( Editor's Note Regarding the “going global” strategy in the mining industry, there’s plenty of theory and accumulated experience. However, the general public’s understanding of this “going global” approach remains rather conceptual and abstract. What exactly does “going global” entail, and what real, tangible challenges will we encounter? The Exploration Institute of Shougang... Shang From the perspective of a Chinese-funded enterprise, Lu Jun shared one story after another based on his personal experiences and then drew some conclusions. What’s particularly valuable is that these stories are remarkably authentic—some good, some bad—and avoid few taboos. Let’s tentatively call this Lu Jun’s first-hand impressions of Peru.

Shoukan Mineral Exploration Co., Ltd. (hereinafter referred to as Shoukan Company) was officially established in Peru in 2007 by the Geological Research Institute of Shougang Geological Exploration Institute, in response to the nation’s call to “go global” and driven by its own long-term, sustainable development goals. Leveraging the favorable conditions provided by Shougang’s iron ore operations in Peru, the company has undergone years of development. Due to insufficient management experience with overseas enterprises, it has faced numerous setbacks and at times found itself in extremely passive and awkward situations. However, through continuous exploration, adaptation, and learning, the company’s operations have now largely returned to normal. Many of its management experiences and practices are worth summarizing and refining, providing valuable insights and reference points for future development.

This article examines some of the challenges that Shoukan Company has encountered during its development over the past few years, identifies patterns in the management and development of overseas companies, and accumulates valuable experience. By summarizing internal management practices, it highlights the key issues and difficulties faced by overseas companies during their development, providing useful insights and inspiring new approaches for the management and growth of overseas enterprises—particularly those based in Peru, the host country. (This article is a serialized piece; this is Part One.)

1.1 Language differences

Entering a new market—especially in a different country—presents language as one of the biggest obstacles, because work requires communication and interaction. If you can’t overcome the language barrier, it will significantly hinder the smooth progress of your work.

Case 1: Worker Training Overtime

Drilling operations began in 2009. On the Chinese side, three senior rig operators took turns working in three shifts to oversee three domestically produced drilling rigs. The rig crews had to be recruited locally from Peru. To ensure smoother operations, we specifically hired nine senior rig operators from Lima and recruited additional workers from the local community. Since the Peruvian rig operators were unfamiliar with the drilling rigs we had brought in, and the local workers had no prior drilling experience at all, it became necessary to provide training for all of them. Initially, as there was no interpreter available, we had to conduct all the training ourselves. At the outset, our Spanish language skills were extremely limited, and we lacked expertise in technical matters as well. We had to gradually learn and adapt as we went along. What was originally expected to take just over ten days ended up taking nearly two months before the workers could barely begin performing their duties effectively. Among all the challenges, language proved to be the biggest hurdle—workers couldn't clearly articulate the names of the equipment's mechanical components, nor could they explain how to operate the machinery according to the proper procedures. After several years of adaptation and intensive training of local workers, we’ve now essentially achieved localization of technical personnel, including rig operators and drillers. As a result, we no longer face difficulties due to shortages of skilled technicians, which used to disrupt the normal progress of the project. This underscores, from another perspective, the practical significance of overcoming the language barrier.

Another firsthand experience is that, in the Peru project we’re currently working on, we always feel there’s a shortage of material when writing our reports. Our understanding of local geological patterns and tectonic settings consistently remains at the level of geological descriptions submitted by earlier generations. In fact, there’s actually a wealth of data available here—covering regional geology, mine-site geology, and numerous cutting-edge research findings. However, most of this material is in Western languages, or at least partially in English, and very little effort has been devoted to studying and researching these resources—mainly because of the language barrier.

Due to language barriers, many other situations can arise—for example, financial communications, responding to tax audits, studying and applying various local regulations and laws. If there are misunderstandings or misinterpretations, and emergency measures are not taken promptly, the company could suffer significant losses.

Therefore, before entering the market of another country, it’s essential to first master the local language. Ideally, managers should communicate directly with local personnel, because even with a translator, often the translation can only convey the general idea rather than accurately and faithfully expressing your true intentions to the other party—especially when dealing with specialized terminology, the discrepancy can be even greater. This can, to some extent, affect the progress of work. Hence, strengthening language training before “going global” becomes particularly important.

1.2 Legal and regulatory aspects

In many Western countries, including Peru, the legal systems are relatively well-developed and highly institutionalized—this can be glimpsed from the ubiquitous notary offices. However, if businesses are unfamiliar with or lack a thorough understanding of these various laws, they won't be able to effectively use them to safeguard their interests, which would hinder their development.

