Powerful end to a long career

Xi'an electrical transmissions firm poised to benefit from Egyptian energy reforms

Two years ago Ren Ye was in the sunset years of his career as the clock ticked down to his retirement. He had spent more than 30 years with China's largest manufacturer of electrical transmission equipment, beginning as a hot metals technician in a switch factory, and rising to become its deputy chief engineer.

But Ren's career took an unexpected turn two years ago when the bosses of China XD Group Corporation decided to send him on a mission to pump some life back into one of its overseas operations, and within weeks, Ren, 57, had moved from Xi'an, the royal city of the Terracotta Warriors, to Egypt, land of the pharaohs.

There he works as general manager at XD-Egemac, in El-Ain El-Sokhna, 200 kilometers east of Cairo on the Gulf of Suez, and retirement now seems to be the last thing on his mind.

XD-Egemac is a joint venture with Egypt's leading power group, the Egyptian German Electrical Manufacturing Co, with XD holding a 51 percent share and Egemac the rest.

China XD Electric Co Ltd is listed on the Shanghai Stock Exchange and has market capitalization of 21.4 billion yuan ($3.5 billion), and sells its products worldwide.

"Egypt is a big economy and a political power in the region," says Ren, explaining why the company decided to set up operations in the country. "We were optimistic about the demand from Egypt and the region."

The initial plan was to invest about $100 million as the joint venture took advantage of XD's know-how in high-voltage electrical transmission and transformers.

But the company's performance failed to match its managers' expectations, and after the government led by Hosni Mubarak was overthrown in 2011, XD reviewed its sales of electrical equipment over the previous five years and reevaluated the political and economic situations in the country.

With the unrest in Egypt and elsewhere in North Africa and the Middle East, XD cut its investment plans by about a third. It also decided to divert the joint venture's focus from manufacturing to sales, suspending investment in its transformer factories. These two workshops, which employ 46 technicians, sales people and others, make high-voltage switches and transformers. Forty-two of the staff are Egyptians.

Ren says that in the past two years, the joint venture's flagging fortunes have begun to revive, and it has become an important player in its field in the region.

Being flexible and even preempting changes in local conditions is one of the key tests of Chinese enterprises' ability to operate globally, he says. That applies particularly to regions prone to political unrest where Chinese enterprises, mostly state-owned, are active in big projects.

State-owned enterprises are often too preoccupied by how much money they think they are going to make with a proposed project, rather than thinking about critical management and operational details, Ren says. While that approach may work in China, its shortcomings are obvious in regions like the Middle East and North Africa.

"Egypt sits at the crossroad of two global hotspots, and we need to concentrate our limited resources on making the products that the local market needs most."

Gas-insulated switchgear substations, which are regarded as superior to switchgear that is insulated in other ways, but which are more expensive, are now XD-Egemac's signature product.

"We make switches here and heavy transformers back in China, and have the transformers shipped here and sell them in the whole region," Ren says.

Last year XD-Egemac won tenders for three big projects in Egypt, two transformers and a gas-insulated switchgear substation, worth about $210 million.

The company says its turnover last year was 50 million Egyptian pounds ($7 million), and that it expects that to double this year.

XD-Egemac's presence in Egypt has greatly influenced the regional market, Ren says.

"Before we changed our approach, companies from Europe, Japan and South Korea dominated the switches and transformer market. We now outdo everybody on cost. Egyptian electricity operators and SOEs are able to save a lot of money in many of their projects when they buy from us."

Selling heavy equipment was just one task that was put on Ren's plate when he arrived in Egypt.

Another was to localize big-equipment manufacturing.

"If XD can make its heavy equipment in Egypt, we have more scope to cut our retail prices even further, without compromising on quality," Ren says.

His third mission was to turn the Egyptian branch into a key manufacturing, sales, and research and development center serving XD's business in North Africa, the Middle East and Europe.

"The joint venture is a perfect springboard for taking XD's technology to developing countries, to promote the growth of local enterprises and create jobs," Ren says.

XD-Egemac enjoys a good relationship with Egypt's state-owned electrical utilities, and that means many business opportunities, he says.

"Business has a role in making the local economy grow and serving society generally," Ren says. "Our technology benefits many people, and we do not fear competition."

In China, XD thrives on the fierce competition that SOEs and private enterprises offer, he says.

Since China adopted market reform starting in the late 1970s, several SOE electrical machinery makers throughout the country have disappeared or merged with private companies. The private companies have proven to be expert in poaching technicians from SOEs and in making financial killings with certain products.

Private company Xinjiang Special Transformer Works, for instance, is presenting stiff competition to XD-Egemac in Egypt, Ren says.

"In fact it is Chinese private enterprises, because of their low prices, that are our biggest headache."

But having that competition is not all bad, Ren says.

"XD has always listened keenly to what its customers say about its products and services, which is rare with SOEs in China, some of which have a rather high opinion of themselves. That's something we have learned from private companies."

Quickly adapting to market conditions, marketing and low costs are some of their other strengths, he says.

He feels that research and development and possessing large manufacturing capacity are among XD's main assets.

He is confident about his company's future in Egypt, he says, one reason being the country's market reforms in the energy industry.

After the government reduces subsidies for natural gas used to generate power, power prices will rise, he says, and increased profits in the industry will spur the demand for electrical transmission equipment and transformers.

"In China, the government subsidizes coal used in electricity generation. That hobbles growth in the power industry. Market reform in the power industries of both countries is not only necessary but will be of immense help to their economies."

In such conditions, the power industry stands to make bigger profits and to put existing generating equipment, a lot of which has been idle for a long time, to better use.

"As Egypt's political situation stabilizes, the country, with its 90 million people, will expand its power grids," Ren says.

"That's a market no one in the business of making and selling electrical transmission equipment and transformers can afford to ignore."

duxiaoying1@chinadaily.com.cn

(China Daily Africa Weekly 09/12/2014 page21)