A strong foundation
The Siam Cement Group started building its IP function a decade ago amid a major R&D
You might not expect a company called the Siam Cement Group (SCG) to have a proactive, well-resourced corporate IP team. Cement, after all, is a commodity – and not one that is often the subject of headline-grabbing patent litigation or big-ticket IP deals. And ‘Siam’ suggests the company’s provenance in a country, and a region, where patents are almost a non-factor in the commercial world. But if that were your view, you would be very wrong.
Cement was a growth industry in Thailand when SCG was set up by royal decree of the country’s monarch, King Rama IV, in 1913. The company played a key role in building Thailand’s public infrastructure in the decades that followed. SCG – whose largest shareholder is the Thai Crown Property Bureau – gradually branched out into new sectors and is now a conglomerate of over 100 different entities. Its three principal business units are SCG Cement-Building Materials, SCG Chemicals and SCG Packaging. Primarily selling building and industrial materials in Thailand and its immediate vicinity, the company was not an R&D-intensive one for most of its history. But that all began to change in the early 2000s, spearheaded by a dynamic, progressive chief executive.
“SCG literally laid much of the groundwork for modern Thailand – now it is attempting to put the country’s IP market on a firmer footing”
This greater focus on research also resulted in the creation of a corporate IP team – something that the company had never had in the past. In fact, very few had ever existed in Thailand at all. As it looks back over a decade of growth, the team is now shifting from a focus on developing systems for IP creation, protection and management towards exploiting those assets as business tools to drive revenues. But the company also hopes to serve as a role model for other Thai and Southeast Asian companies, in order to help grow the region’s IP ecosystem. SCG literally laid much of the groundwork for modern Thailand – now it is attempting to put the country’s IP market on a firmer footing.
Kan Trakulhoon served as SCG’s president and CEO from 2006 until January of this year. He personally spearheaded the formation of the company’s corporate IP function
Leadership from the top
Observers both inside and outside SCG give a great deal of credit for the company’s shift in focus towards R&D to one man: former president and CEO Kan Trakulhoon, who stepped aside in January after 10 years at the helm. In 2004, two years before Trakulhoon took over, the entire group spent just $1 million or thereabouts on R&D – a paltry sum compared to SCG’s billions in annual sales, even given the industrial nature of the business. That figure has since increased by a factor of more than 100. “Our plan was to effectively commercialise our knowledge immediately. So the key was commercialisation, then get money back and reinvest it again with quick turnaround,” Trakulhoon explained in a 2012 interview.
Significantly, Trakulhoon was moving to build IP capacity within the first year of his tenure as president. Yingyong Tanthanapongphan, who heads SCG’s corporate IP team, says that Trakulhoon personally spearheaded the unit’s creation: “The initiative came from him. He is a very forward-thinking executive who wanted to build SCG into a sustainable research-driven company, not just a commodities business.” SCG was moving into uncharted territory – Thai companies have traditionally focused on manufacturing and competed on the basis of price. Fortunately, the team at the top seems to have grasped from the very beginning that developing intellectual assets would be a crucial part of operating in higher value-added product markets.
The story of how Tanthanapongphan joined the company demonstrates the level of personal attention that SCG’s CEO devoted to building an IP function. The year was 2006 and Tanthanapongphan was studying at Stanford when he was invited to have dinner with Trakulhoon in Palo Alto. “Kan told me he wanted to develop IP management at SCG,” recalls Tanthanapongphan. “I was still a student at the time, focusing on corporate governance and IP, but I knew I didn’t want to work for a law firm after I graduated. I came back to Bangkok and joined SCG in 2006.”
There are many reasons why companies set up their own in-house IP departments. In countries with a history of patenting, such as the United States and Japan, this has long been a must for large IP-rich companies. In China, IP divisions are now increasingly springing up in companies that previously paid little attention to patents. Why? For one thing, the government has been heavily promoting the IP agenda. But more importantly, Chinese companies have become acutely aware of the risk that patent problems can pose to their businesses. When you see your competitors or, worse, yourself slapped with costly patent lawsuits overseas or even at home, investing in an in-house IP department becomes a pretty easy business decision.