Case 2: Unjustified Absence from Work

Due to the special nature of the drilling operations, the equipment runs continuously around the clock, requiring constant supervision. For a considerable period at the start of work in 2009, when the morning shuttle buses picked up workers, it was discovered that many workers were not waiting at the designated pickup points. After calling them to inquire, the workers came up with all sorts of excuses—some claimed they’d woken up with a stomachache, others said their children or wives were ill, and still others said they had to visit their parents today, and so on. Yet none of these excuses had been foreshadowed in any way, nor had the workers requested leave the day before. Since the work could not be interrupted, each worker was assigned to a specific post with no backup personnel available, so the company had to find replacement workers from among those on vacation—thus disrupting the normal production schedule. Moreover, many of the recently vacationing workers were reluctant to come in for overtime, making the situation extremely awkward at the time. Even more regrettable was that, at the time, the company lacked a clear understanding of the local employment regulations; as a result, no wages were deducted nor were any disciplinary measures taken against those who took temporary leave and failed to show up for work. This only encouraged the practice of taking spontaneous leave, and the situation persisted for a long time, leaving the company’s management in a passive position, keeping managers extremely busy, and undermining both the progress of the work and the motivation of other workers.

It’s also a characteristic of Peruvians that workers often skip work without any valid reason. However, for companies, frequent unexplained absences can disrupt normal business operations, so the company should take appropriate measures. Yet, since at first we weren’t very familiar with the local labor regulations and were afraid that workers might file complaints with the union—and no local employees offered any advice—we hadn’t been able to find an effective solution. Later, we hired a part-time local lawyer who explained that, according to Peruvian law, if a worker fails to show up for work, the company can deduct the corresponding wages and issue a written warning. Moreover, if such absences accumulate to more than three instances, the company has the right to terminate the worker’s employment. Additionally, under the law, the minimum duration of a labor contract signed between a company and a worker is three months; after this period expires, if the company feels the worker is no longer suitable, it can choose not to renew the contract. By implementing these two measures and gradually screening out unsuitable workers, we’ve managed to virtually eliminate the recurrence of the aforementioned incidents among our workforce.

Therefore, it is crucial to hire local lawyers who are familiar with local labor laws and to manage non-compliant personnel in accordance with the law.

Case 3: Strong Security Awareness

In November 2012, the distribution cabinet at the Bietie mine underwent maintenance. Due to the way our equipment was stacked, the passage leading to the distribution cabinet had become somewhat narrow, resulting in an injury during passage. As a result, the client requested that we carry out rectification work. After finalizing the rectification plan, we needed to hire personnel to perform the cleanup. According to the planned schedule, roughly three people would be required and the job would take about half a day. Following conventional domestic practices—since this wasn't considered a highly technical task—we figured it would suffice to simply find a few workers from the local community to get the job done. However, the safety engineer’s first reaction was that the workers hired must be equipped with EPP (personal protective equipment) and have SCTR insurance. Although the job only took half a day, these requirements were absolutely essential. Later, we adopted two approaches: one was to recruit former employees who had previously worked at our company, and the other was to recruit several workers from another company by asking them to spare some staff. All personnel entering the mining area for work were required to go through the approval procedures set forth by Bietie’s safety department according to relevant regulations; only after passing the approval could they enter the mining area to work. Ultimately, using these two approaches, we managed to find three workers and completed the rectification within the allotted half-day period.

Peruvian businesses, the government, and ordinary citizens all place great importance on safety work and have a strong safety awareness. Safety comes first, products are genuine and of high quality, and safety measures are implemented in a substantive manner, rather than merely going through the motions.

In the early stages of project construction, Shoukan Company, influenced by a general lack of safety management awareness in China, did not attach sufficient importance to safety issues and had experienced several accidents. Moreover, considerable effort was expended on complying with and rectifying safety inspections, yet the results were not very satisfactory. In 2011, in response to requirements from Peru’s Ministry of Mining and Energy, Perú Ferroviaria strengthened its safety management both internally and for third-party contractors. Any projects failing to meet safety standards were ordered to halt work immediately and undergo rectification until they conformed to the Ministry’s safety production standards for mining operations. As a result, we hired a full-time safety engineer who now works daily on-site, overseeing safe construction practices, providing safety training to employees, identifying potential safety hazards, and promptly addressing them. The actual outcomes have been highly positive; compared to the past, this approach has significantly enhanced the company’s economic performance. Furthermore, the hiring of a safety engineer is explicitly stipulated in the construction contract and constitutes a mandatory requirement for contract execution.

