Written by Bi Yajun of Chinese Businessman’s Strategy
To expand RGM, where are the foundation, advantages and opportunities?
After careful enumeration, analysis and test marketing, Sukanto Tanoto made the decision of making the enterprise stronger, greater and wider based on resource, and combine resources effectively. A brand-new integrative mode of chemical industry -“Forest-Pulp-Paper Integration ” was designed.
Sukanto Tanoto chose to plant fast growing trees on a large scale at a meagerly populated small town of Riau and built the related factory. In less than ten years, he built up the biggest paper pulp factory of the world and a world-class paper mill, developed a huge industrialized park, a community with a scale of 60,000 people. And the key industrial group of the RGM was established – -Asian-Pacific Resource Group.
At this time Sukanto Tanoto was under the most difficult situation in life, but accomplished the most brilliant achievement. Back then the 1997 financial storm was spreading, and Indonesia was in the center of the storm.
“The Company was faced with domestic and foreign troubles. The director in charge of the project left. I have invested all my 700 million dollars in this project worthy of more than 2 billion dollars, and the left depended on the bank loan. But the bank had no money to lend at this moment. Those who have promised and signed went back on their words completely. The society was in turmoil. From the independence of Indonesia in 1945 to the year 1997, there were only 2 presidents in these 52 years. From 1997 to 2004, there were 5 presidents in these 7 years. There was confusion too in the localities, just like the situation of China at the beginning of the 20th century, when there were separatism warlord regimes after the 1911 Revolution.”
At that time, it was very difficult to preserve strength, let alone accelerated the development.
“A factory of mine made 70 million – 80 million dollars in one year. A provincial governor and military commandant wanted to extort 5 million dollars. I resolutely refused to give. Because I have more than 30 big and small companies there, so long as the first was given, never will there be days of peace. I am such a person. If the things are within the principle, no matter how difficult, I will persevere and prop up. Later on he asked for 20% of the shares, certainly I refused. Refusing to budge for 5 years, and my factory was closed for 5 years. Without operation for five years, but the salary of staff was issued as before. You can imagine that abominable environment.”
But in the abominable environment, in the failing of numerous financial groups one after another, Sukanto Tanoto sailed against the current and made vigorous efforts to turn the tide.
“Later on I told everybody that it was a good thing. Everybody said I had gone mad. How could this be a good thing? First of all, from the global point of view, although there was the political turbulence in the country, our market is abroad. So long as product export could be guaranteed, we can get U.S. dollars. Second, with the devaluation of national currency, our cost was reduced, and the profit would be higher. So long as you become one with the masses within an area of more than 100 square kilometers, let them protect you and guarantee your normal production, there is nothing that can not be done. “
Under protection of masses, Sukanto Tanoto’s factory stood firm on troubled times. The scope of the enterprise was expanded by 2 times, and profits were increased by 4 times. At present, the paper pulp factory that RGM set up there has reached an annual production capacity of 2 million tons of paper pulp and 400,000 tons of paper in the office. After expansion the annual output of paper pulp can reach 2,300,000 tons.
After establishing this foundation, Sukanto Tanoto continued to move about freely and quickly in the field of resource with the integrated mode to realize diversified expansion. His business became larger and larger and the field involved was wider and wider.
Soon after setting up paper pulp factory and the paper mill, he marched into another trade related to tree – – Viscose rayon industry. He made an investment in Brazil, Finland and China and built up the leading integrated viscose rayon and dissolved pulp production firm in the world – Sateri International Co. After fully combination of ground resources related to planting trees, he led RGM’s road of resource utilization to the underground. The two large-scale energy companies-the Pacific Ocean Oil Gas Company and the East Asia Power Corporation were established.
With the success of Sukanto Tanoto’s series of strategic breakthrough, RGM developed rapidly into a large-scale enterprise with an asset of 6 billion dollars. It set foot in such a lot of trades as the plantation-paper, viscose rayon, palm oil processing and energy development, etc. The subordinate enterprises and companies spread all over Singapore, Indonesia, China, Philippine, Malaysia, Finland, Brazil and other places. It has become the famous comprehensive industrial group of Asia.
Waiting for chance during accumulation, RGM decides to enter China with 6 billion dollars’ investment.
The reform and opening-up of China attract businessmen in the whole world, Sukanto Tanoto, who has likened China to ” own father” is not an exception. But the time that he and RGM entered China is not long. Until 1994 there was the first sum of investment in China.