What is fascinating about SCG is that none of these usual factors can really explain what prompted the company to build an advanced corporate IP function. There is no history or tradition of amassing patents in Thailand. The government is not actively pushing local companies to patent. There is very little business threat from patent litigation. And you certainly can’t say, “Everybody else is doing it.” SCG’s choice to focus on intellectual property was just that – a choice.
So what was the reason for this choice? Again and again, people point to Trakulhoon’s personal leadership and his twin initiatives of promoting R&D and going regional. “He was the first to pound the table and say, ‘We must do this,’” explains Tanthanapongphan. “There was not a big threat to us of patent litigation; we were not forced to develop an IP capability. But Kan was convinced that to be competitive, you have to be innovative, and for that you need a modern IP function.”
Alan Adcock, a partner with law firm Tilleke & Gibbins in Bangkok, agrees: “I really do believe that the changes at SCG were driven from the top, by an open-minded CEO who convinced his board that in order to compete regionally and globally, IP and technology acquisition were going to be important.”
Going beyond legal
Just having an in-house IP strategy team was itself a big step forward. Traditionally, SCG had relied on outside counsel to a great extent – researchers would take inventions to the legal department, which would then liaise with external lawyers to draft and file patents. When he joined in 2006, Tanthanapongphan found himself setting up a strategic IP centre which would work closely alongside SCG’s legal department. But it was not long before that centre assumed a much more prominent role.
Studying the way that leading global companies had structured their IP practices and speaking with leading chief IP officers from around the world, Tanthanapongphan became convinced that the nascent IP group could not serve a strictly legal function. “For a multibillion-dollar company, IP can’t just be seen as a transactional practice, registering patents and trademarks,” he explains. “To go further, you need to strengthen and build IP management.” So in 2008, the corporate IP centre was expanded to become SCG’s corporate technology office (known as CTECH), the hub of the group’s efforts to pivot towards high value-added products.
A building on the campus of SCG once used to load cement from the Bangsue Plant onto boats
Today, there are over 30 IP professionals across SCG. Six of them, led by Tanthanapongphan, are IP specialists within CTECH who focus on formulating corporate IP strategy and policy and managing the company’s rights portfolio. Dedicated IP lawyers within SCG’s legal department handle the nuts and bolts of IP transactions, agreement drafting and any litigation that may arise. Then there are IP specialists within each of the three main business units – cement-building materials, chemicals and packaging – who oversee IP portfolio management in their domains and work closely with engineers. Tanthanapongphan says that the structure enjoys support across the entire group: “It shows that we are serious about IP.”
Working within CTECH gives the corporate IP strategy team a direct line to the board through the tech function’s leader, Dr Wilaiporn Chetanachan, who reports to SCG’s vice president for corporate administration. “We want to create new technologies, and not just ones that solve SCG problems, Thai problems or even ASEAN problems,” says Chetanachan. “The most important role of CTECH is finding ways that SCG can solve world problems.” She insists that having IP strategists work directly within the technology team is essential: “The IP team has to jump in from day one of the technology creation process. The most important reason is to make sure we have freedom to operate – do we have room to do this without infringing others’ IP? Then we think about creating our own IP to protect the innovation, and finally about commercialising the technology and potentially licensing it out.”
As SCG’s core of IP specialists has grown, a major challenge has been finding professionals with the right skills to work on IP strategy. There are no other Thai companies with mature patent strategy teams, so bringing in people from competitors has not really been an option. Thailand has a relatively large IP legal community, although trademarks and anti-counterfeiting have long been the major focus. In fact, of the four people working full time on IP strategy whom I met at SCG’s Bangkok headquarters, just one – Tanthanapongphan – is a lawyer. Two others have graduate degrees in chemistry and developed their understanding of IP strategy through in-house training. The fourth has a doctorate in chemistry and recently joined after spending time working in the patent department of a local law firm.
The need for robust and sustained IP training is not restricted to the corporate IP strategy team. Everyone within the business units, from senior managers to engineers, needs to understand the company’s new commitment to generating intellectual assets. To that end, the team has been spending a lot of time and energy on education.
In doing so, they discovered that certain parts of the company already had a certain amount of institutional knowledge about intellectual property. The chemical division in particular stood out, having had a lot of exposure to leading companies in that sector with world-class IP practices. “After our team began promoting IP, the business units have gotten more involved,” notes Tanthanapongphan. For example, over the years SCG Chemicals has developed a sophisticated system for protecting its trade secrets; the corporate IP team is now working on rolling out this model company-wide.
