The foreign business culture and quiet life in Shandong province have not stopped the Sime Darby team from building ‘guanxi’ for the success of their venture.
IN Shandong province, there is a time-honoured dining tradition that no one wants to defy. The host and his co-host will toast his guests at a round table three times each with local Qingtao beer or/and white liquor that has 50% alcohol content until some get knocked out.
The practice dates back many decades in this eastern coastal province of China, where the poetic Yellow River ends and the revered philosopher and teacher Confucius was born.
During such Shandong dinner, the key host will speak before each toast, normally uttering some niceties before the first “bottoms up”. It is in the second or third toast that the real serious content might hit you.
For the first several years in building up Sime Darby Bhd’s Weifang Port, located in central northern Shandong, Bentong-born Lai Ah Chek and his colleagues had to learn to drink like a fish seven days a week to develop guanxi (relationship) with Chinese officials and businessmen.
The English-educated head of logistics and marketing of Weifang Port also had to learn to speak some polite niceties in Mandarin to communicate with local Chinese officials.
And to kill loneliness in this port, located 50km away from the nine million people living in Weifang, a town at the south coast of Bohai Sea, Lai will cook or drive to activity-packed Qingdao during the weekend.
The Australian-trained logistics expert says at his first ever media interview: “I only learnt how to drink hard liquor after coming to Weifang. During the first few years, it was almost every night. You have to do this to build up guanxi, network and get a proper job done.
“My wife refuses to come and join me here as she cannot stand this kind of local business culture, where the spouse is not invited to such drinking dinners.”
The suntanned, energetic man adds wryly, “My belly, caused by these non-stop dinners, just refuses to flatten even though I exercise hard everyday... Now I have to train the younger people to take over this dinning and drinking business.”
Guanxi aside, a lot of real serious work had to be done. Sime Darby’s headquarters in Kuala Lumpur sets a high key performance index (KPI) for the port every year.
However, the high KPI had not deterred this former logistics and transportation consultant from charging ahead. The acting head of Weifang Port had delivered from the first year of operation.
And in the initial years, a high-ranking official from Sime Darby’s headquarters went to inspect them every month, guide and build up guanxi.
While most other foreign investors in China’s ports had struggled in the first five years – either because they were cheated or had incurred heavy losses or were caught in corruption scandals, Weifang Port managed to stay ahead of the pack.
Its operation became profitable in the first year. For the past 10 years, business expanded along with the rapid economic development of China and Weifang, an industrial and farming town.
Weifang ‘one of most efficient ports’
According to a study conducted by UK-based BMT Consulting, Weifang Port is ranked as one of the “most efficient and cost-effective” ports in mainland China.
Among the achievements for this mid-sized port: It has become a major transit port for bauxite and a major distribution centre for iron ore in central and western Shandong. It is China’s major export port for sea salt and marine chemical products, a national designated port for cattle (dairy) import in Shandong.
The contribution and devotion of Lai in laying the foundation for the port’s success has not gone unnoticed by his current boss.
The managing director of Sime Darby’s Energy and Utilities (China Operations), Timothy Lee, spoke highly of him to a visiting Malaysian business delegation recently.
On May 18, in typical Shandong dining style, Lee – from Hong Kong with over 20 years of international experience in port management – praised his co-host during his second toast while entertaining the Malaysians to a dinner.
“This drink is to express my gratitude to Lai for his dedication, hard work and contribution towards making Weifang Port a success.”
Lee also expressed appreciation to the port’s longest-serving Malaysian who had proposed to Sime Darby to develop China’s first halal industrial park and first halal port to draw in new businesses and grab a slice of the US$2.3bil (RM9.3bil) global halal market.
In a separate interview with Sunday Star in China, the handsome-looking, 51-year-old port veteran says Weifang Port’s success lies in having hired the right team of professionals to manage the business from the start.
“We have a good team of right people to run our business. This team of people, armed with expertise, knows exactly how to run our port business in China. It is amazing to see them churning out profits every year from day one.
“They have built up good relationship with the government and gained support from them. In China, without government support you cannot run a port successfully,” says Lee in his office at Weifang Port.
While Lai and his early team had laid the early foundation for Weifang Port’s development, Lee’s entry into Sime Darby about four and a half years ago has propelled the port to another height.
Armed with over two decades of container port experience, this fresh face introduced the container handling operation in Weifang Port in December 2012, making the port the first to launch this operation in the special economic zone of Yellow River Delta.
In 2015, the port’s container throughput rose to 194,324 TEU, more than triple the 61,000 TEU handled in 2013. The port is likely to surpass the 200,000 TEU mark this year, according to its information booklet.
The container port operation covers domestic and international container routes, and its cargo handling include salt, soda ash, cotton textiles, minerals, grains, plastics, pipe fittings, ceramics and paper products.