“I like following the prescribed order when doing things, and divide the order of importance and emergency. A solid foundation in Southeast Asia was laid first, including the preparation of such respects as the technology, manpower, etc. I studied the Chinese market at the same time and considered what kind of trade was competitive. Until everything is ready and the condition is ripe, will I take action. “
All strength accumulated for so long and after so careful preparation broke out. Once getting to China, Sukanto Tanoto took active actions. Enormous investment is made in paper pulp, papermaking, viscose rayon and energy trade.
In 2004, Sukanto Tanoto and RGM’s four major groups: Asian-Pacific Resource Group Asia Implant, Sateri International Co. the Pacific Oil Company declared in Beijing that in the coming 5 to 10 years, they would invest 6 billion dollars in China.
This means Sukanto Tanoto will make another RGM group in China. In answering the question that why he had so much confidence, he said: “China has more than ten hundred million people, the economy is developing continuously, and the market potential is enormous. Besides, we Chinese do things at our own country; we have more friends and feel more cordial. “
Behind the great ambition is his original view on the Chinese market: China not only needs fund, talent and technology but also natural resources, and he has central competition advantages on resources. So, Sukanto Tanoto had very clear development mode when he came to China: “Bring abundant natural resources in Southeast Asia to China for process, set up the world competitive large-scale factory and pollution-free production base, the products produced not only can supply China, but also can export to all parts of the world. Just like Chinese said, “ attack when advancing, and defend when retreating. “
According to the estimation by related departments, by 2010, because of the lack in forest reserves and the shortage of the wood pulp, China will be short of more than 20 million tons of wood pulp annually. Sukanto Tanoto was certain about the chance and determined to set up a paper pulp factory in China with an equal scale to Indonesia. Not only import will be reduced to alleviate the situation of China’s short supply of paper pulp, the wood pulp can also be exported to Japan and Korea S, and other markets of east Asia to serve China’s economic development.
For this reason, when learning the Senbo Paper Pulp Factory of Rizhao, Shandong province planned to enter into partnership with a foreign corporation to expand production, but came to a deadlock because the foreign side rose harsh conditions, Sukanto Tanoto, who wholeheartedly wanted to realize its paper pulp industry dreams in the country of ancestral home, and who had already invested to build in Suzhou the paper product processing factories and the top-grade stationary paper project at Xinhui of Guangdong, finished purchasing 90% of the stock rights of Senbo Paper Pulp Factory on August 19 , 2005 resolutely with an sincerity of ” I will agree all conditions that foreign company didn’t agree”, and the Asia Pacific Resources International Holdings Ltd. was established.
On October 18, 2005, member of the Standing Committee of the Political Bureau of the CPC Central Committee, and national chairman of CPPCC Jia Qinglin visited Asia Pacific Resources International Holdings Ltd., and has raised the hope for Sukanto Tanoto: “Make a model project in the domestic pulp & paper industry.”
Sukanto Tanoto planned to bring the productivity of Asia Pacific Resources International Holdings Ltd. from 220,000 tons and 170,000 tons separately up to 300,000 tons and 180,000 tons through technological transformation. A bleach sulphate wood pulp production line with an annual production capacity of 1 million will be built and it would become one of the world’s largest single pulp production lines.
Besides making large scale investment in the paper pulp industry, relying on the integrated energy industry’s operation mode which contains high-tier (make an investment in Indonesia to develop natural gas resource and set up a natural gas liquefaction factory), middle-tier (liquefied natural gas export and transportation), low-tier (build accepting station, natural gas power plant gas line network), Sukanto Tanoto marched into the energy market of China. Through cooperation with such strategic cooperative partners as the Chinese Petroleum, Guoxin Group of Jiangsu Province, etc. he has developed and run 3 large-scale energy projects in China.
So far, RGM’s every business abroad has already been introduced to China. The investment projects under preparation include: the pulp & paper project in Rizhao of Shandong (1,630 million dollars of gross investment, the first stage is 430 million dollars, and the second is 1,200 million dollars.) Rudong liquefied natural gas accepting station in Jiangsu (The gross investment is 720 million dollars) and project of power plant of liquefied natural gas (The gross investment is 1,080 million dollars), project of Xiamen power plant of liquefied natural gas in Fujian (The gross investment is 700 million dollars), Changshu viscose rayon project of Jiangsu (The gross investment is 200 million dollars) and the palm oil project (The gross investment is 162 million dollars) of Nanjing in Jiangsu; The projects under construction is Xinhui top-grade stationary paper project in Guangdong (with 1,980 million of gross investment, the first stage is 680 million dollars, and the second is 1,300 million dollars); Suzhou paper product processing factory (with a gross investment of 50 million dollars) and chemical fiber project of Sateri in Jiangxi (The gross investment is 215 million dollars ) have already been put into operation.
