By Li Yuyang

In recent years, COFCO Limited, which ranks first among China's Top 100 enterprises in food industry and has been selected into the world's top 500 enterprises according to Fortune magazine for 13 consecutive years, has realized its transformation from a single import and export company to a diversified enterprise as the largest foodstuff trading company in China, which is also engaged in agriculture and food processing, biomass energy production, real estate development and financial services. However, COFCO is being confronted with new challenges on how to get transformed from a diversified company to a large company or a large group, which gives prominence to its main businesses while being provided with well-known brands and independent intellectual property rights and being able to adapt to global competition.

To become a pacemaker in core business areas

Diversification is a common feature of Chinese companies above the designated scale, and it is true in the case of COFCO, which is involved in foodstuff and oil trade, food processing, real estate, finance and so on. In the face of dozens of different areas, how to set up harmonious relations between them?

COFCO set down its development strategy of "Pursuing specialization at individual business unit level while exercising limited and related diversification at the corporate level". It means that the group shall develop its core business with efforts, establish inherent logic relationships of businesses between diversified industries so as to develop synergies while business units shall become pacemakers in respective sectors. Make comparisons with the leaders in the same line at home and abroad, retreat gradually from those areas where it is impossible for COFCO become a leader after making adjustments and then allocate the resources to such business units with development prospects as biomass energy.

COFCO keeps to business logic and inaugurates business models to realize an organic corporate growth. It starts trade of agricultural products, its core business, and then makes breakthroughs into such areas as acting as an agent dealing with cereals, oils and foodstuffs and self-managed imports and exports and extends to domestic grain trade and various logistic sectors so as to get the international and domestic markets linked to one another. At the same time, COFCO will extend the industrial chain in the field of food processing and shape up supports for grain trade and a complementary relationship. China Grains and Oils Group Corporation (CGOG) was restructured to construct a macro system of foodstuff industrialization, which will get domestic trade integrated with foreign trade; Heilongjiang China Resources Alcohol Co., Ltd. and Anhui BBCA Biochemical Co. Ltd. were restructured to enter the biomass energy industry and become the trend-setters in that field.

Some of such integrations aimed to expand product lines; some were conducted to control raw materials in the upstream while some others were conducted so as to enter growing industries. Through integration, a new industrial pattern for COFCO was initially shaped up: it became the largest foodstuff dealer in China, a major company engaged in the processing of foodstuff and other agricultural product (the largest edible oil producer, the largest flour producer, a wine producer with the largest production volume and the largest sales volume, and a ketchup producer that is the largest in Asia and the second largest in the world, etc.), a supplier of diversified brand foodstuff, a main leading enterprise in native produce and livestock ��and a diversified enterprise as well as a pacemaker in its main businesses.

Make use of the capital market to preserve and increase the value of state assets

On the afternoon of March 14, 2007, the young road show team of COFCO waited impatiently for the result of pricing conference in the Goldman Sachs Group, Inc.'s office in San Francisco. The result was announced: during the road show, COFCO's target-hitting rate in Asia amounted to 80.6 percent and 85.7 percent in Europe. COFCO's IPO price will be 45 percent higher than the price-earnings ratio of AMD, a benchmarking international enterprise in the same trade. Having heard such a piece of news, the road show team fell into jubilation. On March 21, China Agri-Industries Holdings Limited (HK606) was successfully listed in Hong Kong.

To restructure and dismantle COFCO International Ltd. (HK506, renamed as China Foods Limited now) and drive the successful listing of China Agri-Industries Holdings Limited (HK606) is to make COFCO more specialized in two fields and shape up two listed companies with their respective strategic orientations--China Foods Limited mainly engaged in the business of brand food and beverage and China Agri-Industries Holdings Limited mainly engaged in the processing of cereals and oils. Meanwhile, equity got diversified, and the supervision and evaluation in international capital market was introduced.

Ning Gaoning, Chairman of COFCO, noted that to launch a stock system transformation was to inform investors what your selling point was. If the main business were not clearly defined, less competitive with not so high returns, it would be impossible to pass the test of qualified investors. The stock system transformation that COFCO is currently driving with efforts was simply an attempt to use a new way to solve such problems as a shortage of strategic thinking, less clearly defined main businesses, and weak supervision, which existed universally in state-owned enterprises.

Lay a solid foundation for enterprise transformation

In COFCO, Ning Gaoning described the managers and staffs of state-owned enterprises vividly as "Cattle Herdsmen": Cattle belong to country, and our responsibility is to do a good job as herds men and ensure that state-owned assets will be maintained and appreciate; only being good cattle herdsmen can the business and the employees maximize their value. Such an analogy illustrates the coherence between the interests of the state, enterprises, and individuals in a clear and vivid way.

While making clear missions and responsibilities for state-owned enterprises, COFCO takes the budget strategy as a main line and establish a "6-System" fundamental management system, which mainly contains the following points "strategic planning--a comprehensive budget--business management reports--internal audit--performance assessment--evaluation of the manager". With the group's management and control framework consummated, more than 30 business units are concentrated in the following 9 plates: COFCO Trade Co., Ltd., China Agri-Industries Holdings Limited, China Foods Limited, China National Native Produce & Animal By-products Import & Export Corporation, COFCO Real Estate and Hotel Division, COFCO Xinjiang Tunhe Co. Ltd, COFCO Packaging, COFCO Development, and COFCO Financial Business Department.

Faced with the increasingly internationalized competition pattern in the market, State-owned Assets Supervision and Administration Commission of State Council (SASAC) proposed a development goal of nurturing 30~50 large enterprises and enterprise groups with international competitiveness out of central enterprises. As one of 53 key state-owned enterprises directly managed by SCSAC, COFCO begins to focus on cultivating its own "core" while playing the "combination punches". As a trading enterprise, COFCO did not establish its own research and development department; but now, it has set up research and development centers in such fields as foodstuff processing and biomass energy resources. Moreover, COFCO have established scale/facilities-driven, brand/channel-driven and innovation/technology-driven development strategies to meet the requirements in various sectors and fields.