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Interview

with Sean Jiang, Vice President , Jereh Group

17.04.2012 / Energyboardroom

In China, most businesses in the oil & gas sector are owned, at least in part, by the government. Yantai Jereh Oilfield Services Group, on the other hand, is a relatively large, internationalized enterprise that is a part of the private sector. Can you begin by introducing the company to our readers, and can you tell us about the challenges of being a private-sector player when most of your competitors are backed by a very strong public sector?

You are correct: it is very difficult for private players to do business in China’s oil industry. We must compete with large state-owned companies and major international players. There is quite a bit of pressure on us.

Jereh has developed very quickly over the past several years. The company was founded in 1999, and I believe it is useful to divide the company’s development history into three fundamental stages.

The intial stage spans our first year of business: 1999-2002. We began our business as a distributor of imported spare parts in the Chinese mining sector. Jereh became a distributor for many world-famous brands in this industry.

We truly started from humble beginnings: our current board chairman, Mr. Sun Weijie, founded the business with a registered capital of only 500,000RMB.

2002-2010 can be considered our second stage. It was a period marked by rapid development, and it was in these years that we began to manufacture oilfield equipment. We no longer only provided spare parts to end-users—we began to design and produce equipment of our own.

Our first proprietary product was a cementing pump unit. This was soon followed by additional technologies, such as our fracturing unit, nitrogen pump, coiled tubing unit, and cutting re-injection unit. These pieces of equipment are traditionally mounted on a truck or trailer, and can be used in both onshore and offshore applications. They can be utilized across a wide range of environments, including harsh environments like the desert. Jereh stresses constant innovation and research. We have become one of the most significant oilfield equipment suppliers in the Chinese market.

The third stage of our development is 2010 through today. In February of 2010, we went public in Shenzen. The market had quite a favorable reaction to our IPO, and we secured a good deal of investment. This gave our company the ability to change and enhance our strategy and marketing plan. If an equipment company wants to sell products to a major organization like CNPC or Sinopec, it needs to have enough capital to have major pieces of equipment on hand and ready.

As much as possible, we use our status as a private company to our advantage. For example, we pay the outmost attention to quality and maintaining a high level of technology.

We also leverage our cooperation with a number of North American companies. From 2000 onwards, we began building a strong relationship with partners in the U.S. and Canada. Most of the world’s high-technology oilfield equipment companies are located in North America; traditionally, much of the oilfield equipment used in China was purchased in North America.

Because of our partnerships, Jereh has been able to obtain a lot of technology from our North American counterparts. For instance, from our business as a spare parts distributor, we have gained access to wide range of world-class components at low prices. By putting together these components, we can build the end equipment with a high level of quality and a low price point. In this way, we are able to compete with state-owned companies.

One of the strong suits of the company, and a principal reason for our rapid development, is the fact that Jereh has a very enterprising culture. Our chairman stresses this point; he also stresses openness. From our founding, it was important that Jereh incorporate these elements into its identity.

Our core values are sincerity, cooperation, and striving to be the best. These values, coupled with our enterprising and open approach, have been recognized by our North American partners. They want to do business with a company like Jereh. This is the most important factor that our cooperation rests on.

Jereh also has a very strong team. Out team knows and understands our culture, and always acts according to our values. They also work very hard, and very quickly: our North American partners can receive a reply to their emails when it is noon for them, even though it would be midnight for us in Yantai. We will continue to focus on our team and will ensure that it continues to develop; the company cannot evolve unless the team evolves.

Mr. Sun is fond of telling a story: several years ago, he got an apple, a tomato, and a potato, and asked our staff if they would be able to fit a plastic pipe through these vegetables. He received different answers: some said that it was impossible; some said it was possible. However, for Mr. Sun, the right answer was that the person would try! As Jereh, we should never give up.

The Jereh brand is quite global now—your presence spans across every major continent. Do you still think of yourself as a Chinese company, or as an international company? What is your strategy for achieving additional growth abroad?

We want to be an international company. This has been our intention from the beginning, and we always took care to form relationships in countries all around the world.

However, we have only just begun—we are still on the way! I cannot say whether, today, we are truly international or still a domestic company. But I can cite some facts. For example, we already have 46 foreign employees. I believe that in the coming years, we will have more and more foreigners join our staff in different countries. Jereh will itself become more and more international.

