with Karl Qiu, President, WorleyParsons China
Mr. Qiu, you were a co-founder of Maison E&C, the firm that WorleyParsons acquired to expand its business in China in 2004. WorleyParsons has since become the largest international EPCM provider in this market, employing in excess of 2,500 personnel. What do you believe made your company an attractive acquisition target, and what has driven the development of your operations in the ensuing 8 years?
Actually, it was not only Worley (at that time, just Worley) that approached Maison. Another company of similar size also approached us. At the time, Maison consisted of approximately 200 – 300 employees. We decided internally that if we wanted to develop our business to the next stage, we needed to move past the bottlenecks associated with our status as a private company.
There were two options: one was Initial Public Offering (IPO), and the other was to be acquired. We decided upon the ‘acquisition’ route. So, we compared the bidders, and found that their offers were very similar, but Worley was much closer to us in particular regarding the strong customer orientation and flexibility in finding the best solutions.
From the beginning, our culture; practice and systems had an international focus, e.g. we had Western style accounting practices and all of our operational systems were bilingual.
The story of our growth from that point is founded on our people and our customer focused culture. These things are easy to say, but difficult to truly implement in a daily working environment. I remember the day that all five shareholders of Maison sat down together to plan the direction of the company. We thought about the factors that might make our business a success. So from that first day, this company has had a very customer-focused culture. We pride ourselves on our quick reaction and responsiveness to client requests, and find this essential and very crucial.
From the beginning, too, we cultivated a localized approach to staffing the company. We had only one expat — our American co-founder — in the management of the business until 2004. To this day, we try to staff our management roles with quality Chinese employees, rather than bringing in expats who may not have a strong understanding of Chinese business practices and culture. So 95% of our staff is local now — although we do maintain about 100 expats in the mix to broaden and diversify our capabilities. We hire strong people, and we retain them: particularly in senior and middle management positions, where our turnover rate is very, very low. Several of our top people have been a core team with us for the last 13 years.
Culture and localization is the key, however another important factor is selecting the right niche – between a Design Institute, and a large Multi-National Company (MNC). Furthermore, we believed, and continue to believe, in being international and local simultaneously.
An important move for us was to develop in-house engineering. At the time, this was quite groundbreaking as most of our international competitors sub-contracted the engineering to the Design Institutes while they retained management control over the projects. We acquired a Design Institute, obtained a license, and built up the in-house engineering capability. We currently have over 1600 people on our design and engineering team.
After merging into the WorleyParsons group we added workshare, however, at the time of the global financial crisis, we began to consider that as we are in China, why didn’t we cater for Chinese clients investing overseas? We found huge opportunities in working with Chinese companies and they need assistance in executing projects in Australia, Southeast Asia, Latin America, North America, Eastern Europe, Middle East, etc. Projects overseas are often done quite differently to those in China and WorleyParsons China is able to help bridge these cultures, practices and standards and codes.
Within China, foreign engineering firms need to offer Chinese clients something they don’t have already, or they will prefer to use their own service entities. For international companies, that usually mean offering complex technical expertise or an integrated service with a robust system as, by and large, the Chinese service companies don’t have this capability.
Another interesting aspect of our development has been that, from 2003, we have offered what we call high-value engineering (HVE). This practice focuses on a partnership with other WorleyParsons project home offices, to offer drafting and engineering facilities in China to sustain and support overseas projects with competitive prices and still maintain the quality. Our first such undertaking was for a European oil giant’s project in UK. Most of the design work was actually done in China — a fact that probably few people know! Over the following nine years, we became quite familiar with U.S., British, and Australian code and practice standards. Now, when a Chinese client wants to do an overseas project in say for example Australia, we already have proven experience in design work for HVE that we can demonstrate.
Many of our competitors select India, the Philippines or Mexico for their HVE location; WorleyParsons, on the other hand, selected China. This puts us in a particularly strong and advantageous position when we work with Chinese clients who need to meet an international standard on given projects overseas.
You have mentioned that this company seeks to find an optimal point between globalization and localization. Denis Lucey, Asia and China Regional Managing Director of WorleyParsons, has further said that the China operation finds an optimal point between profitability and sustainability. As country president, how does your management approach reflect these happy medians?
