King of Beers works on Tsingtao's strategy

PUBLISHED : Monday, 10 May, 2004, 12:00am
UPDATED : Monday, 10 May, 2004, 12:00am

LI GUIRONG MAY be slightly built and wear glasses like many mainland businessmen but he holds a title that sets him apart from others of his ilk. As the chairman of Tsingtao Brewery - China's best-known export - he is the nation's King of Beers.


Since he took the helm at the brewer in 1996, an aggressive strategy of boosting production has resulted in a 10 per cent share of a price-sensitive and fragmented Chinese beer market.


This puts the company a step closer to its goal of being one of the world's top five by 2010, making Mr Li, now 64, more than froth.


Last year, the company saw off a few years of uncertainty to earn 245 million yuan in net income, a 10 per cent rise from 2002 and within investor expectations.


Then there is the 2002 strategic alliance with Anheuser-Busch which introduced the 101-year-old Chinese brewer to more advanced methods of running a brewery.


But with Tsingtao's respectable history there is also the pressure. Mr Li's constant challenge is to strengthen Tsingtao's position at home while transforming it into a truly international company.


'We still need a few years to bridge the gap [with international standards],' he conceded.


'It's like ... the state-owned enterprise we were before ... was building 10-storey structures,' he said during a recent interview with the South China Morning Post. 'Now we need to build on that to reach 100 floors.'


Mr Li said that was why the entry of strategic investor Anheuser, which controls 9.9 per cent but plans to increase the stake to 27 per cent in 2010, was significant.


'It's not for the money; we could easily get the funds from banks.'


Since the tie-up, Tsingtao has picked up some of the ingredients vital to competing efficiently.


A centralised system of tracking and analysing the beer production process was put in place at its Qingdao city headquarters and then gradually extended to its other breweries across the mainland.


Mr Li said he and his colleagues also learned to pay attention to the details.


'We have done well in the past 100 years, but it wasn't done paying attention to the last detail,' he said.


'This is really what I'd call building the foundation,' said Mr Li, the former director of Qingdao's planning commission, the body that maps out the city's economic development blueprint.


'Tsingtao was built by generations of people,' he said. 'If it is destroyed in our hands, we'll become eternal sinners.'


For Tsingtao and other Chinese domestic beer makers, the stakes are rising.


The mainland's entry into the World Trade Organisation has opened the country to more competition from the world's biggest consumer markets, compelling Beijing to issue a call to its industries to raise efficiency and protect their identities from a possible flood of foreign companies.


The domestic beer market is one of the most hotly contested. With annual expansion of about 6 per cent, it has dwarfed others around the world and overtaken the United States as the world's biggest market.


In the 1990s, foreign beer makers moved into the mainland market aiming to produce their own high-margin, high-end market beers, but they failed to compete with local brews on price and domestic brand loyalty.


Now, they have returned with new tactics which require that they buy into successful local brews.


The increasing competition was amplified in last week's takeover battle between two world giants - SABMiller and Anheuser - for Hong Kong-listed Harbin Brewery Group.


Tsingtao, while quietly backing its strategic partner, is staying out of the verbal battle that has ensued. Anheuser's inroad into Harbin would help open up the northeastern market for Tsingtao whose dominance has so far stayed in the eastern coastal regions.


In the meantime, Mr Li is undaunted as rivals such as Carlsberg Asia, Interbrew, Heineken, Scottish & Newcastle and China Resources Breweries - controlled by Hong Kong-listed China Resources Enterprise - have trawled the market to snap up smaller brewers in the past few years.


He is now steering a slowdown in Tsingtao's expansion campaign after the company 'moved quicker than others', he said.


'For us, now is the time for consolidation and how to make the assets that we acquired profitable.'


Tsingtao has bought 48 brewers since 1997; most were in the red.


The company then spent the past six years turning the plants around and consolidating each individual operation with the holding company. Market share rose from 2.2 per cent in 1997 to 13 per cent last year.


The hard labour began to bear early fruit in 1999.


Tsingtao's financial books have since recorded year-on-year profit increases despite fluctuating raw materials and transport costs, as well as a worsening competitive climate. It is no secret that Mr Li had been anything but willing to take on the unenviable task of reforming a famous but lumbering state-owned company.


A lack of corporate governance, inefficient managers and vested interests - typical elements of the state sector - were rampant and investors were soon to flee Asia as a financial crisis was looming on the horizon.


That year, Tsingtao's net profit was a mere 25.7 million yuan, a flat result after the heady 188 million yuan earned in 1993 when it became Hong Kong's first H share to much fanfare.


However, Mr Li generously attributes much of Tsingtao's turnaround to Peng Zuoyi, the energetic president 'who knew all about Tsingtao's sales and marketing problems' but died unexpectedly in 2001.


At present, he said he leads a formidable team which has learned the realities of 'market economics'.


Last year, the company's turnover rose 8.4 per cent to 6.71 billion yuan. It produced 3.26 million kilolitres of beer, with No2 China Resources lagging at 2.54 million kilolitres. Tsingtao is aiming for 3.6 million kilolitres in production output for this year.


With the house in order and a comfortable domestic position, Tsingtao has looked beyond its home turf, particularly after last year's Sars outbreak which crimped domestic sales.


In 2002, operations began in Taiwan. It has since moved on to become self-sufficient, providing huge encouragement to Mr Li and his team. About half of Tsingtao's overseas sales of all 78,000 kilolitres come from the island.


'There's no one within any Chinese community [in the world] that doesn't know the Tsingtao brand,' he said.


'Now, we need to be bigger and stronger as a brand, backed by strong operations.'


Biography


Li Guirong, 64, was educated at the Shandong Polytechnic Institute. He was named chairman of Tsingtao Brewery in June 1996, taking over from Liu Deyuan.


Despite initial objections to taking over a lumbering state company with all the problems that entailed - insufficient corporate governance, inefficient managers and ever-present vested interests - he soon set about devising solutions.


This eventually led to the company recording a profit of 245 million yuan last year.


Before joining the brewer he spent 12 years at the Qingdao Planning Commission as a deputy director before rising to director - a post he held for eight years.


Mr Li's early experience in industry included a spell as deputy manager during 15 years at the Qingdao Wireless Factory.