China Minmetals Corporation (CMC) held a press conference at the Shangri-la Hotel Beijing on November 20, 2007, at which the president of the group and all the major leaders of its subsidiaries were in attendance. Never before has anyone in CMC seen such a rare press conference with all the top leaders present. CMC announced that phase one of its V5 project was finished three months ahead of time and was already operational. After 18 months of hard work, the employees of CMC had smiles of success on their faces.
V5 is the ERP (Enterprise Resource Planning) project launched by CMC in April 2006. It was a management reform into which CMC had placed a great deal of investment and it also involved the highest number of segments and took the longest time to complete. The “V” in “V5” stands for “Victory”, meaning that the project is not allowed to fail. The “5” refers to the five strategic targets the project would have to meet: business process, business coordination, information integration, planning, and encouragement of innovation. Not only did CMC give the ERP project a name with profound meaning, but also designed an exclusive logo for the project to show CMC’s high expectation of it.
After Phase one was put into operation, the management of more than 20 of CMC’s subsidiaries, including CMC Steel, CMC Non-Ferrous and CMC minerals, stopped the previous labour intensive working methods and began to deal with the financial issues through integrated management. The business can now forecast short or medium-term fund use as the inventories of each subsidiary are now clear. CMC is able to manage the information of customers and suppliers by categories, control credit risks, and set automatic alarms for business risks, etc. Phase one is a platform for CMC to control risks and coordinate its entire group.
By having the entire top management present at the press conference, it meant success had been achieved for the Phase one of V5 project. It was not only the achievement of the IT department but also the establishment of a management platform to enable CMC to transform and change to a new organization.
Strategic Transformation
CMC, formerly China National Metals and Minerals Import and Export Corporation, is a multi-national business group primarily involved in production and distribution of metal minerals with finance, real estate, logistics and investment as side occupations. Its revenue in 2006 was US$18.9 billion, making it the 435th company on the list of the Fortune 500 enterprises. Currently, CMC has 168 wholly-owned subsidiaries or joint ventures in 20 provinces across China, controls or holds shares of 14 public companies in China, and has 45 overseas companies in 17 countries or regions. Among them, CMC Steel is China’s largest steel trading company.
In the past, many thought the advantage of state-owned enterprises (SOE) was the resources their controlled. But after the reform and open policy were implemented and especially after China joined the WTO, many SOEs have gradually lost their advantages on resources. Moreover, the government as the biggest investor has imposed clear demands that SOEs maintain and increase their values. The SOEs began to face more and more challenges from both inside and outside. To meet those challenges, they have had to reform to make themselves competitive and profitable.
CMC has experienced such challenges. In the past two decades, CMC has gradually lost its exclusive privilege granted by the government under the old planned economy and has entered the competitive mineral resource field where minerals are priced according to international market. Meanwhile, private companies have emerged at an astonishing speed in China along with foreign companies and multinationals continue to merge worldwide. CMC suffered from setbacks in 1993 due to of the sudden change from once enjoying governmental supply without hard work to now fighting on its own. In 1993, the government’s macro-economic control caused China’s steel market to shrink drastically. CMC had undergone the hardest time in history with huge debts and depressed employees. Under such pressures, CMC began to search for a way out.
CMC did a survey among its employees in 1998, and found that the biggest problems were that the company had no strategies and employees were lost at future development. Some said the company should go into stock trading as a lot of money could be made in a short time from the stock market. Others said the company should engage in real estate. As a result, CMC decided to develop strategic goals. In 1999, the company asked RolandBerger Strategy Consultants for assistance. RolandBerger came to the conclusion that CMC needed to change from a trading company into an industrial, resource enterprise.
All of the successful trading companies in China and abroad had achieved their success by adapting to the development trends of the world and taking the initiative to reform. Those moves allowed the company to not only survive but also to thrive. Glencore, a Switzerland-based trading company, came into existence in the 1970s. In an approximate ten years time span, by purchasing mineral resources and going public, it has become one of the top international mineral giants in the world. Japanese Mitsubishi was a pure trading company but, by buying shares and creating mergers, it has entered the manufacturing field and has formed complete industrial chains.
After the strategic goals became clear, CMC commenced its strategic transformation. Today the transformation has yielded good results. In 2000, its revenue was US$3.8 billion, but by 2006, it had soared to US$18.9 billion, an increase of 3.9 times within 6 years. During the same time the profit increased from RMB380 million (US$54 million) to RMB3.35 billion (US$479 million), up by 7.8 times and moreover the total assets of CMC increased from RMB18.2 billion (US$2.6 billion) to RMB62.8 billion (US$8.9 million).
Along with the fast expansion, quality of products and services has also greatly improved. The strategic transformation changed the profit-making model of the group: in 2006, the non-trading business had for the first time surpassed trading business in its production subsidiaries and had accounted for more than half of the profit, about 54.8%. Now, CMC’s major products including iron, aluminium, copper, tungsten and other metal, have already created complete industrial chains from exploring, mining, producing, smelting, processing to trading.
Xu Siwei, who rose from the grass root to the vice president of CMC, understood well the weakness of a pure trading business. “CMC was only a circulation center in the past, and its business was greatly affected by upstream suppliers which acted according to their own will and we lived hand to mouth. To be competitive, we have integrated the whole industrial chains so that we are greatly independent and not under the control of others anymore,” he said.
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