Jiangsu Shagang Group Chairman Shen Wenrong sees challenges as an impetus to stay ahead. Provided to China Daily

Strong determination and innovation bring dividends for Shagang Group

Shen Wenrong is not afraid of challenges or changes. Rather, he sees it as the game-changer for Jiangsu Shagang Group to stay ahead of its peers in global markets.

"Every challenge is a new starting point. It is the spirit of perseverance and persistence that has helped us overcome many challenges and made us into what we are today," says Shen, chairman of Shagang Group, China's largest private steelmaker.

Like the innovative, record-breaking steel products rolled out by the company in the past 37 years, Shen has successfully conquered many challenges and difficulties to transform Shagang Group from a small cotton factory into one of the most competitive steelmakers in the world.

This year the group was ranked 346th in the Fortune Global 500 list with sales of 207.5 billion yuan ($33.2 billion; 25.4 billion euros).

The 66-year-old tycoon says: "Withstanding the gloomy domestic steel market, tapping the overseas markets and developing non-steel business are the foremost challenges and transformation for us now.

"I hope that after these changes, Shagang will figure in the Global 300 list in terms of both profits and revenue in the next 10 years."

Shen is a man full of energy. He seemingly fills every hour of the working day with work that he and his team work even on Saturdays. The busiest time for Shen, as he says, is between 9 pm to 11 pm. "At this time, I can summarize the experiences and lessons that I learned during the day in a highly efficient manner."

Without Shen's constant efforts and business acumen, Shagang Group would have long gone into bankruptcy considering the formidable challenges and difficulties it faced since its inception, says Chen Xiaodong, managing executive director of the board of directors of the Jiangsu Shagang Group and an associate of Shen for more than eight years.

The steel industry in China is in deep water and Shen knows it only too well. Shen, vice-chairman of the China Iron and Steel Association, says the industry has entered one of the most difficult times in its history, "the toughest period for us since we started business in 1975".

"What is worse is that the hard times will last for at least one and a half years more. The winter of the industry has come," he says.

In the past 30 years, stimulated by the fast development of China's economy and huge infrastructure and property investment, China's steel industry has grown rapidly. But this has also led to severe overcapacity, Shen says.

The China Iron and Steel Association says that of 81 steelmakers it tracks, 38 recorded losses in the first seven months of this year. The losses totaled 16.9 billion yuan compared with losses of 400 million yuan in the corresponding period last year.

China's crude steel output was a little less than 684 million metric tons last year, compared with about 500 million in 2008, according to the Lange Steel Information Research Center, an industrial consultancy in Beijing.

An avid reader of books on the history of the world's largest corporations, Shen says spreading wings in overseas markets is one approach for the group to pass the winter.

"Due to the faltering domestic market, it is important for Shagang to tap the overseas market in the next 10 years," he says, adding that more overseas branches are being planned, even as the company will continue to scout for active merger and acquisition opportunities.

Revenue from overseas markets currently accounts for 10 to 12 percent of the overall revenue and will go up to 15 percent of the total turnover by 2015, he says.

Shagang exported 5 percent of its steel products last year, even as it remained one of the top three domestic steel producers.

"By 2015, we expect exports to reach around 10 to 15 percent," Shen says adding that the company will soon set up offices in major Asian markets like Singapore, Malaysia and Indonesia. At the same time we will also scout for suitable merger and acquisition opportunities and also grow our sales channels further."

Shen says the company will focus more on the Asian markets before it spreads its wings in the European and the US markets. "The competition is fiercer in Europe and the US. We will concentrate on the Southeast Asian market till 2015," Shen says.

"Once we are confident that we have a strong presence in Asia, we will move on to other markets and also look for alliances with suitable partners. We are in constant contact with some steel industry-related companies in the EU. It will be helpful to us when we start making high-end products for these markets."

So far, the group has about 500 foreign clients. Its overseas assets totaled about 1 billion yuan last year, with most of them in Australia.

Although he is soft-spoken and mild-mannered, there is no doubt about Shen's strong resolution.

The chairman says that much of his business gift came from his tough childhood days. Born in 1946 into a poor family in Zhangjiagang, life was never easy for Shen. His father passed away when he was very young. At 22, he started to work at a cotton factory, the predecessor of the Shagang Group, to earn money to support his family.

Plagued by a lack of food and clothing, Shen soon realized that hard work and a clear focus were essential for survival.

In 1975, Shagang Group was founded on the basis of a cotton factory and Shen's efforts and excellent performance soon paid off when he was selected as the factory leader in 1984.

Though steel demand was at its peak, it was not easy for small companies like Shagang to make a mark initially with big companies like Baosteel dominating the sector, Shen says. "I realized that developing core technologies, doing M&As and constant research was the only way we could catch up with the bigger peers."

Under his leadership, the group introduced advanced equipment and also boosted facilities with international expansion.

One high profile example of this strategy was Shagang's acquisition of Thyssenkrupp's Hoesch steel mill in Dortmund, Germany. In 2001, after intense negotiations, Shagang purchased all the facilities of Hoesch for 220 million yuan.

The deal helped increase Shagang's steel production capacity to 10 million metric tons and also diversified their product mix. The group's technical innovation has also improved following the deal, Shen says. "It was important for us to have core technologies in our endeavor to be one of the best steelmakers in the world," Shen says.

Every year, about 2 percent of the company's revenue goes toward research and development of new technologies, he says. In 2006, the company spent 500 million yuan to set up the Institute of Research of Iron and Steel in Jiangsu province.

Another transformation Shagang is making is construction of a steel logistics park in Zhangjiagang, which is critical in helping reduce transport costs and integrating steel-related industries nationwide.

The company will invest 30 billion yuan in the Jiulong Steel Logistics Park, a key to the group's 2010-20 development plan.

Since work on the steel logistics park began in 2010, business there has grown rapidly. Last year companies in the park brought in revenue of 30 billion yuan, a figure expected to reach 40 billion yuan this year.

Shen says that in the long run he expects the steel logistics industry to surpass the steel industry in terms of returns.

Companies in the park are expected to reach sales of 250 billion yuan in five to eight years, making it roughly the size of another Shagang Group, he says. "We are always making miracles. This is definitely an eyecatching miracle in the history of steel industry development across the world."

huhaiyan@chinadaily.com.cn

(China Daily 10/26/2012 page6)