Sukanto Tanoto owns world-largest integrated pulp and paper mill; plants 200 million seedlings every year.
Sukanto Tanoto, who dropped out of school at a young age, spent nearly 50 years building RGE Group, an international group with USD15billion assets and 50,000 employees. The group owns the world's largest integrated pulp and paper mill as well as palm oil plantations with an area equal to one and a half times that of Singapore. How does the Indonesian tycoon, who has established his business headquarters in Singapore, ensure the sustainability of his business by integrating the concept of environmental protection? What advice does he have to offer to young entrepreneurs?
65 year-old Sukanto Tanoto was born in Indonesia in his early years, the eldest among eight children. His father left Putian, Fujian Province, for Medan to make a living in his early years and set up a small shop selling spare parts and gasoline.
He attended a local Chinese middle school but had to drop out during his third year of middle school at the age of 17 to support his family, when his father became sick from overworking. With the little that he had (a small shop and three employees), he began to supply engine parts to oil companies.
Through his hard work and capability, the business expanded to include distribution of electric generators and equipment to oil refineries, as well as the maintenance of electromechanical devices, machineries and gas pipes. In 1967, RGM (Raja Garuda Mas) was founded to engage in contracting petroleum projects.
A multimillionaire at the age of 26
During the global oil crisis in 1972, while global markets were set in great panic and distress, Sukanto Tanoto earned his "first pot of gold" and became a multimillionaire at the age of 26. Instead of being complacent, he continued to develop the business. He thought about how to ensure the company’s survival – if it were to lose its big petroleum client one day – so that he could continue supporting the employees who had worked for him for years.
In the mid 1970s, Sukanto Tanoto built his first plywood factory and pioneered the plywood business. At that time, many entrepreneurs were only interested in exporting logs as they would receive faster returns, while building factories to process wood consumed both time and energy. In fact, investment returns were unknown then. However, Sukanto Tanoto's business acumen gave him the conviction to continue this investment against popular belief, and he succeeded in completing the building of the multi-million dollar factory with 2,000 employees in 12 months. In 1975, the former Indonesian President Suharto personally led seven ministers to officiate the opening of his new factory.
Not long after, the Indonesian government gradually changed its policy towards the forest industry, and the industry stopped exporting logs. Sukanto Tanoto, who had added value to the industry, was honored as "a miracle-working entrepreneur".
In 1979, Sukanto Tanoto saw the prospect of the palm oil industry and invested in it. From an investment of less than 300 hectares of plantations, he successfully expanded the palm oil business and investment. Today, RGE manages 160,000 hectares of palm oil plantations, out of which 60,000 hectares are developed in cooperation with local PLASMA smallholders.
Sukanto Tanoto is a brave industry pioneer and a far-sighted visionary. In 1983, then RGM owned assets of nearly US100million dollars, which strengthened his determination to accelerate the development of the business. Based on his strategy to grow the business “stronger, bigger, and deeper” and to efficiently integrate resources, he developed a rural town called Kerinci in Riau province. In less than ten years, Asia Pacific Resources International Holdings Limited (APRIL) - a core business in RGE Group - developed the world’s largest integrated pulp and paper mill in Kerinci. Today, APRIL manufactures 2.8million tons of pulp and 820,000 tons of paper annually, which are sold to more than 70 countries and regions.
Sukanto Tanoto has four children and he pays close attention to their character development. He even took the initiative to send his second daughter to do voluntary work in Cambodia. He said, "Many children today have very good living conditions. I want her to know that there are many people in the world who do not have enough to feed themselves. There are many people who need help."
Many years ago, he assigned his youngest son, Anderson Tanoto, to reside permanently in Kerinci to lead the business there. He wanted Anderson to build a strong foundation in his business skills, have a solid grasp of every aspect of business operations, as well as to build a good bond with employees. He hopes to inculcate a hardworking spirit and mental resolve in Anderson, before he undertakes other business roles.
Staying calm in the midst of financial crisis
In 1992, within three years, Sukanto Tanoto obtained a considerable profit of US200million dollars from his first US1billion dollar investment. He was full of confidence towards future business prospects.
He decided to expand the business by investing US2 billion dollars to increase his annual pulp production output from 700,000 tons to 2million tons.
In 1996, APRIL was listed in the New York stock exchange, raising a total fund of US700million dollars. The group also received a bank financing of US1.3 billion dollars. In the midst of launching its phase-one expansion plan, an Asian financial crisis occurred unexpectantly. Indonesia and Thailand were severely affected by the crisis, causing Indonesian rupiah to be devalued overnight, and global financial institutions to be similarly affected. Subsequently, the company could not receive the funds originally promised in the credit note. This set APRIL into a financial crisis as the group was faced with cash flow difficulties in the expansion project. New machines were not delivered, while machines which had arrived could not be installed. Foreign experts left the group, and the group came to a point where it was even unable to employ general workers. The company share price fell from US6 dollars to US10 cents. All indications hinted that it would be hard for the group to survive.
Actually, compared to huge Indonesian enterprises, which owed tens of billions of dollars, APRIL’s debt was only estimated to be US$1.4 billion dollars. In the face of pressure from all aspects, Sukanto Tanoto was uncertain of the future, but he stayed calm in the face of these challenges.
"One of my business principles is that I will pay off all my debts because credibility is crucial. My first decision was to sell a factory in Changshu, China for cash, which was a hard and painful decision. I used the cash to build the mill in Kerinci so that once the mill started production; there would be returns to repay the debts."