For more specialised expertise, SCG has looked to outside experts and consultants from overseas. It recently hosted a delegation from a UK-based service provider which worked with the company on developing patent valuation principles. Another company-wide exercise looked at risk management, including IP risks. SCG has also engaged outside experts to help optimise its systems for protecting trade secrets.
Siam Cement underwent a corporate restructuring in 1978, resulting in the Siam Cement Group. All of the company’s subsidiaries adopted the logo of the white elephant on a red hexagonal background
Looking for revenue
In the simplest possible terms, Tanthanapongphan would sum up SCG’s IP strategy as using IP assets as a strategic tool to enhance business growth. In terms of its development, it seems as though the team has reached an inflection point: happy with the structures it has created in the areas of IP creation and protection, it is now shifting its attention towards the final frontier: commercialisation. “This is very new to us,” acknowledges Tanthanapongphan. “We have been actively creating and protecting IP since 2006, but the next step is to develop our commercialisation of IP.” To this end, some of the group’s biggest current projects deal with patent quality, IP valuation and licensing programmes.
One of the SCG team’s biggest priorities is developing a patent quality rating system. The goal is simple: to identify patents with significant business impact that present possible licensing opportunities. Potential patents are evaluated according to business, technology and legal criteria, and filing decisions are made by a committee including researchers, IP strategists, business planners and the technology director. The IP strategy team feels that having an IP strategist at the centre of this process from the outset motivates inventors to be more quality focused: “Quality rating work is aimed at making us think about revenue from the very first step of the patent protection process, instead of just looking at the technology we already have and then deciding what can be licensed. This is a change from how things used to be done.” Assessing the value of Thai patents in particular is difficult, as few organisations have thought about them in that way in the past. There is also a fair amount of coordination with the business units to refine and explain the criteria.
Much more than cement
These days, the group emphasises the SCG brand, because its product and technology offerings extend far beyond its original cement business. There are numerous examples of ground-breaking products and solutions that have emerged from SCG’s own labs and its research partnerships.
One such innovation is Eco Brick. SCG is one of Thailand’s biggest consumers of coal, and burning coal produces a solid waste known as ‘fly ash’. In the United States, fly ash is often allowed to pile up, while in countries such as Japan it is used for projects including land reclamation. SCG has developed a method for making bricks out of the material – research shows that they lose no strength despite the fact that they are about 60% ash. Protected by patents, trade secrets, know-how and trademark registrations, the technology is one of a handful that the corporate IP group is working on licensing out.
Wilaiporn Chetanachan, director of SCG’s corporate technology group, emphasises that her team is focused on how the group can use technology to solve worldwide challenges, not just those facing SCG in its core businesses. They spend time thinking through big-picture trends such as climate change, urbanisation and an ageing population to seek applications for the company’s multi-disciplinary research. A recent exhibit of the company’s eldercare solutions “blended ideas from experts in engineering, architecture and materials”, according to vice president for SCG Cement Nithi Patarachoke, such as an artificial wooden floor with greater absorption properties to reduce the impact of falls.
Much of the research that SCG is investing in is through external partners. A joint collaboration between SCG Chemicals and Oxford University has reportedly yielded patented inventions for products including barrier film for the food packaging industry and flame-retardant film. The SCG-Oxford Centre of Excellence for Chemistry makes SCG the second-biggest player in Oxford Labs after Rolls-Royce, according to the centre’s director. With R&D investment still totalling less than 1% of sales for SCG Chemical, the business unit has plenty of room for continued growth in the area; it planned to double its R&D expenditure between 2015 and 2016.
The patent quality rating project is part of a greater overall focus on valuation over the past year. “We are building our capability in valuation, not just for patents but also for know-how and processes,” says Yingyong. He explains that the team recently launched a pilot process to evaluate the prospects for licensing these assets. Again, the company has developed its own approach, partly with the help of external consultants and SCG’s own financial team.
According to Tanthanapongphan, both efforts are aimed at building up SCG’s licensing capability, and eventually its ability to use intellectual property to drive revenues. “We want to create a revenue-focused patent portfolio. We have come up with a patent quality rating process, which we use to rank our portfolio. Then we build our capability in valuation and finally we extract that value through licensing out.”
