Charoen Pokphand Group Business Information, Profile, and History
CP Mission: To become a global agrifoods company, 'Kitchen of the World,' with distinctive branding; to contribute to the development of agribusiness in the developing world; to secure and employ advanced innovative technology and management; to protect animal welfare; to focus on food safety and nutrition.
History of Charoen Pokphand Group
Charoen Pokphand Group (CP) is one of Thailand's largest companies and one of the first true Asian multinationals. The group's operations span more than 250 companies in 20 countries--largely in Thailand and China but also in Indonesia, Malaysia, India, and Cambodia--with more than 100,000 employees and sales of $13 billion. These operations are placed under two main business divisions--that of Production and Processing and that of Service. CP has also made an effort, unusual among Asian conglomerates, to achieve a degree of financial transparency, including publicly listing a number of its key businesses. These included CP Feedmill, which groups most of the CP's core feedmill and livestock--poultry, pigs, and tiger shrimp--businesses in Thailand, and, in Hong Kong, CP Pokphand, which oversees the group's vast livestock and feedmill holdings (some 200 subsidiaries) on the Chinese mainland. Other key CP holdings include TelecomAsia, challenger to the government run phone company in Bangkok, which has built a network of 2.6 million fiber optic telephone lines for the city; Siam Makro, the group's discount retail chain; Ek Chor China Motorcycle, the New York Stock Exchange-listed maker of motorcycles for the Chinese market; and Vinythai, a maker of polyvinylchloride and other petrochemicals, developed in partnership with Belgium's Solvay. Other holdings comprise retail stores--including a share in the Tesco Lotus supermarket chain and the 7-11 convenience store franchise for Thailand--and restaurants, including the group's Bua Baan fast-food concept featuring CP's own processed foods. Despite its diversified activities, the Asian economic crisis of the late 1990s encouraged CP to restructure itself around a core focus of agribusiness and food operations through a new flagship company, Charoen Pokphand Foods. As such, the group has adopted a new slogan as the "Kitchen of the World." CP has long been led by Dhanin Chearavanont, son of one of the company's founding brothers.
Sowing the Seeds of a Thai Feed Giant in the 1920s
In Thailand, as in most of the Asian region in the early 20th century, the arrival of Chinese expatriates transformed the country's economic and financial landscape. By the end of the century, the region hosted a large number of diversified conglomerates originated by Chinese businessmen, who took their place among the world's wealthiest people. Among them was Dhanin Chearavanont, who, at the turn of the 21st century, controlled a group producing more than $13 billion in revenues each year.
Chearavanont had built his fortune from the Charoen Pokphand Group, or CP Group. That company had originally been founded by two brothers, Chia Ek Chor and Chia Siew Whooy, who arrived in Thailand from China in 1919. The Chia brothers began importing seeds from China and in 1921 set up a small shop in Bangkok's Chinatown district. The original name of the business was Chia Thai Co.
The brothers expanded the operation, importing vegetables as well, to meet the demand of Bangkok's growing Chinese population. Before long, Chia Thai launched an export wing, sending pigs and eggs to Hong Kong. By the 1950s, the brothers' children had joined the business, and the company began looking for expansion opportunities. Chia Thai, which became known under the Thai name of Charoen Pokphand did not have to look far for its first attempt at diversification. Farmers formed the major part of CP's customers, and the extension into feedstuffs seemed a natural one. In this way, CP's seed customers became the suppliers for its new operation, animal feed. In 1954, the company launched its first subsidiary, Charoen Pokphand Feedmill. By the end of the decade, feed had become a major company focus.
CP expanded quickly and by 1960 had begun exporting feed to other markets, especially China. In that year, the company established its first foreign operation, opening a branch office in Hong Kong. At the same time, the company expanded its operations throughout Thailand, adding a growing number of farmer customers and feedmills. By the end of the 1960s, CP was already able to claim the position as Thailand's leading feed producer.
A major force behind the company's growth was Dhanin Chearavanont, son of Chia Ek Chor. Despite being the youngest of four brothers, all involved in the business, Dhanin Chearavanont clearly displayed the most energy, and by 1964, at the age of 25, had already begun to guide the company's development. In 1970, he became president of the firm.
Dhanin had recognized that poultry and feed industries in the West had been making a number of important developments since the 1950s, combining advances in breeding techniques with new feed formulas, including the use of growth hormones and antibiotics, as well as modern production line technologies to produce dramatic increases in poultry yields. Chickens were not only larger but their growth cycle had been cut by as much as half. In the early 1970s, Dhanin decided to extend CP's operations into the livestock arena.