As regards the optimal point between globalization and localization, I would make the following comment: after WorleyParsons acquired Maison, we integrated more systems and tools, more IT infrastructure, more expertise, etc. As an international EPC, you need to consider the benefits of your global organization. You have to remember that global access is an advantage, and that you are not isolated in China. For instance, we can easily ask our colleagues in the U.S. for support if we need it. In the days of Maison, we did not have this kind of support system — and, while we may have lost some efficiency as we grew, we had become members of the large family of WorleyParsons. As members, we implemented the global structure of risk management, integrity management, knowledge management, etc., and this was conducive to creating a large but healthy organization. Indeed, we needed to implement these structures to facilitate our growth.
In some cases, it is beneficial to think locally; in other cases, thinking globally can offer a huge advantage. The balance point is key: if you move to one end, you will see that you are very safe, and very secure, but your efficiency and agility are dropping off to unacceptable levels; on the other end with pure localization, like certain local companies, there is often a lack of system and financial controls, contract reviews and risk management, etc. Whilst his frees your people from the rigors of administration, it is a risky and inferior way to grow.
In terms of profitability and sustainability, I always cite a formula: profit is the functional relationship between total revenue minus total cost, divided by risk. Sometimes, you might think only of your revenue and costs, but there are instances when, even though you maximize revenue and lower cost as much as possible, poor risk management renders your profitability unsustainable. Perhaps your profits are strong one month, but weak for the next few.
You mentioned that as you grew, you began to implement various global WorleyParsons structures and practices — something you never had at Maison. How do you ensure that you don’t lose anything in the process, such as agility and maneuverability?
Clearly, as I have said, we did sacrifice some “efficiencies” and “agility “in some areas and tasks as we grew, this was perhaps unavoidable, in the name of stabilizing our organization. As a company size increases, there are some areas where agility is often impacted. However, WorleyParsons China runs a much larger business and is a profitable operation, relying on a mix of advanced tools and systems. With quality local and expat personnel, who can harness both. So, we structure our management systems for each project: mega and large projects need a much more robust level of management and systems than smaller projects/operations, where approaches can be simplified and efficiencies achieved. Clients, too, may or may not wish to pay for larger or smaller organizational systems depending on the size and complexity of their project.
This company executes its largest projects mainly from its headquarters in Beijing, which is, of course, also the seat of China’s government. How do you build a positive relationship with authorities?
The first rule is very basic: follow the laws and regulations. The second element is really to utilize local people: they can build the best relationships because they understand not only language, but also have an innate sense of the culture and the business norm.
You should also build a good partnership with government and associations. For example we have done so by helping them to train their staff. In one case, a regulatory department of the government recently asked us if we could offer some training in risk management, as they had many international projects, in the pipeline, using Chinese contractors. They asked if we could provide some lectures, and we did so. Sometimes, they need help in understanding more mature markets, and how projects are executed there as well as technical issues such as explaining integrated systems, etc.
It is of mutual benefit: friend helps friend. This is the essence of the word ‘guanxi.’ I have worked with many Chinese enterprises, and they have told me that in the past, their foreign collaborators have only wanted to coach them and tell them how to execute their operations. They would say, “You don’t know how to do your work, we will tell you how to do it!” We, at WorleyParsons China, on the other hand, bring them the idea of mutual support. We recognize that in some areas they have advanced and proven expertise, whist in others we have expertise that is more advanced than theirs. Even, if we provide the overwhelming portion of the expertise in a partnership, and they only represent a small portion, everyone is treated as full equals, as we appreciate that even 99% does not provide a complete picture. We believe that our approach allows everyone to feel respect and equality and enables the parties to work happily and closely together. This creates a strong approach toward building relationships with government, associations, and Chinese enterprises.
What is your final message to the international readers of Executive?
Our vision in China is to be a global/ local E&C company and grow with the booming Chinese economy; “Chinese Roots, Global Reach!”
We want to be a positive participant in the long term development of China, not just selling our services here.
It is also our planned aim to grow to between 4,000 and 5,000 personnel in China. However even more crucial is to build up and maintain a sustainable business in China too.
If we consider WorleyParsons’ global strategy, China is one of the main targets for growth. China is particularly important because it has become the second largest economy in the world and may even take ‘first’ position in the next decade, whilst continuing to pump massive resources into overseas investment. Fifteen years ago, I and most people in Beijing were riding bicycles; now, there are 5 million cars in Beijing alone. It is projected that, in another 15 years, China may consume significantly more global oil and gas and other resources.
These factors, coupled with the Chinese international investment trend, make this market and our growth here — in terms of not only size, but strength — a very important one for WorleyParsons’ long term goals.