Accelerating the construction of World-class enterprises: a guide to the transformation of China's chemical industry

On April 7, 2022, six ministries and commissions including the Ministry of Industry and Information Technology jointly issued the "Guiding Opinions on the 14th Five-Year Plan to Promote the High-quality Development of the Petrochemical and Chemical Industry". "Opinions" in the innovation and development, industrial structure, industrial layout, digital transformation, green safety and other five aspects, clear China's petrochemical industry in 2025 development goals. In combination with the "Guiding Opinions on Accelerating the Construction of World-class Enterprises" reviewed and adopted at the 24th meeting of the Commission for Deepening Overall Reform of the CPC Central Committee not long ago, accelerating the construction of a number of world-class chemical enterprises with excellent products, outstanding brands, leading innovation and modern governance is in line with the common needs of enterprises' own development, industry transformation and upgrading, and national economic growth.

There are not many Chinese enterprises in the world's top 500, but most of them win by scale, and there is still a gap between them and the world's first-class in innovation ability and international market competitiveness. The management ability and fine operation ability of small and medium-sized enterprises need to be enhanced, and the upgrading task is urgent. Faced with the complex and severe situation, China's large enterprises must continue to deepen reform and become stronger and better than the world-class standards. Private enterprises must unite the spirit of daring to fight, fast and efficient landing ability and the standardization of corporate governance, and move forward to the world-class "specialized and special new" direction.

Over the past few decades, Chinese companies have expanded rapidly, relying mainly on market size, demographic dividends, reform dividends, and capital dividends, ignoring due attention to value creation, growth patterns, financial conditions, and organizational health. In the face of 100-year changes, the problem that Chinese enterprises are not strong, not new, and not alive will be further highlighted and amplified, bringing deep-seated obstacles to their own long-term development.

First, "world-class enterprises" are performance-oriented enterprises that take long-term sustainable economic value creation as the core measurement standard and walk in the forefront of the world

Compared with traditional accounting profits, Economic Value Added (EVA) should be used as a more comprehensive indicator to measure the true profitability and value creation ability of enterprises. Putting the annual average of EVA created by more than 2,000 listed companies in the world in the past five years into the same chart, it can be found that the top 20% of the global enterprises with the best performance created more than 90% of the global economic profits.

Although Chinese enterprises have successfully expanded their volume, and the number of enterprises has continuously led the world's top 500, the value creation ability of enterprises is generally low. In the above EVA analysis, we find that less than 10% of China's non-financial enterprises are in the first echelon of value creation, and more than 60% of enterprises have negative EVA.

Therefore, if Chinese enterprises want to break through the dilemma and reach the world-class level in value creation, they need to be clearly performance-oriented and build a series of capabilities on this basis to achieve a qualitative leap in value creation.

Second, "world-class enterprises" need to have a series of global leading capabilities as support

World-class value creation is the result of a set of globally leading capabilities. Chinese enterprises have a lot of room for improvement in capacity building. Looking back on the development path of the past 40 years, the Chinese market demand has maintained high-speed growth for a long time, and enterprises do not worry about sales and profits as long as they can make products. The vast majority of Chinese enterprises therefore focus on the "big dry fast" introduction of production line, or "small run fast" rapid iteration and expansion of production capacity. While improving decision-making efficiency and landing speed, systematic management system construction is often ignored, delaying the lean management and continuous improvement of production and operation, not to mention the research and development innovation that requires a lot of investment and long-term persistence.

The market structure in the new era has undergone fundamental changes: a large number of commodities are in a state of oversupply, once medium and high-end products continue to bulk with the development of technology and market, and the market demand for new products changes very fast, which puts forward higher requirements for the management ability and innovation ability of enterprises. The "path dependence" of extensive management can no longer meet the development needs of enterprises in the new era. Therefore, while moving towards the world class, Chinese enterprises should focus on building a set of global leading management capabilities.