To speak of strategy: in looking at foreign markets, every company should adjust its approach according to market conditions. Today, beyond our focus on North America as a location to build technology-based partnerships, we also look at the region as a key market and revenue driver. We decided to focus on this territory because of its oil & gas sector’s rapid recovery following the economic crisis of 2008. We now have a subsidiary company in Houston: there, American and Chinese employees work on a 30-acre plot that includes a workshop.

Today, we already offer a complete fracturing spread for shale gas in North America. We recently received a $60Mn contract for the sale of this equipment—one of the largest contracts the company has ever won. Jereh is the first Chinese company to sell a fracturing spread to North America. Five years ago, all Chinese oilfield service companies purchased frac units and other oilfield equipment from North America; now a Chinese company is selling this equipment back to America! After being awarded this contract, we began to get a lot of orders from the North American market.

In cooperation with our partners, we constantly upgrade our technology. We also personally have an emphasis on innovation. We understand customer needs, and our engineers are always looking to advance our capabilities by speaking with end users. We work hard to incorporate this feedback into future generations of equipment.

Last year, Jereh was eighth on Forbes’ list of ‘Up-and-Coming Companies in China.’ This year, you have advanced to the fifth position. What do you believe has spurred your recognition by Forbes and your advancement in the rankings?

I believe this can be attributed to our continuous evolution. During the past three years, we have achieved over 50% growth each year.

The majority of this growth has come from our expansion in the international market. To a large extent, we have established our presence on the Chinese market; all of our domestic clients know us well. However, internationally, there is still no shortage of opportunities. Last year, as we have discussed, we entered the American market and we have achieved strong growth from our success there.

We currently have a number of focuses. The first is human: if we want to expand our business on the international stage, we must continue to engage in teambuilding, and the development of our skills. In order to achieve sustainable, rapid development, we need a team that embodies our values. We will continue to build the vitality and vigor of our staff, and introduce first-class talents worldwide.

Jereh will also continue to strengthen our cooperation with North American companies. They are still the leaders in this field (although perhaps in the future they will follow us!). We will make very good use of our Houston subsidiary. The launch of this subsidiary was a very important step in our development. It will enable us to introduce ever more advanced products in the market, and bring a high level of added value to our customers.

Jereh is a public company. We will make the best use of the capital that our shareholders have invested into the organization, and will continue to expand both via acquisition and partnership. We will enlarge our competitive advantage and strengthen the foundation of our core business and market presence. Perhaps we will joint venture; perhaps we will purchase assets. We will do whatever is necessary to ensure rapid growth.

Is it difficult to convince clients of the quality of your products, while China continues to carry a reputation as a low-value manufacturing hub?

This is indeed a challenge for us. Jereh is a company founded on quality and sincerity, but our clients may carry preconceived notions about Chinese manufacturing capabilities.

I meet a lot of clients in different countries—in Europe, the Middle East, Africa, and etc. During our first meetings, they often do not trust our quality. However, when we invite them to visit us, and demonstrate our quality control systems and our approach to production in person, the clients become far more interested in doing business with us. Many of our best clients were won through a visit to our compound.

In China, there continue to be different kinds of companies. In the private sector, there are many companies like ours, who can only survive by paying strict attention to quality and openness. Some of our other competitors, however, still maintain the old Chinese system, and do not follow quality standards with care. They even may claim to have ISO9000 certification, but have not truly fulfilled all of the necessary procedures to claim this standard. Jereh, on the other hand, has API certification, which is higher than the ISO level; furthermore, for us, these are not just words on a document—we truly earn this accreditation.

Mr. Jiang, in an industry that traditionally sees a high rate of management-level turnover, you have stayed with this company for ten years. What has kept you with the Jereh Group for so long?

When I joined the company in 2002, it was a small enterprise. There were less than 20 employees. The group was in the midst of its second stage of development: it had begun to get into the business of manufacturing oilfield equipment. However, only a handful of employees full understood this sector and this kind of technology. I was trained as engineer in this field during my service in Jereh those years.

I began to design and manufacture our first cementing unit. Jereh gave me a great platform in which to work. I was very satisfied with the company’s atmosphere and support—I am still very satisfied.

In our company, if you work hard, you can win both financial gain and respect from your colleagues. Our formula is quite simple! Very few people leave us, and most of our long-time employees are today very successful as professionals.

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