China Nickel Resources says diversification is key to growth

Alvin Lau, chief financial officer of China Nickel Resources, explains the importance of a strong business model.
Alvin Lau, CFO and executive director, China Nickel Resources.
Alvin Lau, CFO and executive director, China Nickel Resources.

It is doubtful whether William Cowper was thinking of Chinese steel manufacturers when he first wrote “Variety's the very spice of life, that gives it all its flavour”. But, that said, China Nickel Resources (CNR), a China-based integrated special steel, non-ferrous metal and mineral enterprise, has successfully built its business model around product variety and diversification.

“To grow bigger and stronger we need a wider product range and products that have a higher demand,” explained Alvin Lau, chief financial officer and executive director of CNR.

After establishing its presence as a top three bearing steel producer in the country, the company realised that it needed to diversify its product range in order to increase its presence both in China and globally. The problem was that the high technical requirements for producing bearing steel are not adequately reflected in actual demand for the product in China.

As a result, the company decided to expand its range, and in 2005 it managed to secure a steady supply of mineral resources from Indonesia.

“In order to increase profitability we had to choose to move either more downstream, which is closer to the customers, or upstream, which is closer to the resources. We decided to move upstream because we leveraged on our 20 years of experience in the industry,” said Lau. “We were investing in resources and development of advanced technologies, instead of investing in processing capacities or distribution networks which are important attributes to move closer to the customer base.”

Lau came onboard in 2006, a year after the company’s IPO and the supply of mineral resources were secured, and was responsible for implementing a five-year transformation plan. But he also believes in paying attention to the smaller details. “As a good friend of the chairman and chief executive officer as well as being a business partner, one of my responsibilities is to take care of both major strategic matters and minor things that may not seem important, but are essential for the smooth running of the company,” he said.

By the end of 2006, Lau had succeeded in its primary goals of enhancing existing technology and fine-tuning formulas for new products. According to Lau, armed with the right technologies, CNR has found it significantly easier to earn profits upstream.

Lau explained that by tapping on the company’s unique ore processing technology, it can provide the products for the midstream players which are then further processed by downstream customers such as stainless steel manufacturers. Such products include nickel pig iron, and for which there is no direct competition.

Now the company is a producer of a variety of stainless steel products, wire products and base materials in addition to traditional bearing steel. And, by securing a steady supply of mineral resources, it also engages in lateritic ore trading. Variety is, after all, the key to success for CNR.

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