SGS Rooted in China, Laying the Groundwork Globally
The testing industry has emerged based on the continuous concern of society as a whole for QHSE (i.e., product quality, health level, life safety, and social and environmental protection) and other issues. As society progresses and develops, people's emphasis on health and environmental protection continues to grow, as does their demand for related products and activities. People are more and more concerned about whether the food is safe and whether the waste gas and waste water emitted by enterprises cause pollution to the environment. The testing and certification industry verifies these issues through the use of specialized technical means to ensure that products comply with relevant laws and regulations or meet established standards. In this process, government legislation and standardized management provide an important guarantee for the healthy development of the testing industry.
As a third-party testing organization, SGS is not well known to the general public, but it plays an important role in our daily life in all aspects of food, clothing, housing and transportation. With the rapid growth of the Asian economy, SGS entered the Chinese market in 1991 with a joint venture with China Standard Technology Group (CSG), a subsidiary of the State Administration of Market Supervision and Regulation (SMR), to establish SGS SGS Standards Technical Services Co. (hereinafter referred to as SGS SGS). At present, SGS SGS has developed into a large-scale enterprise with 16,000 employees, more than 200 laboratories and more than 100 branches in China.
The testing and certification industry, as a key field closely linked to the national economy and people's lives, has become increasingly important in the pursuit of high-quality development. The huge domestic demand has bred a market of hundreds of billions of dollars. As of the end of 2021, there are more than 50,000 testing and inspection organizations in China, but these organizations are generally facing challenges such as inefficient management and operation, small and fragmented scale, and lack of scale effect and competitiveness. Among these organizations, only about 500 have annual revenues of more than 100 million yuan. According to statistics, SGS SGS as a multinational comprehensive testing organization, the market share of about 5%, and the top five companies in the industry only accounted for a total market share of about 15%, showing that the global third-party testing market as a whole is more dispersed characteristics. In the face of this industry status quo, Hao Jinyu analyzed that integrity is the cornerstone of the testing and certification industry, which is also the core of the 100-year foundation of SGS Tongbiao continue to thrive.
SGS actively responds to the needs of China's high-quality development and provides professional services to support enterprises. Currently, new energy industries such as hydrogen and energy storage are in a booming stage of development, with broad market prospects, and have become a key path for China's energy transition. Hao Jinyu said: “When a new industry emerges, SGS will make strategic investments early. For example, in green transformation, SGS actively explores hydrogen energy, energy storage, intelligent networked new energy vehicles and other industries, accompanied by these industries to take root, germinate and gradually grow.”
China's testing and certification market is in a period of development, and is moving towards a high-quality stage.SGS will continue to invest in the fields of artificial intelligence, green environmental protection and sustainable development. Hao Jinyu emphasized, “We are willing to continue to take root in China and to continue to invest in China.”
According to Hao Jinyu, the reason why SGS Tongbiao continues to develop steadily is that it adopts the development strategy combining endogenous and M&A.
From the endogenous point of view, SGS Tongbiao attaches great importance to the cultivation of talents. At present, SGS SGS has a professional and enthusiastic high-tech team, 80% of the employees have bachelor degree or above, and the business backbone has rich domestic and foreign related industry experience. Meanwhile, we have various development programs such as management trainee, and have built a bottom-up multi-level and multi-channel talent cultivation system, which is dedicated to cultivating talents with comprehensive management ability.
SGS is also committed to creating harmonious labor relations and has established a market-competitive compensation and benefit system. SGS has also launched the “Quality Student Program” to recruit outstanding fresh graduates, and through structured systematic training and personalized advantages, SGS SGS has rapidly developed the most competitive and innovative talents for sustainable development in the industry. Through structured and systematic training and personalized advantages, SGS has rapidly developed the most competitive and innovative talents in the industry for sustainable development, and the members trained in the past five years have become the solid backbone of SGS.
From the perspective of mergers and acquisitions, SGS SGS has accelerated the globalization and diversification of its business through a series of mergers and acquisitions. Data show that in recent years,SGS has completed more than 200 acquisitions, focusing on industrial, environmental and natural resources and other fields, respectively completed 100 and 48 acquisitions, accounting for 50% and 24% of the total acquisitions since 2001. These are areas of testing business that need to be conducted in close proximity, so SGS is able to quickly build up its capacity to serve clients in new regions in a short period of time through acquisitions.
For integrated testing companies, M&A is the key to growth. Firstly, M&A can supplement operating income when the growth momentum is insufficient, smoothing the fluctuation of the company's performance; secondly, when the economy is in recession, the opportunity of M&A targets increases, and the price is more reasonable; finally, through M&A to enter a new industry quickly, to establish the corresponding capabilities, and to grasp the explosive growth opportunities in the segment.
However, the M&A opportunity is not controllable, there is also the risk of improper investment and post-investment management issues. Hao Jinyu said: “We in the acquisition, not only to consider whether it is suitable for our strategy, but also to consider whether the culture can be integrated, the acquisition is like a marriage, must live together, need to aura compatible, need to culture.”
Since China's announcement of its “dual-carbon” goal in 2020, ESG practices in the corporate world have been on the rise. The close integration of ESG with corporate development and value creation signals the emergence of a new business paradigm based on multi-stakeholders and the pursuit of long-term win-win situations. In this regard, Hao Jinyu highlighted three major global trends in ESG.
First, global ESG investment is growing rapidly. Investors are incorporating ESG factors into their investment decisions in an increasingly scientific way, such as carbon emissions and biodiversity, etc. Under the driving effect of financial leverage, real enterprises will also accelerate the pace of green transformation.
Second, global ESG policy regulation is becoming increasingly stringent. The number of sustainability-related policies has grown rapidly in recent years, 78% of which are related to disclosure, and the world is building the foundation of sustainable governance - that is, ESG data disclosure.
Third, innovations in the technology industry have brought many unprecedented opportunities to the ESG field. ai can generate simple disclosure reports, and technologies such as clean energy technology and CCUS are also evolving. all of these technological advances have added a multiplier to the progress of ESG practices, enhancing the efficiency of green transformation.
Currently more and more enterprises disclose ESG reports, Hao Jinyu believes that ESG disclosure is not just the preparation of a report, but more importantly, through the disclosure of information, stakeholder communication, “a good ESG report contains a response to the demands of various stakeholders.” “The general stakeholders are investors, rating agencies, regulators, consumers, upstream and downstream companies. The investor will increase his trust because you have a good ESG report, so that for him, the risk of investment can also be reduced. For rating agencies, which are based on credibility, ESG reports can help companies improve their scores with rating agencies and help them have better highlights.”