Interview with Mr Chan Cheu Leong
Group CEO of Wah Seong Corporation Berhad

CHAN CHEU LEONG CEO and pioneer of Wah Seong Corporation

As a company which has been growing very rapidly over the past few years, and as an example of a corporate rescue success story, could you provide an insight into the company's development, and what has contributed to the growth of the company?

The company started in 1994 and it was a small company then. It took over a small unit of a building materials distribution company and a 25% stake in a loss-making steel pipe manufacturing company, which then had a small steel pipe-coating JV subsidiary with an Italian partner. That was how we started. When the Malaysian government embarked on the Peninsular Gas Utilisation Project (PGU-1, PG-2 and PGU-3), we were successful in securing a major API steel pipe contract for PGU-3, whereupon we established a big pipe mill in joint venture with a government link company, Hicom Holdings. At that time the Asian oil and gas industry was becoming increasingly vibrant mainly as a result of rising energy demand in China and India.

We subsequently acquired a company that was involved with industrial engineering, design and fabrication for oil and gas facilities, petrochemical plants, and also manufacturing and distribution of all the equipment and components for the palm oil industry. That set the stage for Wah Seong's average annual growth of 30-40% then, with 4 business divisions i.e. oil and gas, industrial engineering, infrastructure and building materials.

Even at the height of the Asian financial crisis, we had remained profitable because of the rising oil & gas sector, and also because of our prudent management strategies We avoided overstretching ourselves. Instead we focused on a balanced approach. Our building material business back in 1995 had a RM60 million turnover but today, it has a turnover of about RM300-350 million. As for our pipe coating activity, which is our core business for the oil & gas sector, we have achieved a domestic market share of about 60-70% from a 10-20% market share in 1994. In terms of revenue from pipe coating, 90% is derived from exports overseas and foreign operations. We have therefore benefited from the Malaysia Incorporated policy which aims to help Malaysian companies develop their own capability, technology, etc, so that they would be able to compete in the global market.

As background to the oil and gas industry in this country, it really only started in the early 70s although Shell has a much longer presence here, about 100 years in the country. The sizeable production sharing contracts were signed in the midst of the 70s, off the Trengganu coast in the East coast of Peninsular Malaysia. When Petronas was formed in the early 70s, it practically had to start from a zero base. It is quite amazing how in only about 20 over years, Petronas has been able to build up its own capability, not only in the development of technological and management capabilities but also in overseas expansion into new markets like Sudan, Chad, South Africa, Central Asia etc. where it undertakes exploration and production activities. We are beginning to benefit from Petronas' expansion programs abroad. That partnership between the Malaysian government and the private sector has been extremely rewarding as it gave us a helping hand at the start. To be a significant energy player, we have to go global.

The world needs energy to power the economy, with an increasing shift to the use of gas as it is cleaner and more efficient. Unfortunately most existing infrastructure that we have is more for oil which incidently is also under-invested for the last 10-15 years.

Do you plan to diversify into the different activities within the oil & gas sector?

As mentioned earlier, this sector has a very wide spectrum of activities stretching from exploration production to petrochemical and for example, if you want to venture into exploration and production activities, it is very capital intensive and you need technology. It would be a better strategy to concentrate on the activity we are familiar with and to expand on it. So far we have been focusing on pipe coating and related oil and gas services. Going forward, we intend to broaden our activities in other related oil services.

Is providing services therefore your main focus rather than in manufacturing?

In entering the oil & gas sector, we started with one particular sector, this being API pipe manufacturing and coating. From there, we built around it and hope to expand this activity, keeping pipe coating as our core business. That strategy is working as today, we are one of the top 3 pipe coating companies in the world, steadily gaining market share in recent years. We also have other divisions such as industrial engineering and building material, etc.

In the long term, we hope to transform this company over a period of 5 years from essentially a medium sized Malaysian industrial group to become at least a regional, if not a global oil & gas service company. We have identified the oil & gas sector to be the core for our growth. To transform the company and to be competitive, we have adopted a business model essentially based on the development of technological, branding and distribution capabilities within the company.

In respect of international expansion in your oil & gas division, where are your priority markets?

As we are an Asian company, we have a better understanding of Asia more than any other regions. Hence we are in China and the ASEAN countries. Now, we have begun to enter Central Asia, Russia, the Middle-East, and Sudan where Petronas has a big presence. We hope we can also have a presence in the US by forming strategic alliance with US companies. We are excited with the future prospect of working closely with our national oil company in their expansion programme overseas.