For this, Dhanin displayed a willingness to engage foreign expertise, in the form of partnerships, a method that was to prove a company hallmark for much of its later growth. In 1970, the company set up its first joint-venture with U.S.-based Arbor Acres, which had been one of the pioneers in selectively breeding for the purpose of producing a meatier, faster-growing bird. CP imported its first chickens in 1973, launching the company's nursery operation. At the same time, the company hired foreign nutritionists to help it develop new, higher-yield feed formulas.
By the mid-1970s, CP had succeeded in developing a bird that reached maturity after only seven weeks--compared to up to four months for other breeds. At the same time, the company's improved feed formula meant that chickens could be brought to maturity with only half the amount of feed. CP then brought its chicks to Thai farmers, providing them with the feed, technology, and supplies needed to begin production of chickens. The company then bought the chickens back from farmers, who, encouraged by CP, quickly developed large-scale farms.
China Pioneer in the 1990s
Based on its success in livestock, CP stepped up its diversification, becoming a vertically integrated agribusiness, adding breeding farms, slaughterhouses, processed foods production, and, later, its own chain of restaurants. CP had also gone international, launching feedmill operations in Indonesia in 1972, exporting chickens to Japan--the company soon challenged the giant U.S. companies that had previously been dominant as that country's leading supplier--in 1973, then moving into Singapore in 1976.
Yet CP's greatest overseas success was to come in China. At the end of the 1970s, that country instituted a series of economic reforms opening its economy to foreign investment for the first time since the Maoist revolution. CP's family ties with the mainland enabled it to become the first foreign company to establish itself in the newly created Shenzhen free trade zone, where the company set up its Chia Tai Co. subsidiary in 1979. While investment in China remained tentative in the early years of the decade, by the mid-1980s CP had gained valuable first-in experience in the market. The company stepped up its investment in the country, opening new feedmill and livestock operations. By the early 1990s, CP had launched some 200 subsidiaries in China.
CP had now become a highly sought-after partner for companies seeking entry into the Chinese market. The company's experience--and its prized political connections--made it the partner of choice for a variety of diversified ventures, one example being motorcycle manufacturing in partnership with Japan's Honda. In the meantime, CP's massive investment in poultry production on the mainland was credited with changing the country's dietary habits, as per-capita consumption more than doubled by the end of the decade.
Back home, CP continued to seek more markets for diversification. In 1980, the company partnered with another U.S. company, Avian Farms, to begin breeding ducks. The company also added pig breeding operations that year, importing livestock from Belgium, Holland, and the United States to develop its own pig hybrids. In 1986, the company spotted another food opportunity and launched a research center for the development of new breeds of shrimp that would be adaptable for fish-farming methods. The company's success in that area enabled it to become the world's leading supplier of black tiger shrimps.
Focusing on the New Century
By the end of the 1980s, the growing CP empire had already produced some $4 billion in revenues. Yet a significant part of that figure no longer came from the group's core food interests but from its increasingly diversified operations. The company's entry into the restaurant sector came in 1988 with the launch of Chester's Grill. That same year, CP launched its own supermarket group, Makro, which quickly became a leader in Thailand's retail sector. The following year, CP entered the dairy market, partnering with Japan's Meiji group to launch the CP Meiji line of dairy foods for the Thai market. The company also added convenience stores that year, gaining the Thai franchise for the 7-11 retail format. The company quickly began building that format into a national chain, adding as many as 20 stores each month and reaching a total of 1,000 by the end of the 1990s.
Yet the company's diversification went even further. In 1989, CP joined with Solvay of Belgium to launch Vinythai Co., a manufacturer of polyvinylchloride. The following year, the company made an even bolder move, forming a partnership with the U.S. telecommunications firm of NYNEX (later Verizon) to launch TelecomAsia (TA) in a move to compete against the government's former telephone monopoly in Bangkok market. In 1993, TA went public on the Bangkok Stock Exchange and began construction of its own fiber-optic telephone network, which reached 2.6 million lines at the end of the decade.
TA was not the only one of CP's companies to be listed publicly, as the company brought Charoen Pokphand Feedmill, Siam Makro, and Vinythai to the Bangkok exchange, as well as its Hong Kong subsidiary, CP Pokphand to the Hong Kong exchange, a Shanghai-based animal feed and poultry group to the Shanghai exchange, a real estate development arm, Hong Kong Fortune, to the Hong Kong exchange, and Ek Chor China Motorcycle to the New York exchange. Investors seized the opportunity to purchase a stake in one of Asia's fastest-growing conglomerates. The public listings also represented a rare instance of financial transparency among the region's usually super-secret corporations. However, these publicly listed companies in fact represented only a small part of CP's total holdings.
