, feel proud that someone is truly recognizing how important China is.