Taiwan Cement Chairman Leslie Koo
The Clocks Have Stopped, but Business Is Moving
Source： Qian-yi Ceng
Stinging from the deaths of his brother and father, Leslie Koo took the helm of his family?s empire, launching dramatic reform measures and an all-out assault on China. His efforts are paying off.
The Clocks Have Stopped, but Business Is MovingBy Sheree Chuang, Elaine Huang
From CommonWealth Magazine (vol. 374 )
"The off-white, European-style meeting and reception room, designed personally by the late chairman Koo Chen-fu, is the first thing one encounters when arriving at the top floor of the Taiwan Cement Building on Taipei City’s Zhongshan North Road. Any visitor who stays in the room for a while will discover that its three clocks are frozen in time. It turns out Koo installed the batteries himself before he passed away. Two years ago, following Koo’s death, his second son, current Taiwan Cement Corporation chairman Leslie Koo, allowed the clocks to run until their batteries were spent. Since the clocks evoked the old feeling of having his father around, he decided to never install new batteries again.
Within a span of five years, Leslie Koo’s older brother Chester Koo died on Christmas night of 2001, and his father’s death came in 2005. Koo then divided the family business with his older cousin Jeffery Koo Jr. Having lost the central support of his life, he was left bearing the entire burden of the colossal debt left by his older brother’s investments.
Koo, despite his intense love of stereo systems, declared he would no longer listen to his stereo if he proved unsuccessful at bringing Taiwan Cement Group back to form. A stereo he had assembled with his own hands was broken during the Jiji earthquake of 1999, and Koo never put it back together. The clocks have stopped. The stereo sits silent. Yet business growth at Leslie Koo’s Taiwan Cement is humming along.
Taiwan Cement set up five cement plants in southern China in 2001. Recently, its subsidiary TCC International Holdings merged with a Chinese-based subsidiary of his brother-in-law’s company, Chia Hsin Cement, and proceeded to initiate a two-year corporate reform plan. Though it entered China a decade later than others in the industry, Koo has Taiwan Cement on track to fulfilling a strategy of “start late, arrive early.” Last year, Taiwan Cement posted after-tax profits of NT$6.8 billion, a new company high, and ranked the third largest cement company in China.
China Synthetic Rubber Corporation, having invested in biotechnology, provided long-term financial support to Duke University professor Chen Yuan-tsong who ultimately succeeded in developing a medicine to treat Pompe disease in 2006. With the drug having already been granted patents in the United States, Europe and Japan, Leslie Koo now stands as one of the few businesspeople in Taiwan to taste the rich fruits biotechnology has to offer.
Following are highlights from an exclusive interview he recently gave to CommonWealth Magazine:
Q: What changes have taken place since you assumed the chairmanship of Taiwan Cement in 2003?
A: At that time, the reforms had just started at Taiwan Cement. A lot of people, even financial organizations, issued criticisms that I wanted to bankrupt the company, that I brought in a bunch of foreign teams. There was discontent everywhere. They said the things I did were so unreasonable, so lacking in the human touch, that they went against the model of a good company, and so forth.
However, looking back now, a lot of people think that if I had not done it that way, there would not be a today. Are what I say now and what I said then, the things I do now and the things I did then, different? No. The only thing different is that I’ve achieved results.
There are major differences internally at the company as well. At the time, a few people felt, how could we do so many things that flew in the face of reason? Now, everyone feels we should have done them all along. Why? Because the people who are truly hardworking have gained affirmation and compensation. Our business performance has risen also, as well as our stock.
Q: The whole global economy has been thriving since 2000. Has Taiwan Cement earned opportunistic money or hard-earned money?
A: This is absolutely hard-earned money. I took over as chairman of Taiwan Cement in 2003. Taiwan Cement posted earnings per share of NT$0.20 in 2002. We posted NT$2.2 last year. This year it should be even better. We earned NT$200 million in 2002. We earned NT$6.8 billion last year. It will be even higher this year.
Taiwan Cement’s foreign investor-held stock was less than four percent in 2002. It has reached 42% now. On December 31, 2002, I remember our stock price was a little over NT$10. Now it’s NT$30.
Q: What currently is the overall state of development in the cement sector on the two sides of the Strait?
A: As for Taiwan, a state of stability has appeared across the entire cement market. There were public construction projects such as the High Speed Railway and rapid transit system before, but Taiwanese real estate was relatively weak. Of late, real estate is a bit better, but major public construction projects have come to a halt.
A major connection exists between the cement business and a country’s development and infrastructure, especially in newly emerging developing countries. For example, in Taiwan from the 1960s to the 1990s, every year there was a great deal of public construction and private infrastructure growing at the same time. But in 1994 the cement industry entered a stage of maturity, with a volume of around 15 million to 20 million tons. Looking at it in terms of Taiwan’s market, annual per-capita usage volume is approximately 700 to 800 kilograms. During the period of rapid growth, the per-capita annual volume could reach 1,300 kilograms.
China now has a per-capita volume of around 500 kilograms. However, coastal Chinese provinces far exceed this figure. The economic development process in China is very similar to that in Taiwan during the period of the Ten Major Construction Projects. A flourishing period of high-speed growth can be seen.
If Taiwanese enterprises – within three to five years in the short term or five to ten years in the long term – do not seize the opportunity to become heavyweight enterprises in China, they will have no position in China’s market or future ethnic-Chinese markets.
For example, ten years ago, Anhui Conch Cement Company, currently number one in China, was just half our size. Conch Cement wanted to be listed on the stock market in Hong Kong in 1997. Nobody knew who it was at the time. It went through a securities firm that was providing guidance to find an internationally renowned cement company with which to form an alliance. I’ve bumped into a few of its executive-level personnel and have become strategic partners with them. At the time, it was half our size. Today, it is six times larger than us, and it’s still growing.