Sukanto Tanoto orientated RGM China’s goal as “building up to a Chinese trans-corporation.” He said: “The 21st century is the era of the Chinese revival of nationhood, we can participate in. It is not only a chance but also an honor. ”
During interview, numerous senior level persons of RGM got together. They expected that according to this speed, the original investment plan of 6 billion dollars of RGM China is sure to exceed greatly in 5 to 10 years, and it is hopeful to reach 10 billion dollars. Mr. Sukanto Tanoto waved and said at once after listening:
“No, don’t shout slogans now. Work more and talk less. “
Based on resource, RGM is establishing a model of sustainable development through integration.
Resources are the powerful backing of RGM all the time. To integrate and make good use of so many resources and achieve sustainable development is definitely not an easy thing. For this, Sukanto Tanoto has his unique method.
His method is: “Give full play to the competitive advantage based on resource, fully utilize the key ability of low tier industry in order to expand the integrated palm oil industry, forest-pulp-paper integration industry, integrated development of clean energy and integrated viscose rayon and dissolving pulp production. ”
In RGM, integration is ubiquitous.
In the paper pulp factory, they develop recycled economy, develop and popularize resources saving, substitution and circulated utilization technology, not only environmental protection has been accomplished but also good effect is achieved.
“In order to prevent pollution, we have adopted three biggest recovery boilers in the world, the investment of each is 250 million dollars. The three boilers can generate electricity by burning the discarded materials, and the electricity generated can meet the need of production. It probably needs 1000 degrees of electricity to make a ton of paper pulps, one degree costs 4 cents, then the production of each ton of pulp can save 40 dollars. With the output of 2 million tons every year, 80 million dollars can be saved. The total investment of 750 million dollars in these three boilers can be regained in 8 years. “
Sukanto Tanoto said: “Environmental protection is not an input, but an investment. Plan should be made carefully at the beginning. If you mend after going wrong, your loss will be more than gain. We plan in an all-round way at the beginning and solve the problems completely. In addition, we accumulate and innovate from practice. Today is better than yesterday, tomorrow will be even better, and things will get better day-by-day. ”
For the development of forest resources, the RGM takes the sustainable integrated forestry management method of planting while cutting down. So far, the RGM enjoys artificial recycled forest reserves of more than 17 million mu in Indonesia and Brazil by the way of directly owned or a joint venture. And the key factor for Sukanto Tanoto’s success in entering the Chinese energy market is: His integrated clean energy development mode agrees with China’s current energy policy and environmental protection policy.
Except the integration of the industry from high to low tiers, the overall arrangement of different departments of RGM are managed orderly by Sukanto Tanoto, and the best in each other was brought out. In the world, there are 2 other factories whose productivity is close to the paper pulp factories of RGM. But they have spent 30 years to reach this scale, but RGM only used 10 years. The reason is that it constructed by Sukanto Tanoto’s own PEC-Tech Group. From engineering design, equipment purchase, building construction, operation maintenance to marketing and logistics management, Sukanto Tanoto finished this world-class project of high quality with the cost as low as possible relying on decades of practical experience in engineering design and construction field according to the unique management and project execution pattern – -” PEC mode “.
Sukanto Tanoto performed the integration more thoroughly on the viscose rayon. Through purchasing a dissolved pulp factory that with a land area of 2.5 mu and which can produce all dissolved pulp products from ordinary standard pulp to top-grade one with special use in Brazil, a viscose rayon factory that has more than 60 years’ experience in viscose rayon production and rich research and development capability in Finland, and the setting up of the related operation of the first wholly foreign-owned viscose rayon factory of China in Jiangxi, a global development strategy of viscose rayon that integrate the world wide sources(Brazil ) , technology (Finland ) , market and production capacity (China ) is established.
The integrated, rational and high-efficient industrial arrangement not only let RGM be very rich but also let it become the model of sustainable development. When many papermaking enterprises fell into the crisis because of issue on environmental protection, the United Nations Development Programme (UNDP) and the British world news information television channel (World Television) made a special event of the Asian-Pacific resource group (APRIL) of RGM’s successful experience in pursuing sustainable development strategy in RIAU of Indonesia and the benign interactivity with the local communities and people in the TV serial programs ” developing enterprises ” which shows for the first time on CNBC European.
Facts about Sukanto Tanoto 