Before Lee entered into the picture, the port handling operation focused mainly on bulk and general cargoes, liquid chemicals only. Lee joined Sime Darby in December 2011, after serving the Hong Kong port for over 20 years.
Now, Weifang Port can claim it is the “largest modernised multi-purpose and comprehensive port” in the Yellow River Delta, and an important feeder port within the Bohai Rim.
The port implements a 24-hour operation model that handles 70,000 tonnes per day for bulk and general cargoes. It is now ranked as a port with the highest bulk salt loading efficiency in the Bohai Rim, with 2,000 metric tonnes per hour.
The efficiency achieved now is a far cry from the starting days. When Sime Darby first took over the port, there were many cargo ships waiting to unload their content, and more cargo on land was waiting to be shipped out, Lai recalls.
Under Lee’s leadership, the port is positioned to be a feeder port for domestic routes and regional port for international routes. It now has shipping links with Taiwan, Korea and Malaysia, and is talking to Japan.
Being a national class-one open port with direct shipping routes covering ports along the coast, Weifang Port acts as an important feeder port for transshipment at the middle and northwestern region of Shandong province.
When talking about the other factors contributing to the success of the port, the Canadian-trained Lee states the port’s operation has also stayed lean from the beginning.
The other proud achievement of Weifang Port is that the local team has successfully educated local officials to understand how the development of the port could act as a catalyst to bring in investments and boost economic activities in the hinterland.
In fact, after Sime Darby decided in 2006 to turn the loss-making port into a mid-sized port serving industries in the region, foreign direct investments began streaming into Weifang.
But the most difficult part of doing business in China is how to avoid bribing Chinese officials, without offending them. In this regard, Weifang Port prides itself for having steered clear from this murky area.
“We follow Sime Darby’s strict compliance rules and professional code of conduct... We have to do the right things and to steer off wrong things, such as corruption, out of the system. The KL headquarters’ firm directive provides us the guide and peace of mind in conducting business here,” Lee says.
Promoting integrity, transparency, accountability, and cultivating ethical business behaviour through the code of business conduct are part of the corporate governance guidelines of Sime Darby, according to its website.
“Over the years, Sime Darby’s culture and code of business ethics have been accepted by the local government officials,” says Lai, the man who could link the past with the present.
But to be sure, both Sime Darby – being a highly regarded government-linked corporation – and the Chinese government have wanted to see Weifang Port succeed right from the start, as the port’s takeover was a government-to-government initiative.
Listing plan ahead
Now that Weifang Port has established close ties with the local and provincial government, there is confidence that Sime Darby’s planned halal industrial park and halal port will sail towards success.
These halal projects at Weifang Port will be launched in the 2017/18 financial year, with 270 hectares of the port’s land being set aside for the park. The 50-year leasehold land was bought at low rates from the government after the takeover in 2005.
The halal plan has obtained blessings from the local government, which has promised to allocate more land to the port at preferential rates if the projects are successful.
The authorities are hoping that this halal plan will help to attract more FDIs into Weifang.
“The halal industrial park will help to generate business for the port as all raw materials for manufacturing and finished products at the industrial park will go in and out of our port,” says Lee.
And since Weifang Port has an unbroken profit track record, Sime Darby is planning to list the port by 2020.
The total throughput for general cargo and bulk business is expected to jump to 60 million tonnes in 2020, from about 23 million in 2015. And the port’s container handling business is also expected to post rapid growth as more container routes are open.
In the last financial year, the port posted a profit before tax and interest of just under RM90mil on revenue of RM300mil.
In six years’ time by 2022, the pretax profit for Weifang Port is expected to rise 200% to about RM270mil and its revenue surge to RM900mil.
And by 2025, pretax profit should rise by 300% to RM360mil, according to Lee.
But listing will only take place after the current expansion of the port is completed.
Under the 2012-2017 RM1.4bil expansion plan, Weifang Port will deepen its sea-depths to 12m to take in 35,000-tonne container ships by next month.
With a plan to deepen the seaport to a depth of 13.7m to take in 50,000-tonne ships by end-2019, business will take a quantum leap.
The port is positioning itself as an intra-Asian player and domestic feeder port.
Sime Darby acquired the port from the local government in 2005 and has since invested RM2bil to turn the seaport into a mid-sized seaport with 15 berths, from four.
By the end of this year, this seaport with more than 500 customers will have 23 berths.
To expand its business without incurring too much capex, Weifang Port is talking to a nearby major port for business cooperation.
“There is a lot of international routing in this region. For us to get into international cargoes, it is more sensible to work with major ports,” Lee explains in his Weifang office.
For Lee, his mission now is to ensure that the expansion plan of Weifang Port is on track ahead of its listing plan. And he is enjoying his work now as to him it is “no port, no life”.
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