China Shipbuilding Corp.
The Road from Red to Black
China Shipbuilding Corp. chairman Frank Lu has led his company back from the brink of bankruptcy and toward a new beginning.
The Road from Red to BlackBy Man-Peng Tiao
From CommonWealth Magazine (vol. 366 )
On the verge of changing its name to “CSBC Corporation, Taiwan,” China Shipbuilding's performance has also experienced a historic transition.
At a time when leading state-owned enterprises such as China Petroleum Corp. (CPC) and Taipower are showing losses, CSBC, once the “headache” among state-owned enterprises, has become its model student.
NT$1.49 billion in pre-tax earnings (a 70 percent increase from the previous year), earnings per share of NT$1.34, and a year-end bonus of four months' salary for each employee—all these are historic records for CSBC.
Compared with China Steel, which is located nearby in the same industrial district, long-suffering China Shipping is like a sibling disadvantaged by both birth and misfortune.
While China Steel has been operating with earnings of over NT$10 billion year after year, China Shipbuilding, with a cumulative deficit of NT$10.7 billion at its lowest point, was very nearly bankrupt.
Leadership Gives Impetus to Implementation
Soon after political power in Taiwan changed hands, then economics minister Lin Hsin-yi designated management professor Chiang Hsu as CSBC chairman, and introduced a restructuring plan with a 47 percent employee-downsizing and a 35 percent reduction in wages. The massive reduction in human resource costs gave CSBC its first-ever positive earnings in 2005.
Current chairman Frank Lu took the reigns from Hsu two years ago. After leading the successful privatization of Yang Ming Marine Transport Corp. and Taiwan Navigation Co., Lu, like Evergreen Group chairman Chang Yung-fa, a recipient of a Lloyd's List Maritime Asia Award, decided on a business strategy focusing on the manufacture of container ships to nudge the ailing CSBC down the road to success.
Lu's desk is filled with management reference texts, including Michael E. Porter's Competitive Strategy and Chris Anderson's The Long Tail. According to five forces analysis, Lu explains, CSBC's competitive edge lies in its manufacturing technologies and ship design; its self-designed 2200TEU container ship has won a major British naval design award for six years in a row.
A former CSBC client, Lu points out that shipbuilding is greatly affected by market shifts, and according to global shipping development trends over the past 30 years, the effect of market shifts on container ships is far less than that on bulk carriers.
As 70 to 80 percent of CSBC profits are derived from shipbuilding, operating revenues will be most advantageously affected if the company is able to focus its energies on building container ships to effect a production cost decrease via a shortened learning curve.
While concentrating its efforts on container ships, CSBC completed the reorganization of its production line in 10 months. The ratio of time spent on dry-dock construction vs. assembly in the water rose from the original 6:4 ratio to the current 9:1 ratio, effectively cutting down the manufacturing cost, since the cost of dry-dock construction is only a third of construction after the ship is floated out.
NT$3 billion in Earnings
The benefits of a shortened learning curve from concentrating on container ships are also taking effect. The Kaohsiung plant, which originally had a production capacity of 14 vessels per annum, can now produce18 a year; the Keelung plant, with its original production capacity of six vessels per annum, produced eight vessels in 2006, and is looking at a further 10 in 2007.
The CEO is the key – the right man will create the necessary opportunities.
“Frank Lu's global logistics experience is a great aid to the integration of CSBC resources, as well as to the establishment of a future for company employees,” says He Huahsun, deputy division chief of the Ministry of Economic Affairs' State-Owned Enterprise Commission (MOEASEC); this is especially true in the transformation of CSBC's corporate profile from government-oriented to manufacturing- and service-oriented, looking outward and toward the future.
CSBC now has a four-year backlog of orders. At the end of January, it is already reporting a NT$195 million pre-tax income, with a safe NT$3 billion profit prediction for the year.
CSBC's projected cumulative profit for the years 2005, 2006 and 2007 has opened the window for its privatization, saving it from bankruptcy and freeing it from operational constraints.
“Recently, people in the shipping business, both in Taiwan and abroad, have been asking how CSBC's privatization is coming along,” says a high-level MOEASEC executive in charge of CSBC.
MOEASEC officials also reveal that CSBC's cumulative losses of the past have left a NT$7 billion hole in the employee pension pool, and filling that hole will be CSBC's greatest challenge during its privatization process.
Translated from the Chinese by Ellen Wieman
Chinese Version: 中船從瀕臨破產到獲利