Thailand's largest private company outdoes its peers

A MYSTERIOUS THAI tycoon recently purchased Fortune, a business magazine that was formerly part of the Time Inc stable, for $150m. The publication’s title suits Chatchaval Jiaravanon, a member of the Chearavanont family, among Thailand’s richest. The clan’s wealth comes from the Charoen Pokphand Group (CP), a conglomerate it largely owns, which in turn presides over an agribusiness giant.

From a small seed shop opened in 1921 on the Song Wat Road in Bangkok, CP has grown to become one of Thailand’s most enormous private firms, with holdings in more than 200 subsidiaries around the world, employing 300,000 people. Last year its revenues reached 1.8trn baht ($54bn). It offers consumers everything from insurance contracts to juicy pork steaks, business flights to cars, and cloud-computing services to fancy property.

CP claims to embrace modern management methods, setting up a leadership institute and welcoming outsiders into its senior ranks. But there is no question where the power lies. At the company’s pinnacle sits Dhanin Chearavanont, the patriarch, who started at the conglomerate over five decades ago. After a reshuffle last year he became CP’s senior chairman; his eldest son became chairman and his youngest the chief executive.

The enormous empire underneath them has long enjoyed good relations with the public sector. There is an old joke in the Thai civil service, where levels of seniority were once graded from C1 to C11, that the next stage was CP. Given the country’s unpredictable politics, former government officials and diplomats have proved to be desirable employees.

Work with governments in Thailand, China (where CP was the first foreign investor after China opened up in 1978) and elsewhere has often helped push the firm into new areas. Noppadol Dej-Udom, who oversees CP’s sustainability and governance, notes that it got into telecoms in the first place because the Thai government needed help to install telephone lines to meet demand in the 1990s. On November 12th a consortium involving CP submitted a bid to build a $6.8bn high-speed railway to link three of Thailand’s busiest airports, part of a government plan to boost infrastructure.

Railways are certainly a far cry from CP’s biggest business, food, which, together with its agri-industry business, accounts for 54% of revenues. Its vertically integrated poultry empire, one of the world’s biggest, requires farmers to fatten chickens with CP’s feed until they are large enough to enter one of its processing centres, often leaving as nuggets.

At CP Foods’ Korat poultry-processing site, a few hours’ drive north of Bangkok, vast quantities of birds a year are stunned, killed and then chopped up by machines. Korat produces about 36,000 tonnes of fresh meat each year and more than 65,000 tonnes of cooked products. Among other destinations, bread-crumbed chunks of chicken from the facility appear in British outlets of KFC, a fast-food chain. The birds’ wings often go to Japan.

Chicken products also arrive in Thailand’s 7-Eleven stores, part of an exclusive franchise in the country run by CP All, the group’s retail wing (retail and distribution make up another 31% of CP’s sales). The franchise has more than 10,000 outlets and controls 64% of the market for convenience shops, according to the Thai Retailers Association. As the proportion of modern grocery retail outlets, compared with informal markets and street-selling, is roughly two-thirds that of Singapore, thousands more 7-Eleven stores will appear in future. The group also runs CP Lotus, a large supermarket chain in China, as well as wholesale shops under the Makro brand in Thailand and Cambodia. New opportunities in India and Vietnam may be next.

Not wanting to be left behind in the world’s fastest-growing region of internet users, CP also boasts e-commerce platforms in Thailand such as wemall and weloveshopping.com. But these two are trifles in a market dominated by Chinese-linked giants such as Lazada, owned by Alibaba, and JD.com. CP’s future hopes may lie instead in grocery delivery from its network of 7-Eleven stores, reckons one venture capitalist.

Nimble, single-business firms increasingly have the edge over giant conglomerates in the region, according to analysis by Bain, a consultancy. Yet CP bucks the trend. Several of its flagship firms are listed in Thailand, including CP Food, CP All and True, its big telecommunications firm, and the group’s average annualised total shareholder returns, of 40% between 2007 and 2016, have been the best among South-East Asian and Indian conglomerates.

Yet while CP reaps rewards from its vast reach, it also runs risks. Proper oversight of its wide-ranging operations remains difficult, and a series of recent scandals have damaged the group’s reputation. Four years ago it emerged that suppliers providing CP Food with fishmeal for its prawn-farming operations used slaves on their boats. The firm now buys pricier, certified fishmeal from Vietnam.

In 2015 an insider-trading furore at CP All erupted, leading to the creation of new governance structures. Internal investigations are going on into whether outside recruitment agents working for CP Food wrongly extracted fees from workers coming to the firm from Myanmar. “The extent of compliance with ethical recruitment principles across the different companies within the group remains inconsistent,” says Andy Hall, a migrant-rights activist in Nepal. Mr Noppadol says CP’s vast size helps to make it an easy target for criticism. “If you ring the biggest bell, it makes the loudest noise,” he explains.