Old K’s Weekly Talks – Stories from the petrochemical design industry. Post No. 41: Why haven’t private-sector petrochemical design firms grown or…

Thread Content

Old K says every week – Talks about the petrochemical design industry, Post 41: Why haven’t private petrochemical design firms grown large or become stronger? With the reform and opening up as well as the relaxation of relevant policies, petrochemical design institutes run by private enterprises and foreign companies in China began to develop after 2000. Due to the existing qualification requirements, most private enterprise-owned design institutes acquired such qualifications through acquisitions. The general managers of Sinopec Engineering Company and Global Engineering Company at that time took advantage of their resources while in office to establish two private petrochemical design firms: Beijing Huafu Engineering Company and Beijing Zhonghuan Engineering Management Company. After retiring, they continued to manage these companies; however, due to operational difficulties, both were acquired by private enterprises. The Beijing Rubber Design Institute was a state-owned enterprise; due to operational difficulties, it was acquired by a private company and renamed the Beijing Petrochemical Design Institute. Huisheng Engineering started out with pyrolysis furnaces and later acquired the Henan Chemical Engineering Design Institute. So, the owners of the several major domestic private petrochemical design institutes that we see today are generally not from a design background; technology yields to capital in such situations. Today, there are many petrochemical design institutes of various sizes in the country, some of which were established based on their technical expertise. The development of private petrochemical design institutes has not been smooth; to date, none have been able to compete with large state-owned design institutes such as SEI and Huanqiu. A few private petrochemical design institutes have reverted to being state-owned enterprises. The main reasons why private petrochemical design institutes fail to grow large or strong are as follows: 1. The domestic petrochemical design industry remains largely in a semi-monopolistic state; although state-owned design institutes suffer from complex organizational structures and severe internal conflicts, they do not face difficulties in operating thanks to their backing by larger entities. Large state-owned enterprises such as Sinopec, CNPC, CNOOC, and Sinochem all have their own design institutes, and they do not assign their internal projects to private design firms. Private petrochemical design companies can only work on projects at the local level or for private enterprises. Although domestic private petrochemical manufacturers have developed rapidly over the past decade and have many projects, many large-scale projects are still taken by the design institutes of state-owned enterprises. 2. Private enterprise complexes lack the technological and talent advantages of state-owned enterprise complexes. After decades of development, state-owned enterprise complexes have accumulated a certain amount of technology and talent. Private enterprise complexes are still new; their talent comes mainly from those recruited from state-owned enterprise complexes, and they lack any significant technological expertise. 3. The management in private enterprises has not kept up with the times; some bosses lack vision, exhibit a strong family-oriented attitude, prefer to hire relatives and friends as well as those who flatter them, and many managers are actually unqualified. One of the biggest management problems in private enterprises is the practice of placing relatives in positions within the company. Even if such relatives do not hold managerial roles, the professional managers in the company treat them differently, and ordinary employees feel inferior in their presence. This certainly has a negative impact on corporate management. Therefore, I advise business owners not to place their relatives in positions within their companies. If your relative truly has the skills, you can let them run their own company independently. If they lack the necessary abilities but you still want to take care of them, just give them some money. 4. Some owners of private enterprises still have relatively backward mindsets; they are authoritarian and believe that they are the best in the world, with everyone else working for them and taking their money. In fact, for a company, the owner is indeed important – they create the platform – but there still need to be people who carry out the work on that platform, and these people rely on their own labor to make a living, not on charity from others. 5. In private enterprises, equity is too concentrated; the advantage is faster decision-making, while the disadvantages include a tendency to make poor decisions, bosses being surrounded by flattery, and employees lacking a sense of belonging. As a boss, one must learn to share in order to succeed in the long term. 6. Some private enterprises are short-sighted and eager for quick results; they are unwilling to invest in talent development and technology innovation, and have a strong tendency to rely on what others have already created. In short, for private petrochemical design institutes to grow and become stronger, they still need to make efforts in areas such as management, ownership structure, technology development, talent training, and corporate culture building. Tip: You can enter “Lao K’s Weekly Thoughts – Insights into the Petrochemical Design Industry” in the website’s search engine to view previous posts