From left: Vice President, Corporate Administration Yuttana Jiamtragan; former CEO and President Kan Trakulhoon; and Director, CTECH Office Dr Wilaiporn Chetanachan (right) pose with SCG’s Asia IP Elite award
In the past, the company has licensed in a fair amount of patents and technology from joint venture partners; it is now seeking to operate on both sides of the equation. Part of the challenge will be balancing the needs of different business units. “Often when we talk to the chemicals business, it has technology that can be licensed out,” continues Tanthanapongphan. “In building materials, it also has technology it wants to license in. We are at the centre and need to accommodate both needs.”
Growing the market
Another obvious hurdle is that while there are plenty of potential foreign partners with which to do IP deals, there are relatively few IP transactions and little licensing activity in Thailand and the immediate region – SCG’s most crucial commercial markets. Compared to its neighbours, Thailand has fairly robust IP institutions – the Department of Intellectual Party has been signed up to the Patent Cooperation Treaty (PCT) since 2009 and the country has its own specialised IP courts. But domestic patent filings remain low: in 2014 local players filed just over 1,000 Thai applications and a few hundred overseas.
By contrast, foreign companies filed about seven times as many Thai patents as local companies in 2014. “Foreign companies probably pose the biggest threat to us with their big portfolios worldwide,” Tanthanapongphan acknowledges. With sales in over 100 different countries, SCG Chemicals in particular has to think globally rather than locally about patent protection, especially in patent-rich jurisdictions in Europe. In the meantime, SCG would love to see its peers in Thailand creating and protecting more intellectual property at home in the interests of creating a more vibrant IP environment.
“I think the main issues facing Thailand’s IP development are not so much policy issues as cultural issues,” reflects Tanthanapongphan, noting that key industries such as agriculture and manufacturing have not traditionally been focused on technological innovation. According to Adcock, other reasons include an over-reliance on the petty patent system – even for innovations which would qualify for invention patents. In addition, many companies opt for trade secret protection, a practice that was almost necessitated by the protracted patent pendency that characterised the pre-PCT era.
A house built in the 1920s to accommodate Danish engineers at the Bangsue cement plant
The desire to promote the development of the Thai IP ecosystem led SCG to become the driving force behind setting up a national chapter of the Licensing Executives Society International – the region’s fourth after Singapore, Malaysia and the Philippines. Chetanachan currently serves as the group’s president. “At SCG, we already have lots of technologies to license out,” she says. “We want it to be known that Thai companies can create technology that benefits other companies and countries. There are many Thai companies that already have good technology, but no capability yet to license it.”
SCG IP Manager Yingyong Tanthanapongphan addresses delegates at IPBC Asia in Shanghai, 2014
The prospect of closer economic integration between members of the Association of Southeast Asian Nations has also doubtless played a role, as competition from companies that are significantly advanced in their own IP development will intensify. Singapore has long sought to establish itself as a hub for IP transactions, and the country is home to a host of companies and research organisations with sophisticated IP licensing operations. The Malaysian government has also been seeking to develop national intellectual asset valuation capabilities with the aim of encouraging more local players to invest in intellectual property. In Thailand, SCG hopes to spur IP-focused development even among its competitors. “As an IP-focused company, we want to see more local companies involved in the IP ecosystem,” explains Tanthanapongphan.
Siam Cement Group history and milestones
1913: Siam Cement established by royal decree of Thailand’s monarch, King Rama IV. Oscar Schultz, a Denmark native, is the company’s first general manager.
1915: Siam Cement’s first plant opens in Bangsue, Bangkok, with an initial capacity of 20,000 tonnes per year. The site is now home to SCG’s corporate headquarters.
1944: Allied bombing of strategic targets in Bangkok damages the Bangsue plant.
1966: Siam Cement spins off the Siam Iron & Steel Company.
1972: Siam Cement undergoes corporate restructuring, creating the Siam Cement Group (SCG). SCG becomes responsible for all group corporate strategy and planning. All subsidiaries adopt the same corporate logo: a white elephant against a red hexagonal background.
1974: Boonma Wongswan is named the company’s first Thai general manager.
1981: The original cement plant at Bangsue ceases operations as SCG begins building a corporate head office there.
