Change of the guard
Siam Cement Group chief confident his successor can rise to the challenges of a new regional business era.
With the Asean Economic Community (AEC) expected to intensify business competition across the region, Thailand's biggest industrial conglomerate expects to rise to the challenge under a new leader.
Kan Trakulhoon is retiring as president and chief executive of Siam Cement Group (SCG) after a decade at the helm. He will be succeeded in January by Roongrote Rangsiyopash, currently an executive vice-president of SCG.
The succession has been planned for a long time and the company doesn't expect to miss a beat even as a new economic landscape takes shape. In addition to the AEC, the new Trans Pacific Partnership (TPP) will attract more competitors seeking a foothold in the regional market.
"In a way, SCG has been a leader in every business we are in, as most of the competitors so far are local companies in Asean," said Mr Kan, who has been with SCG for 40 years including two years as an intern.
"But from now on, the competition is going to be tougher as global players will flood into the more attractive Asean region when we become the AEC from 2016 onward."
Japanese multinationals, for example, have moved to take over companies in Malaysia while cement producers from China have entered Cambodia and Indonesia, he noted.
Under Mr Kan's leadership, SCG over the past decade has expanded significantly across Asean in building materials, ceramic tiles, plastics, paper and packaging. It is developing large new cement plants in Indonesia, Myanmar, Laos, and Cambodia as well.
Recently, SCG announced a five-year investment plan worth US$277 million through 2020 for Cambodia where economic growth is projected at 7% annually. The goal is to capitalise on the higher demand for cement and building materials as Cambodia upgrades its infrastructure.
Together with Vietnamese and Thai partners as well as Qatar Petrochemical International, SCG has also been planning a $4.5-billion petrochemical complex on Vietnam's Long Son island but financial uncertainties have led to delays. The Qatari partner has pulled out but SCG has decided to go ahead and is in talks with potential new partners.
SCG is the No 1 cement producer in Thailand, Cambodia, Myanmar and Laos and third in Asean overall. In the building materials and packaging business, Mr Kan said the conglomerate was first in the entire region.
Asean generates 22% of SCG's total revenue of 480 billion baht, Thailand 61% and other areas the rest. Of the group's total 51,000 staff, 15,000 are in Asean. Its consolidated net profit this year was the highest in 102 years of operation, surpassing 33 billion in the first nine months and expected to approach 40 billion for the entire year.
The Harvard-educated Mr Kan was 50 years old when he succeeded Chumpol NaLamlieng, who was chief executive from 1993 to 2005 at SCG, which is 30% owned by Crown Property Bureau. Mr Chumpol received credit for getting the group out from under a mountain of debt accumulated before the 1997 Asian financial crisis, forcing it to divest non-core businesses such as steel and glass, and cut investment plans in neighbouring countries.
When he took the helm in 2006, Mr Kan announced a two-pronged mission: to become the leader in sustainability and innovation in Asean by 2015.
"It takes time to make such things happen at SCG and we have already seen substantial results after 10 years," said Mr Kan, referring to regional expansion and innovations.
By focusing on research and development (R&D), Siam Cement has steadily increased its high-value added (HVA) products and services which have an average margin 8% higher than normal products. HVA products now account for 37% of the group's total revenue, up from just 4% a decade ago.
The group recently announced a 15-billion-baht investment budget for R&D over the next two years. Of the total, 6.7 billion baht is earmarked for next year and 8.3 billion for 2017.
HVA products have helped cushion the impacts of price fluctuations of commodity goods in the petrochemical, packaging, building material businesses.
"Luckily, we have various kinds of businesses. When some of them face shrinkage or a downturn cycle, the others can help soften the impact of declining sales," Mr Kan said.
Payungsak Chartsutthipol, a former chairman of the Federation of Thai Industries (FTI) and a former executive at SCG, said the long-term vision of Mr Kan and SCG board had proved a success in the areas of regional expansion and human resource (HR) development.
"Revenue from the Asean region has increased continuously while HR development has not been interrupted by changes in management," said Mr Payungsak, who worked at SCG for 35 years before taking early retirement in 2010.
Surachai Pramualcharoenkit, an analyst at Maybank Kim Eng Securities, said Mr Kan deserved credit for aggressive expansion into Asean, numerous acquisitions, and the R&D push.
"Mergers and acquisitions (M&A) have helped to drive business growth for SCG both inside and outside Asean, and also to sharpen its competitive advantages," Mr Surachai said.
Mr Kan has repeatedly stated that M&A has become the priority when it comes to expansion because greenfield investment projects take a long time to develop.
Between 2011 and 2014, SCG spent $2.1 billion acquiring 58 companies, mostly in chemicals, cement and paper. About half are in Thailand and the rest in Indonesia and Vietnam. It also acquired technology in United States and Europe to support its innovation drive.
The group has set a budget of 45-50 billion baht per year for expansion in Asean, said Mr Surachai.
"When the Thai market for building materials, for example, is not doing well such as now, sales in neighbouring Asean markets can help offset the shrinking sales in Thailand. Demand for products such as building materials and packaging remains strong in neigbouring countries," he said.
The group projects HVA products to eventually account for half of its products, and it's recruiting more PhD-level staff, including those in China, to step up research accordingly, he added.
For Mr Kan, it's now time to pass the torch to Mr Roongrote, a 28-year SCG veteran who is now 52 and will hold the top job for the next eight years.
Mr Kan said Mr Roongrote knew two years ago that he would become the new CEO so he has had time to get ready for the new challenges.
"Khun Roongrote is a strategist. He and the new management team have been selected and prepared in advance," Mr Kan said. "What SCG is looking forward to is to have a bigger presence in Asean and probably reach out to markets outside Asean such as Japan and Europe in the next stage. I believe he is the one who can lead the company forward."