Unorthodox business processes

Business analysts believe that China’s 2008 Olympic Games and the subsequent World Expo 2010 in Shanghai marked the country’s emergence as a major political and economic power. The country spent over $40 billion on new subway lines, airport terminals and other infrastructure developments for the Olympics – and the investment in World Expo 2010 was even greater.

“I have witnessed a transformation inChina’s business environment over the last 20 years, but the changes have become even more marked in the last couple of years,” says Ken Lai, Regional Licensing Manager, Shell Global Solutions. “Unorthodox business models, buying behaviour and decision-making processes are emerging,” he says.

For instance, Lai describes a new trend in Chinese textile companies. “We have been seeing several traditional textile producers looking to back-integrate: that is, to develop the ability to produce their raw materials themselves rather than being reliant on suppliers.”

In the past, the main bulk raw materials that textile manufacturers needed, such as monoethylene glycol (MEG), purified terephthalic acid, paraxylene or polyolefins, relied on the production of raw materials from a refinery and a naphtha cracker. And, because China’s refineries and naphtha crackers are strictly state-owned, private companies had little opportunity to back-integrate.

In recent years, however, game-changing technologies have emerged: methanol-to-olefins (MTO), ethanol-to-ethylene and C3/C4 dehydrogenation technologies. These offer companies alternative methods of producing the main bulk raw materials; this means that it is now possible for private-sector companies to produce their own ethylene and propylene, and, therefore, become a MEG, polyolefin or fine chemical producer without owning a refinery or a cracker.

Take Skyford Chemicals, for example, which is a privately owned textile manufacturer in Zhejiang Province. Skyford has traditionally consumed hundreds of thousands of tonnes of MEG every year, but, in 2010, it took steps to become self-sufficient in the raw materials.

The company is building an MTO unit to produce ethylene and propylene. Furthermore, Skyford licensed the Shell MASTER ethylene oxide/ethylene glycol (EO/EG) process for what will become one of the largest such units in China. The MASTER EO/EG process is based on a high-selectivity catalyst and thermal conversion of EO to EG. The company had previously been buying MEG from Shell, but under this licensing agreement, Shell is helping the company to become partially self-sufficient in MEG.

Speed is another characteristic of the new China, according to Lai. “Following the initial commercial and technical discussions about the MASTER EO/EG licence, Skyford management wasted little time making their decision.

“Similarly, the project is being pushed ahead at breakneck speed. Such a venture typically takes up to 36 months to complete but Skyford expects completion in less than 20 months,” he says.

Lai adds that Skyford is representative of a wave of agile entrepreneurs that are ambitious and well positioned to respond to and exploit opportunities.

Could the rest of the world learn from these dynamic Chinese companies? Lai believes so. He says, “The tactical paradigms and management models that are emerging in China are best suited to the country’s fast-moving and unpredictable environment, but, yes, I have no doubt that these companies also have some interesting lessons for the global business community.”

For more information, contact Ken Lai.