| Under the ratification of the State Council and the Ministry of Foreign Trade & Economic Cooperation, China Minmetals Petroleum Materials Co., Ltd. (hereafter called Minpeco) was jointly established on a 50/50 basis by China National Metals & Minerals Import & Export Corp. and China Petroleum Material & Equipment Corp. Minpeco mainly handles import and export of steel products, machinery and equipment of oil and gas industry. The amount of tax turned over to the State has added up to more than RMB200 million since it was set up six years ago. Minpeco's market share and profit decrease a lot in the year of 1999, the reasons are:1. Increase of local production leads to the decrease of total import quantity of Minpeco's main business - oil country tubular goods (OCTG). With an annual capacity of 750,000MT to 800,000MT, although it can not satisfy customers fully on specification, quality and service, it can already play a main roll in domestic oil and gas fields. Therefore except for application in desert, OCTG import was no longer tax free since 1996, and the State Metallurgical Bureau was asked to control the total import.2. Minpeco's market share decreases directly due to the reform of petroleum industry. In 1998 the establishment of two giants, China National Petroleum Corp. and China National Petrochemical Corp. assures the two of the right to import steel products. China Petrochemical applied a strict control over the OCTG import of its oil and gas fields, thus Minpeco loss orders from big oil fields like Shengli and Zhongyuan, resulting a sharp decline of its market share.3. Management lack of foresee and renovation. When Minpeco passed its initial difficulties of foundation period, management should have put more emphasis on the its future development by analyzing the environment. However, Although management realized the threats of local production and reform, real attention was not given. Management enjoyed celebration of task fulfillment and praise from shareholders when receiving dividends, without strategic planning and the courage to renovate. China is the third largest country in energy production with rich oil and gas resources. With the rapid development of our national economy, oil consumption increase quickly. To ensure the basic supply of oil, the up stream strategy of our petroleum industry is to keep firm the East, to explore the West and to gaze at the Sea. As the largest OCTG importer Minpeco faces pressures both from the competitors and local producers, its trade status with suppliers and customers are at a disadvantage. Minpeco urgently needs to find a way to develop. Minpeco should make good use of its sound business prestige as well as its marketing network to change business operation strategically. Therefore three targets are set forward and they should be carried out in three stages:1. To adjust the strategy of main business. To change from a trader to a service provider by June 2001. The exploring of the oil and gas in the West will result in an increasing demand of special tubes and the relevant service, which can not be met by domestic manufacturers. With its existing marketing network Minpeco can establish a strategic alliance with the world's three largest OCTG manufacturers to jointly develop the market by using there technology and experience, thus providing individual value added service to customers. To ensure the efficiency of the alliance, Minpeco should pay attention to problems like the allocation and coordination of profit, culture difference and equality. 2. To breed new profit sources. Use two years to develop one or two "star" products or businesses. e.g. participate actively in the project of transporting gas from the West to the East, to qualify as its purchase agent by right of past record or try to become the material supplier of the project, even to join the operation of the pipeline. On the other hand, carried out the project of asphalt for high way in a safe way. 3. To have the company go public in three years. Minpeco should build up a... |
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