Asean to be main driver of SCG empire's growth

By the time the Asean Economic Community goes into effect in 2015, SCG aims to have set itself up as a regional market leader.

To that end, the group is not only gearing up for investment expansion but is also looking for business through mergers and acquisitions throughout the region, focusing on Indonesia, Vietnam and the Philippines.

SCG’s business strategy abroad is to export produce to targeted markets until demand reaches an economy of scale conducive to setting up a factory locally. However, this investment plan has been adjusted to focus more on M&As.

In Asean, the group ranks as the largest manufacturer and distributor of construction-material chemicals as well as kraft paper for packaging, while its cement business ranks second after Switzerland-based Holcim.

The group’s total investment in Indonesia has reached US$970 million (Bt30.5 billion), its biggest foreign investment destination, followed by Vietnam at $370 million.

SCG reported consolidated sales of Bt368.579 billion last year from its five key businesses. Chemicals accounted for Bt192.929 billion, paper for Bt54.839 billion, cement for Bt54.249, building materials for Bt34.171 billion and distribution for Bt111.920 billion. Consolidated sales were Bt102.884 billion in the first quarter of this year, and the target is to grow by 10 per cent for the whole year.

SCG president and chief executive officer Kan Trakulhoon said political stability in Indonesia was one of the strong factors encouraging the group’s investment in that fast-growing economy. However, SCG does not have a paper business there, and this is included in its expansion plan. In addition, the company is considering expanding its petrochemical business in the country.

With Indonesia’s huge population of 250 million, the group’s production there is focused on the domestic market, though exports will be considered in the future. Currently, SCG operates businesses there in petrochemicals, lightweight concrete blocks, ready-mixed concrete, ceramic tiles and building-material distribution.

Since January 2011, the group has invested Bt22 billion in Indonesia to set up factories and to pursue its M&A plans. The investment includes the establishment of a plant to make lightweight concrete blocks worth Bt1.25 billion. The plant will start operating in 2014.

In addition, SCG’s acquisition of the Jayamix ready-mix concrete brand worth Bt4.3 billion has production capacity of 2.2 million cubic metres through its 40 factories in Java and Sumatra.

Its stake in Chandra Asri Petrochemical worth Bt13.5 billion will help the group expand into polyethylene, polypropylene, styrene monomer and other olefin products.

Finally, the acquisition of Keramika Indonesia Assosiasi (KIA) and Kokoh Inti Arebama worth Bt3.1 billion allows the group immediately to produce ceramic tiles and manage 22 distribution centres and 10,000 wholesalers and retailers throughout Indonesia.

"We will step forward on mergers and acquisitions, as we now are ready to do that in terms of human resources and financial strength. But our M&A strategy is not aimed at damaging local brands," said Kan, adding that it is meant to bring down production costs and help develop the group’s partners.

He noted that most production in Indonesia was to serve the huge domestic market, and local manufacturers had no plans for export. The country’s exports account for 30 per cent of its gross domestic product, mainly minerals, coal and other fuels. As for Vietnam, investment there has been delayed as some production there is oversupplied. That market is smaller than Indonesia’s, and SCG has already set up all five of its key businesses there, and their capacity can be expanded as required.

Kan stressed that SCG’s five-|year business plan would focus |more on investing in the Asean region rather than in the motherland.

However, the Philippines |still has energy and logistics |problems and high costs, while Myanmar lacks facilities.

SCG employs 38,000 people, including 28,000 in Thailand. The group plans for 25 per cent of its workforce to be based abroad by 2015, with annual recruitment of 800 new employees.