A Chinoy multinational

There was a time, around the late ’60s, when the professional Filipinos you met in Southeast Asian capitals worked for SGV. I remember meeting Filipinos working in SGV’s Bangkok operations at Sunday mass at a Bangkok Catholic church back in 1969. It made me feel proud to be Filipino.

Today, SGV is just domestic and the only Filipino multinational of note present in all SEAsian countries, but mostly in China, is the manufacturer of Oishi snacks. They have 14 factories in China, four in Vietnam, one in Thailand, one in Cambodia, one in Myanmar, one in India, one in Indonesia and four in the Philippines. All proudly fly the Philippine flag.

Liwayway Holdings, which owns the Oishi brand, is the company run by a very low key second generation Chinoy, Carlos Chan, who enjoys introducing himself as the oldest brother of Ben Chan. I first met him at a party in the house of Metrobank’s George Ty over 10 years ago. He introduced himself to me as the one I wrote about.

I first wrote about Mr. Chan in the context of being among our top taipans. He wasn’t as well known as Henry Sy or as controversial as Lucio Tan, but my source said he is big in China.

I first traveled with Mr. Chan to Ho Chi Minh City shortly after I met him at George Ty’s party. He showed me his Vietnam operations manufacturing snacks in an industrial zone owned by the Singapore government. During the same trip, we visited his factory in Myanmar when the generals were still holding the country in their tight grip.

While the business sense of the Vietnam operation was apparent to me, the one in Myanmar wasn’t. Indeed, it wasn’t making money. It bled for quite a while, but Mr. Chan explained that he was investing in the country and its potentials. Today, he is reaping the benefits of being there first.

I have been on a few trips with Mr. Chan over the years including an interesting one to visit his factory in Urumqi in far away Xinjiang province. Again, he explained he loves the pioneering spirit of being in a frontier area. His factory there serves the needs even of neighboring countries like Kazakhstan.

Mr. Chan’s father migrated to the Philippines from China’s Fujian province. Mr. Chan and his brothers were taught the rudiments of entrepreneurship by helping repack gawgaw or starch commonly used in the 50s and 60s when the crumpled look in clothes was not yet in vogue. The gawgaw was sold under the brand name Liwayway and it was the market leader. They also sold coffee and other commodities.

When the company came under the responsibility of Carlos Chan as the eldest son, it branched out to sell Oishi prawn crackers in 1974. But Mr. Chan saw the limitations of the small Philippine market. He started thinking about going to China.

I sat next to Mr. Chan on the flight back home from China last Saturday and he related how he visited Shanghai in those early days trying to figure out if doing business there was a viable idea. He said he kept on going back to China for a number of years trying to learn more about how to market there.

It wasn’t until Deng Xiaoping opened China to business that he was sure it was time to be among the first investors in the soon to boom economy. That was in 1992.

“I had been waiting for that door to open,” he said, explaining that he had always been optimistic about China, enough to risk money on it. But he said, China in those times was not for the faint of heart. Shanghai was very backward then.

When he first went to Shanghai, Mr. Chan recalled, he would not take evening flights. Would you believe, Mr. Chan laughs as he points out the very modern Pudong Airport, in those days, “ang dilim-dilim, takot ako baka hindi makita ang runway.”

Rice stalks rather than urban skyscrapers sprouted in the fields of Pudong, Mr. Chan recalled. The gap between Manila and Shanghai closed by 1998 and in 1999, it was at par with Manila. By 2000, we were left behind.

Liwayway has since managed to put up 14 factories across China and build a solid distribution network. I have met some of their local distributors and they too are bullish on Oishi and rather aggressive.

During one visit, I remember one of the leading Oishi distributors, a lady, challenged our delegation head, PhilStar columnist Tony Katigbak to a series of Maotai toasts. Tony gamely took the challenge but had to take the rest of the afternoon off.

The success of Oishi is self evident in the supermarket shelves in any major Chinese city. It is beating competitors like Lay’s and Pringles in “shelf facings”, a measure of consumer popularity. Liwayway in China is also now marketing fruit juices under the brand Great Lakes. They tried to make traditional Chinese wine but discontinued it.

Liwayway is a family affair. In China, Carlos Chan is helped by two of his sons, Archie and Larry. Archie heads product development and is chairman of Liwayway International. Larry heads operations in China and chairs Liwayway China.

I asked Carlos what is the secret of his success. He modestly replied that being there first is probably the most important. He also pointed out that China’s economy took off like a rocket, and as a pioneer, Liwayway was perfectly situated to move in pace with China’s aggressive economic growth. They were able to take advantage of drastic changes in consumer wants.

But keeping market leadership depends on creativity and innovation. It is his son Archie’s job to constantly think up new products and design the packaging to be compelling enough to catch attention in a very competitive consumer environment.

China’s biggest come-on to investors like Liwayway is its red carpet treatment for investors. “Would you believe,” he said, “I once got a check because they said I overpaid my taxes?”

The smaller cities, Mr. Chan, explained, are particularly aggressive in attracting investors by offering free land and interest-free financing for the cost of building the factory. Some even offer to build the factory to the investor’s specifications so the investor only has to move their equipment in.

Offers are still pouring in from Chinese cities for Mr. Chan to put up factories in their areas. Many of the lunch and dinner lauriats we had during last week’s trip were courtesy of city governments trying to convince Mr. Chan to invest in their cities.

The other important consideration for the success of their China investments is the ability of the government to provide the necessary infrastructure. China is a very big country and distribution is a big expense for Liwayway. It definitely helps that the expressways are modern and the train system efficient in moving their products to the most remote towns.

The interesting thing about Liwayway’s China operations is that they try as best as they can to contribute to the Philippine economy as well. Instead of buying their manufacturing equipment from Japan or South Korea, they fabricate everything in Cavite. That way, they utilize Philippine engineering knowhow.

They also try to import some ingredients for their products from the Philippines. For instance, mango puree they need to make mango juice for their Great Lakes brand comes from Cebu. The tax free privilege accorded by China to importations from Asean countries helps overcome the cost difference with Indian-sourced mango puree.

Best of all, I like how Liwayway treats its Filipino expats now about 150 all over China. Considered as OFWs, their salary is of course tax free and they get free board and lodging within the factory sites.

I saw their lodgings and they look like hotel rooms. They get free meals in a common dining room and regular visits home. They also have access to entertainment from Manila to help alleviate homesickness specially when the dreary winter season sets in.

What’s next on his to do list? Carlos Chan said his son Larry wants to invest in a dairy farm in the grass lands of Inner Mongolia. They will import about a thousand heads of cattle from New Zealand. They expect the farm’s milk production will easily be gobbled up by China’s domestic market.

At home, Mr. Chan is opening a modest business hotel on Pasay Road next year and is now running similar facilities in Bohol and Boracay. He is also the main investor in the local franchise of the popular doughnut brand, J Co.

What about an IPO? No, he said, his sons are strongly against it. Being private gives them flexibility to take risks. But who knows. Mr. Carlos Chan never says never. If an opportunity seems compelling, he goes right in.

Boo Chanco’s e-mail address is[email protected]. Follow him on Twitter @boochanco