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Thailand's Pokphand Group Uses China Ties to Fuel Growth

Thailand's Charoen Pokphand group, with investments extending from China to Europe, is one of the largest producers of agricultural goods in Southeast Asia. After surviving the threat of bird flu, the group is poised to benefit from an economic boom in China. The CP group is among many companies from developing Asian economies that have become forces in global business. Ron Corben brings us this segment in a series looking at five Asian corporate giants.

The Charoen Pokphand conglomerate - known as the CP group - is synonymous with the poultry industry in Thailand, with up to 60 percent of the market.

But CP extends well beyond Thailand - it trades with more than 50 countries - including the United States and much of Europe. Many business analysts consider it Thailand's first multinational company.

But Robert McMillen, a director with SEAMICO Securities in Thailand, says that despite its international reach, strong Chinese-family tradition lies at the core of the group's success. "I still believe that the family structure is a very important element - although the C.P. group certainly are now employing more and more international managers - there is this core family group," he says.

The group began in 1921 as a Bangkok seed shop, run by a Chinese immigrant family. Its present chairman, Dhanin Cheavravanont, took over his family's business when he was just 27, in 1966.

He adopted a U.S. model of industrial farming - in which one company controls all aspects of raising poultry - from making the feed, to hatching the eggs, to slaughtering and selling the birds.

In doing so, he built a conglomerate with dozens of companies. CP Foods, the group's flagship in Thailand, alone has annual sales of $10 billion, and Mr. Dhanin's personal fortune tops $1.3 billion.

Its modern farming techniques, says Wannapa Asavatevavith, senior investment analyst with the bank ABN Amro, enabled the CP group to ride out the bird flu outbreak in early 2004.

The H5N1 virus forced authorities in Southeast Asia to cull millions of chickens. As soon as there were reports of birds falling ill in parts of Thailand, the CP group barred most outsiders from its farms. As a result, it was spared the worst of the outbreak. "Actually, CP Foods stands out because the company has no special problem at all for its chicken, because they raise the chicken in a closed system farm that they can trace from the origin until the slaughterhouse. [So] it's safe and has no bird flu at all," he says.

But CP was hit hard financially. Sales at home plunged as people grew afraid to eat chicken, and many countries banned imports of Thai chicken.

Ms. Wannapa says CP recovered by concentrating on exports of cooked chicken - instead of frozen, raw birds.

Poultry, however, is only a part of the group. Mr. Dhanin has broadened it to retail operations, telecommunications, petrochemicals, and automotive and industrial products.

Charoen Pokphand is one of dozens of companies to move from Asia's developing economies onto the world market. Increased global trade in large part helped many of these companies compete head-on with older Western and Japanese giants.

Ploenjai Jarajarus, a research analyst with the investment bank Capital Nomura Securities, says CP Foods still faces export barriers. For instance, the European Union has barred Thai shrimp because of chemicals used in shrimp farming, while the United States has imposed tariffs on cheap Thai shrimp. "The weakness is the non-tariff barrier in each country," he says. "I think in the future these uncontrollable factors will affect [CP], like the disease."

The group's long ties to China may offset such problems.

CP was among the first foreign companies to do business in China. Since 1979, it has created dozens of companies in China, ranging from feed manufacturers to its Lotus supermarket chain.

Some financial analysts say China's rising urban incomes make retailing a good bet for CP. "They have 18 Lotus Supercenter stores in China - mainly in Shanghai and along the Yangtze River - and they are doing very well in China and keep on [with their] expansion. I would say there is a lot of growth potential," says Mr. Wannapa.

For the CP group, ties to the founder's homeland are expected to pay off coming years, as the group uses profits earned in a prosperous China to fuel its expansion elsewhere.