Into the mid-1990s, CP continued to seek new means for diversifying its holdings. In 1994, the company launched its first Lotus Supercenter retail store, which it developed into a national chain in Thailand. CP also began nurturing an ambition to enter the semi-conductor market, beginning negotiations with Chinese officials to act once again as partner for foreign investors. By then, however, China had gained sufficient confidence in its dealings with foreign corporations and no longer needed CP to play the role of middleman. Instead, CP suddenly found itself facing a new wave of competition in China as the international business world, including industry heavyweights operating on a global scale, rushed into what was fast becoming the world's largest single market.
The economic crisis that swept through the Asian region caught CP short as well. The company's fiber optic network went online concurrently with the country's financial collapse, and TelecomAsia was hard-pressed to find customers. Only half of the 2.6 million lines were rented by the end of the decade, forcing TA to default on payments and landing it $1.5 billion in debt. In return, the company's banks froze its line of credit across all of its operations.
CP, like many of the region's conglomerates, was forced to recognize that its diversification drive had been too ambitious. Unlike its counterparts, however, CP acknowledged its errors publicly, pledging to refocus its operations and at the same time simplify its structure in an effort to enhance the company's financial transparency.
CP began shedding a number of noncore businesses, such as its Thai-based Lotus Supercenter operation, the majority of which were acquired by the United Kingdom's Tesco and renamed Tesco Lotus. The company also sold off its Ek Chor Motorcycle subsidiary's Shanghai manufacturing stake and shut down a number of TA subsidiaries. Another feature of the company's restructuring was its willingness to turn down new joint-venture "offers," which typically involved the company taking on debt. If previously a number of the group's subsidiaries had built up debt-to-equity ratios of more than 1,000 percent, they were now under orders to pay down debt and balance their books.
Into the new century, CP decided to refocus itself as the "Kitchen to the World," looking to its core agribusiness holdings for future growth. As part of that effort, and in an attempt to increase its financial transparency, CP merged 11 of its Thai agribusiness subsidiaries into core group Charoen Pokphand Feedmill by 1999. Charoen Pokphand then became the main vehicle for the now "focused" CP.
The company's emphasis on gaining focus did not, however, prevent it from maintaining its diversified business interests, nor from entering new markets, such as the mobile telephone market in partnership with Orange in 2000, or an entry into the e-commerce market with the launch of Phantavanij and eMarketplace in 2001. CP had not abandoned the retail market either, and in 2002 the company began construction on a new style "super brand" Lotus mall in Shanghai, raising the number of the group's stores in China--where it maintained 100 percent control of the Lotus chain--to ten by 2003.
By then, Dhanin had been consecrated by Fortune magazine as one of its "World's Most Powerful Business Leaders" and the only corporate chief in the ASEAN economic zone to be featured on the list. As part of this recognition, Dhanin was credited with having built a fully vertically integrated agriculture-to-retail empire, including the world's largest producer of animal feed and one of the top producers of eggs, poultry, and other livestock. With some 250 companies, 100,000 employees, and more than $13 billion in revenues in 2002, the Charoen Pokphand Group represented a true success story.
Principal Subsidiaries: C.P. Feedmill Inc.; C.P. Pokphand (Hong Kong); Ek Chor China Motorcycle (United States); Hong Kong Fortune (Hong Kong); Shanghai Dajiang (Shanghai); Siam Makro; TelecomAsia.
Principal Competitors: Lajta-Hansag Rt; Nisshin Seifun Group; Hindustan Lever Ltd.; Nippon Flour Mills Company Ltd.; Unicharm Corp.; Nisshin Oillio Group; Uni-President Enterprises Corporation; Daesang Corporation.
- Key Dates:
- 1921: Chia Brothers, from China, set up a seed shop in Bangkok's Chinatown, then begin exporting poultry and pigs to Hong Kong.
- 1954: The company diversifies into animal feed production and launches a subsidiary, Charoen Pokphand Feedmill.
- 1964: Dhanin Chearavanont, son of one of the founders, takes over as company leader.
- 1970: The company launches a poultry breeding business in partnership with Arbor Acres of the United States.
- 1973: The company begins exporting poultry to Japan and becomes one of that market's leaders.
- 1979: The company becomes the first foreign firm to invest in the Chinese market, opening a feed subsidiary in the Shenzhen economic trade zone.
- 1986: The company diversifies into shrimp production and becomes the world's leader in this market.
- 1994: Lotus Supercenter retail network is launched in Thailand.
- 1998: The company restructures as a "focused" agribusiness.
- 2003: Dhanin Chearavanont is named one of Fortune magazine's "World's Most Powerful Business Leaders."
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