Current Asset up to US15 Billion Dollars
Recalling the difficult times in those years, Sukanto Tanoto said, "Our production operations rely on bank financing. Once the bank withholds the finances, it will create cash flow issues for us, and we will incur difficulty repaying our loans. In some cases, enterprises and banks are on the same boat. Once the boat sinks, everyone will be affected. Thankfully, some banks could analyze rightly in the midst of this crisis and we went through the difficulty together."
Crisis has been with Sukanto Tanoto in his 50 years in business. To him, he feels that while there is an element of danger in crisis, there are also opportunities awaiting.
Between 2002 and 2003, he finally got out of financial difficulty. After the financial crisis, he developed a deep understanding that one should not put all investments into the same basket, but instead, should be diversified. Today, RGE with its headquarters in Singapore, has developed into a global group with assets worth US15 billion dollars and 50,000 employees. Its products reach Indonesia, China, Brazil, Malaysia, and the Philippines, and its sales network covers the four continents. Among them, its businesses operate in the following four areas: pulp and paper industry (Asia Pacific Resources International Holding Ltd. and Asia Symbol), palm oil industry (Asian Agri and Apical), specialty cellulose fibre (Sateri), and energy development (Pacific Oil & Gas).
Using Waste to Generate Power and Supplying to Kerinci staff for free
Investing in the pulp and paper industry and in plantations is just like a long river route. Once you jump into the river, you have to fight hard to stay upstream. Without sufficient funds, resources and manpower, all previous efforts will be wasted. Sukanto Tanoto deeply believes that this long term investment is a sustainable business as it utilizes renewable natural resources.
APRIL has successfully built a pulp and paper empire in Indonesia, and looks into protecting and sustaining forest resources by planting 200 million seedlings each year.
"I always believe that environment protection should not be the burden of the corporation, but a rich resource of the corporation as long as it is done in a good and comprehensive manner. I would invest in environment protection and look into research studies," Sukanto Tanoto highlighted.
In order to make his business sustainable, Sukanto Tanoto embraces a 3Cs business approach: operating in a manner that is good for the community, good for the country and good for the company. Only then can a business remain sustainable and profitable in the long run.
In Kerinci, APRIL generates electricity through its production wastes and supplies to thousands of residents for free. The company also provides clean water to the residents, assists and supports local community farmers to set up their own SME businesses and get bank loans, and teaches them how to operate and manage their businesses. An industry chain that intertwines together with local communities is gradually developed.
Each business group under RGE incorporates the concept of "corporate social responsibility" into their respective operations and management, taking responsible measures in respect to environmental and community development to fulfill the social responsibilities of a corporation.
In 1981, the Tanoto Family established Tanoto Foundation which aims to alleviate poverty through education, empowerment, and enhancement initiatives.
Q&A with Sukanto Tanoto
Q: What are the major factors which paved the way to your success today?
A: There are only two key factors that lead to success in one’s career, one is diligence and the other is luck. Most of the time, human effort plays the decisive role between success and failure. I set an example for others, and I believe in staying down to earth. More importantly, I am always industrious and frugal, working hard in my business. I believe in working hard to achieve something. As for luck, it may involve good timing, favourable environment and human factors. Should the three factors come together, it is luck.
Q: Who is the person that influences you most? Who do you admire most?
A: Two men who were the founding fathers of two countries stand close to my heart as the greatest in their time. One of them is Chairman Mao Tse-tung who was the founder of Great China; the other is former Prime Minister Lee Kuan Yew who has built Singapore. Chairman Mao founded China in the midst of a very difficult environment and was an ambitious founder and revolutionist. Former Prime Minister Lee Kuan Yew managed to survive and develop Singapore in a complex environment. He is a wise entrepreneur and safe keeper.
Q: What is the biggest sacrifice in your entrepreneurship journey?
A: I wanted to be a doctor when I was young, but had to quit school to work and support my family at the age of 17. I had no opportunity to receive proper education once I started work. After building a successful business, I managed to send my younger brother to Singapore for him to receive the best education. As the old saying goes, there is no end to learning and knowledge is limitless, although I did get to finish my education in school, I enjoy reading very much since I was young. I continue to read various kinds of books today; I have read through the novels, biographies of celebrities and the wealthy.
In recent years, I prefer to study ancient civilization and read books related to philosophy, history, literature etc. I wish to obtain more knowledge through books to which I had no access to during my school years, as well as to understand more about the Chinese culture. I also attend courses in world-renown business schools for three weeks every year, and take up short courses in many famous universities all over the world. This may help to make up for my sacrifice in quitting school when I was still supporting my family at a very young age.
Q: What advice will you give to the young entrepreneurs?
A: I would tell them to choose an industry that suits them best, and they should have passion, an understanding of the industry and to keep forging ahead. Think, act, and learn repeatedly: take action after thinking, learn from your mistakes, and then think, act, and learn all over again.
Start small in the beginning. Although things are always the hardest at the beginning, take the first step anyway. Be practical, realistic and humble enough to learn from others. When you have made the first 1 million dollars, you should make plans to make ten times more, even a hundred times of that. Priorities and strategies vary during different stages of business development. You should adjust and transform at the right time. The entrepreneurship journey will not always be a smooth and easy one; there may be ups and downs and taking risks is inevitable. Keep calm, think comprehensively, analyze the nature and root cause of the risk, seek to control and solve it. You cannot wait to act only when everything is ready; seize the opportunity and take measured risks; otherwise, you will possibly lose your one and only chance.
Translated from an article published on 联合早报 on 7 September 2014.