Despite his intense love of stereo systems, Koo declared he would no longer listen to his stereo until he brought Taiwan Cement Group back to form. He has remained true to his word. Even after his stereo was broken during 1999’s Jiji earthquake, Koo never put it back together.
Sitting Steady at Third in China
Q: How will Taiwan Cement position itself and develop on the two sides of the Taiwan Strait?
A: More or less around 2001, the [Taiwanese] government placed the cement industry on the positive list [for industries approved for investment in China], opening up the cement industry to invest in China. So we went.
The market in China at the moment is somewhere around fifty Taiwan markets, and eight to ten US markets. It grows by one US market every year. That is an incredibly fast pace. Taiwan Cement has always been first in Taiwan, but doesn’t even have a chance of being mentioned in the same breath as world-class cement companies. Provided there is economic growth in China, Taiwanese enterprises like Taiwan Cement can actively seize business opportunities. Outstanding companies in Taiwan will then become outstanding world-class companies. For Taiwan Cement, this is a major opportunity to take a turn for the better.
We have our first five-year plan. That is to “sit steady at number one in Taiwan, and squeeze into the top three in China.” In fact, Taiwan Cement was already among the top three in China from 2005 to 2006. Our pace can be considered rapid. Our second five-year plan runs from 2008 to 2012. In China, we hope to reach 40 to 50 million tons. We will stay the same in Taiwan. This is yet another manifold growth plan. We ought to be able to sit steady among the top three.
Taiwan Cement has been established in Taiwan 60 years as of last year. We grew from zero to 10.65 million tons. In China, we want to build to a scale two and a half times that in Taiwan within five years. We’ll use one year as if it were twenty years.
The Road to ‘Starting Late, Arriving Early’
Q: Taiwan also has other cement enterprises that have invested and set up plants in China. You all went ten years later than the others. How were you able to catch up?
A: Chia Hsin and Asia Cement, for instance, invested and set up plants in central and eastern China earlier than Taiwan Cement. But we didn’t waste a decade. We always knew there would be a day when we would go. The important point is how to find a path to “starting late and arriving early.”
The way they did it is similar to the way Taiwan grew in the past: build a conservative plant as soon as you get there, then develop the market. So, it’s build one plant after the other. We, on the other hand, built five plants at the same time. Furthermore, they found locations first and then thought about market and strategy, while we formulate a strategy first, then find the right location. The way we carry out our strategy is completely different.
In both Guangxi and Guangdong, any one of our plants has the same plant capacity as our entire operation in Taiwan. So we’re building 10 million tons every time we build a plant. Most of the other companies’ plants are 1.5 million tons to 2 million tons.
Q: Why choose to invest in development in southern China?
A: Because we view Taiwan and China together and hope development in China can move along with Taiwan. Taiwan is located in southern China. If you want to bring Taiwan’s pivotal function into play, then the first region you will develop in China is of course southern China.
We spent a long time looking into things from the basic level and strategic level and carried out a comprehensive standardization.
For example, the plants we are building are all standardized plants, meaning if something at this plant breaks, we can make replacements directly from another plant. We spent a great deal of time carrying out the standardization and setting up computer data systems. All of our information is in real time. We can monitor everything that happens in China from Taiwan.
All of the reforms carried out at Taiwan Cement over the last two-plus years, these are all tied together. If we hadn’t pursued these types of reforms, it would be impossible to operate five plants at the same time.
Q: Just what types of reforms?
A: The biggest difference is in the way we do things. I could speak from a number of aspects. The first is discipline, or perhaps it should be execution.
That’s because we are producing at different locations at the same time, but the product must be consistent. It’s like a Big Mac purchased at any McDonald’s around the world. The taste must be about the same, the store’s look about the same. That is called execution.
Furthermore, everyone must know his own reporting mechanism within the organization. The system is parallel now. It was serial in the past, and reporting could not bypass levels in the middle. Nowadays, we keep time gaps in the flow of information to a minimum. Before, the middle would be filtered out. Big things would be minimized, small things would be nullified. Now, at the first instance, the most terrible thing must be reflected immediately upward to the highest decision makers.
In the past, everyone would speak of interpersonal harmony. These days, there’s no talk about harmony. What we’re pursuing is responsibility. It used to be, first deal with human relations, then get things done. Now it’s, first get things done, then deal with human relations. Executives would want you to speak a little less before. If you could handle it, then first handle it yourself. Consequently, once something erupted, it was already a major incident. Now, when something happens, we allow everyone, within the shortest time frame, from different channels, to hear the same thing. This way we are able to maintain clear control over the immediate situation.
If something were to happen today, I would soon receive three emails informing me of the same thing. However, each individual would already be aware of the effect of this incident occurring on him, and would promptly formulate a way to handle it. Now, as long as it has anything to do with the company’s business, then it’s your business. You have to take the initiative proactively to gain a grasp of the situation. You don’t just wait there. This is very different from before.
Q: What’s Taiwan Cement doing with one hundred subsidiaries?
A: This includes on-paper subsidiaries. There are around thirteen we are actually running. This year in October, we’ll have another company, Taiwan Prosperity Chemical Corporation, listed on the stock market. This company is also in exceptionally good condition. It has an especially shining performance among specialty chemical products companies. This company is currently listed on the Emerging Stock Market. It should go on the stock market in October.
This company has been around for the last ten-plus years. It is our collaboration with Sinopec Corporation. I was working in the Taiwan Cement planning office at the time. It was I who was in charge. At the time, I felt Taiwan Cement’s market has reached a state of maturity, and hoped it would pursue other developments.
Translated from the Chinese by Luke Sabatie
Chinese Version: 台泥董事長辜成允變革有成