While Petronas is one of your major clients, do you plan to also collaborate on a regular basis with other major oil & gas players, including American oil & gas industry players?

Yes, we work with most oil majors such as BP, Shell, Exxon or anyone else in the industry. We also work with all the major EPC contractors, pipe manufacturers and international trading houses. As an oil and gas service group, we look forward to working with industry players in the US and elsewhere on a win-win formula.

The Malaysian oil & gas industry is relatively young. Petronas is about 30 years old while most other local players have only about 10-15 years' history. Many of them are very inward-looking, just looking at Malaysia and being comfortable working here. If you want to grow the business, you have to go beyond Malaysia, as Petronas is doing. The strategy is therefore to globalize.

What kind of competitive advantage or expertise has Wah Seong acquired over the period it has been involved in the oil & gas sector, to be a good partner in Asia, to be a good partner with any foreign company?

When you are running a company, it is not about how much assets you have but it is about your management and the quality of human assets. If you want to transform the company into a service company, the key priority is to build up the human capital. We also have to work with others especially since the world is changing very fast due to globalization and rapid technological innovation in telecommunications and we therefore have to transform and adapt ourselves very quickly in a proactive manner.

The Malaysia Incorporated concept appears to have contributed significantly to Malaysia's impressive growth. How has Wah Seong benefited from this concept and how do you think the Malaysia Inc concept is going to evolve over the next few years?

In the oil & gas business, it is about having a good track record. What the government has done was commendable, giving us necessary support at the initial stage so that we will have the opportunity of developing our track record over a period of time and more people will hear about us. For example most major coating jobs in the world today will not have more than 3 or 4 bids. You need good track record to be pre-qualified to bid for these contracts. In respect of pipe coating, this normally constitutes 8-12% of the total cost of the pipeline, so the company with good track records will have a better chance to be awarded the jobs apart from the prerequisite competitiveness.

It is very important to get the right business model. To be successful, you have to transform the company in line with the structural change in the economy, to change ahead of the economy. If you do not grow, you will stagnate relative to your competitors and will be out of business. Market share is therefore very important.

In this short span of time, you have succeeded in transforming the company from a SME to be a regional player. What do you consider as your major challenges in this process?

Basically, it is about getting the right people to run the business and to help you grow the business. We need strategic alliances; if we were to acquire a 51% equity stake in any company, we will be able to provide the management and financial infrastructure to help grow the business and we will use that as a base to grow further. We adopted this strategic alliance approach in most of our acquisitions such as in the Middle East and also in China where we have set up Wah Seong China, in partnership with an American partner.

I see the demand for oil and gas to be strong because of the fast growing economies like China and India from now until the next 5-10 years. For the last 10 - 15 years, the oil and gas industry has been under-invested. Africa will be the next continent to watch out provided it can tackle their political problems, diseases like AIDS, etc. With all this strong growth, I foresee oil prices to remain strong. This would mean that there will be more and more exploration and production activities and hence, new business opportunities for us.

Your vision for Wah Seong to be a global player ties in well with Malaysia's Vision 2020. Could you care to comment?

There is a general weakness evident in Malaysia and elsewhere; many companies have visions and dreams but when it comes to actual implementation, many lack the necessary execution capability. The mindset has to change and the people have to be prepared to roll up their sleeves and get things done. After all, management is the art of doing and getting things done. Working in a hostile and tough environment helps to strengthen ourselves. There is no short cut to prosperity but through hard work and good corporate culture. Positive work ethics is very important if we want to succeed.

What message would you like to tell our 1.6 million readers about Malaysia in general, about the oil & gas sector and what can Wah Seong offer them?

Malaysia has been quite misunderstood by foreigners in the past. Actually those who have visited the country will be pleasantly surprised that Malaysia is quite different from what has been perceived or projected. We have inherited from the British a good education system, good infrastructures, a relatively efficient civil service. We are lucky to have a good government which is pro business and foreign investment, good prime ministers from Day 1 and most importantly a stable political environment. Malaysia is also blessed with abundant natural resources, commodities and now we have a strong manufacturing base from which we could expand globally. Wah Seong will be one of those companies that will take advantage of the opportunities available. We look forward to developing business opportunities with Asean, China, the Far East and US companies in the form of joint venture, strategic alliances, distribution or technological tie-up.