HengAn CEO sees flexibility to act smartly as his key to continued growth

HengAn - In the Mandarin language, ‘Heng’ means forever and ‘An’ means safe or secure. So the company name of this very large producer of hygiene and tissue products in China means, more or less, “Forever Safe”. The idea is to give consumers a very reassuring and secure image of HengAn and its products.

Hugh O’ Brian

When Mr Hui Lin Chit, CEO of HengAn, is asked what the three biggest challenges he faces in keeping his very successful HengAn company strong and growing, he laughs and says: “I have only one challenge. But it is the single factor which influences everything else. We must be flexible enough to make smart changes which will allow us to continue to lead. Flexibility is the key to everything.” Considering his strong track record in tissue over the past two decades, as well as HengAn’s reputation as an exceptionally well-managed company, it would be very hard to argue with that philosophy. HengAn now has a total tissue capacity of around 1,020,000 tons per year, plus another 360,000 tons which are coming on stream in the next few years. This represents amazing growth from 1998 when HengAn entered the tissue business.

STARTED IN FEMININE HYGIENE IN 1985. HengAn Group is about 30 years old, having started in 1985 selling feminine hygiene products to the Chinese market. Mr. Hui says that at the time the Chinese feminine hygiene market was very small with only a few high-quality products, mostly imported. He wanted to change the market offering by selling a much wider selection of quality hygienic products. At that time China was just beginning to open its door to the world and this presented him an excellent opportunity. The timing was great. After successfully building the hygiene products business for more than a decade, HengAn entered the tissue making business in 1998. Similar to the case for feminine hygiene products, Mr. Hui saw his opportunity again: raise the level of quality and grow with growing quality demands.

LOW QUALITY PRESENTS A TISSUE OPPORTUNITY. Mr. Hui recalls an experience which convinced him that supplying China with good quality tissue products would be a successful business. “I bought a paper handkerchief at that time from a local store and when I simply sniffed in it, the sheet broke. That made me realize that the market needed better quality. So we started buying tissue products from Hong Kong and selling them. All the good-quality parent reels were imported from overseas then.” The demand for those products convinced him that he should produce high quality tissue in China. At the China paper exhibition in the late 1990s HengAn saw the latest Western paper machine technology, in this case from Andritz.

Compared to anything operating in China at that time the technology was much cleaner, more environmentally friendly and resource efficient. So in 1998 Mr. Hui installed his first tissue machine with 30,000 ton capacity. With that additional, high-quality tonnage Mr Hui said he had two choices: to use all 30,000 tons entirely for high-quality boxed facial tissue, or to just use the better sheet for the middle layer of facial tissue, with the outer two plies being lower-quality recycled tissue. He decided to do the latter. The new greenfield mill was built in Changde, Hunan province, with that location chosen because it is geographically in the middle of China, making it easy to reach population centers. Also, it is practical because it is located on the Changjiang River, so both the products and raw materials could be transported on water.

SLOW START BECAME EXPLOSIVE GROWTH. The tissue business at HengAn grew rather slowly for the first five years with a second 30,000 ton paper machine being added in 2002, four years after the first. However, around 2003, Mr. Hui says, the tissue market started expanding very rapidly, and the demand for high-quality products increased remarkably as well. With his modern papermaking and converting equipment, and good distribution network, he was very well placed to meet this demand. Thus the era of 60,000 ton machines begin. After adding only 60,000 tons total capacity in the first four years, via two 30,000 ton machines, every machine HengAn installed after 2003 was a so-called ‘double’ machine of 60,000 ton capacity. Pretty soon, explains Mr. Hui, they were making good money and increasing the pace of investments. “From 1998 to 2003 we built up retained earnings of HK$1 billion (about USD 130 million). So when we wanted to invest in more paper machines, we were well-financed to do it quite easily. However, some foreign machinery suppliers were a bit doubtful about our ability to pay, so obviously they didn’t get our orders! At that time the return on capital invested was in the range of 60 to 90%, and profit margins were around 40%. It was a very good time.”

QUALITY DEMAND MOVED INLAND. HengAn was in a good position as Chinese domestic tissue demand took off with a simultaneous rapid increase in the need for high-quality tissue products. Thus the company developed in tissue very rapidly, by focusing highly on quality and, most importantly, customer satisfaction in a market that didn’t pay much attention to that previously. “That aspect of satisfying the customer,” states Mr Hui, “is what has made the HengAn brand so successful. It had been ignored earlier and we made it our core.” As demand grew in the expanding high-quality market, in 2005 HengAn started a new tissue mill at a site in Fujian Province at An Hai Zhen. Since then they have added over a dozen 60,000 ton machines both at that mill and at other new locations that were opened around the country.

The fact that they had the right quality at the right time was the key factor in HengAn’s phenomenal growth. The regionalization of quality also helped. Quality demands which had previously only been seen in the more advanced coastal regions, now moved inward to the inner provinces. The high-quality trends of 10 years ago which occurred mainly in the coastal regions systematically moved inward to the inland cities, and even to the countryside, so that the quality demands are completely different and much higher than they were a decade ago. As this has happened, HengAn’s extremely strong financial condition made it easy to grow with the market.

OVERSUPPLY A CONCERN BUT NOT A MAJOR WORRY. A lot has been written recently about the overcapacity in tissue in China. However HengAn says that it is not a major problem for them. “We don’t care very much about the overcapacity,” comments Mr. Hui. “If we do things right and add value to the products, we won’t have any problem selling.” HengAn has, nonetheless, delayed some tissue machine projects but Mr. Hui says it’s more related to environmental and legal permitting issues than it is to market situation. Permits and approvals have become much more rigorous and therefore slower in recent years as environmental awareness has become much higher.

Of course, with the market being somewhat oversupplied there is no hurry to get the machines up and running. But HengAn insists that they are not being delayed specifically because of that reason. “Of course both the new competitors as well as the established competitors are influencing us but, as I said, we will do what we think is best for our company and we continue to expand at our pace. Clearly that pace has slowed since our growth rate is not as high as it had been for the past decade, at about 20% per year in tissue.” “This is the way the Chinese market works. Everybody invests at the same time when something is profitable. Clearly the market is under price pressure at the moment but we are still profitable; if we weren’t we wouldn’t be making finished product. We would export the jumbos instead.” “To continue to be a market leader, we are investing in our R&D group to innovate and offer additional differentiated products to the market. It’s the same thing that market leaders do in any business in any part of the world, if they want to continue to be market leaders.”

HOW DOES THE FUTURE LOOK? “We’re clearly strong in tissue and we want to build on that. We have also bought a food products company and we can add into our distribution channels. We’re not focusing on anything specifically but will react flexibly based on where the market is going. I’m happy the way things have developed for the entire company and for the tissue group specifically. I see a bright future if we are flexible enough. Yes, we have some room for improvement but I’m very confident for the future. We are trying hard and things have worked out well.

Login or Register to publish a comment