1983: SCG further diversifies its activities in sectors including construction materials, machinery, pulp and paper. The founding of Thai Polyethylene Co marks its entry into the chemicals business.
1994: SCG goes public.
1998: Suffering from the effects of the Asian financial crisis and the weakening baht, SCG undergoes major restructuring, choosing to focus on three core businesses: cement, petrochemicals and pulp and paper.
2006: Kan Trakulhoon is named SCG president. He pursues two major strategic initiatives: growing SCG’s offering of high value-added products and adopting a more regional focus. A dedicated IP centre is established.
2008: IP operations are restructured. The IP centre is re-named the corporate technology office and its scope of work is expanded to encompass all aspects of IP, R&D and alliance management.
As the first Thai company to adopt modern, international IP management principles, SCG faced the challenge of identifying role models early on. “We model ourselves more on the top IP functions than specifically on other cement, chemicals, packaging or materials companies,” says Tanthanapongphan. That also presents the ongoing challenge of measuring success, both internally and externally.
“Benchmarking is such a difficult issue for us,” he acknowledges. “You know, we’re not IBM! We are a conglomerate with a large portion of our business in chemicals. We need to think about how to find the unique ‘SCG way’ of IP management. Honestly, I don’t think we have found it yet. But that question is what keeps driving us to grow as a team.”
The team does study other companies in related industries; on a recent trip to Japan, they met with six leading companies to exchange ideas and learn more about their IP approach. “My overall observation,” reports Tanthanapongphan, “was that while they have bigger portfolios than us, their management systems are largely similar. I think that means that we have a high-quality system. I hope that system is scalable as our IP portfolio continues to grow, and that it can yield some benefit to the company in the future.”
The SCG 100th Year Building in Bangsue was completed in 2013 to mark the company’s first century of existence
In the meantime, Tanthanapongphan is still considering how best to judge success for SCG’s IP team. “When we update the board each year, we talk about the number of registrations; but we want to move to using more analytical metrics, like the quality rating system we are working on,” he says. What is clear, though, is that his goals at the moment are qualitative rather than quantitative. Rather than benchmarking based on the size of the portfolio, the corporate IP team is honing in on how it can improve existing IP management systems.
Chetanachan echoes this point when asked how she evaluates the IP group’s progress: “We don’t set numeric patent goals for the IP team, because they don’t control how many inventions we create – the business units do. We measure their progress based on the progress and impact of action plans and medium-term plans they present to CTECH.”
Tanthanapongphan says that his team has not yet reached a conclusion about what an ideal portfolio size would be. “The corporate and business units’ IP teams are focusing on quality,” he continues. “We can think more about portfolio size once we have gotten to the level of quality that we would like.”
This past year has seen the group thinking more and more about IP revenue generation, and this seems to be the long-term goal of many of its current projects. “At a certain point, we cannot avoid the question of ROI and generating returns from our patent portfolio,” points out Tanthanapongphan. “I think the next challenge is to have a best-in-class IP management system, from creation to protection and utilisation.” If the team can accomplish that in the next five years, they will consider this a success, he concludes, adding: “What is most important to me is building a strong foundation.”
SCG set out to build a sophisticated corporate IP function a decade ago. Along the way, it has learned lessons that it hopes to share with other Thai and Southeast Asian companies as they gradually follow on the same path:
- The founding of a centralised IP management team was directed from the highest levels of management, which realised from the beginning that building an IP team went hand in hand with increasing R&D spend and introducing more high value-added products.
- SCG’s corporate IP team focuses on setting strategy, and as part of the company’s corporate technology office it works closely with the planners setting the overall direction for SCG’s R&D efforts.
- As the first Thai company to make major investments in building an IP team, SCG has had to find role models beyond its own commercial markets. It has focused on emulating best practices from companies all over the globe, especially those in the chemicals sector. It has also worked with leading external consultants along the way.
- Current high-priority projects include introducing a patent quality rating system and several pilot schemes in the area of IP valuation. These initiatives will lay the groundwork to eventually build licensing programmes.
- SCG has focused on building its patent portfolio through in-house research and filings rather than acquisitions. The team is not overly focused on quantity – the key goal is creating best-in-class IP management systems that can be effectively scaled up as the portfolio grows.