Indeed, throughout Peru as a whole, people place great importance on safety and have a strong safety awareness. Projects will not commence unless they meet the required safety standards, and workers will not be allowed to start work unless those standards are met. Violators may face prosecution and legal sanctions. Therefore, in accordance with the requirements of the host country, it is essential to assign the necessary personnel to safety management positions to ensure the smooth implementation of the project.

Case 4: Uphold Contracts and Obey the Law

Peru is a country governed by the rule of law, where respecting contracts and upholding the law is common sense. When resolving conflicts and disputes, it’s only natural to refer to contracts and legal provisions. The various practices employed by insurance companies when handling claims for two traffic accidents provide an excellent illustration of this principle.

In 2012, while returning to our base from the mining area in a pickup truck, we experienced a rollover accident on a stretch of poor-quality gravel road. The vehicle was traveling at a slightly high speed, and unfortunately, no one was injured. However, the truck’s cab was severely deformed. The repair estimate provided by the authorized repair shop designated by the insurance company came to US$12,000, but we chose not to accept it. Instead, in accordance with the terms of our insurance policy, we allowed the customer to select an independent repair shop for damage assessment. Subsequently, we requested Toyota to conduct the damage assessment. After evaluation, the vehicle was determined to be a total loss. The insurance company acknowledged this assessment and agreed to pay out the full amount covered under our insurance policy. The vehicle had been purchased in 2009 and insured in 2010 at a depreciated value of US$27,000. Thus, we were able to receive a payout equal to the insured amount, enabling us to purchase a new vehicle with just a small additional investment and minimizing the company’s overall loss.

In the next case, Case 5, all medical expenses and various forms of compensation for the injured employee are covered by the insurance premiums paid. Among these, commercial insurance has covered most of the employee’s medical expenses following the injury. Under the insurance policies in place, any accidental incidents occurring during work can be fully covered by insurance, significantly reducing the company’s financial losses and alleviating its burden in managing various social relationships.

Having understood Peru’s societal emphasis on contracts and respect for the law, we have applied these principles to our business operations and management practices in order to minimize corporate losses. For example, based on the nature of our work, we can selectively purchase certain types of insurance. In our daily operations, aside from drilling rigs, the entities we interact with most frequently are personnel and vehicles; thus, ensuring the safety of both personnel and vehicles is particularly crucial. When we acquire new vehicles, we immediately secure comprehensive insurance coverage for them. Additionally, for each employee, in addition to the legally mandated health, pension, and work-related injury insurance, we also provide supplementary accidental injury insurance tailored specifically for high-risk jobs—given that drilling operations fall under a special category of high-risk, hazardous work. Furthermore, as stipulated in the contract signed with our client, we can purchase the necessary insurance policies. Typically, such contracts include a dedicated insurance appendix that specifies the types of insurance to be purchased and their respective coverage amounts. Among these policies, there is one designed specifically for third parties: simply put, if any non-company personnel enter the worksite and suffer an accidental injury, the insurance policy can cover the medical expenses incurred by those individuals.

Based on the nature of the company’s work, carefully selecting the necessary insurance can significantly reduce business risks and help avoid many unnecessary complications.

1.3 Cultural differences

Case 5: Frequent drinking and entertainment activities

On Sunday morning, December 13, 2009, a minibus picked up workers from the night shift as they finished their shift. There were a total of 11 people on board. On the way back, at a sharp bend in the road, the driver was traveling at a relatively high speed, causing the vehicle to roll over. Several people were injured; notably, two rig operators suffered broken fingers, one sustaining a lifelong disability, and another worker sustained extensive abrasions on his arm. Most of the other passengers sustained minor bruises. As a result, there is now a shortage of skilled workers, forcing the company to halt operations on two drilling rigs, which has disrupted normal construction activities.

An investigation conducted afterward revealed that, according to the Chinese staff member who was sitting next to the driver at the time, the driver appeared quite agitated while driving and was speeding. Several warnings were issued to him, but due to language barriers, they failed to grab his attention. The driver himself admitted that the previous evening—Saturday night—he had attended a friend’s party, where he had been drinking and dancing until morning before heading straight to work. Under the influence of alcohol, his mental state was highly stimulated, and he was unable to keep his speed under control in a timely manner, ultimately leading to the accident described above.

In South American countries, it’s common for people to throw parties and invite friends to狂欢 together, often lasting late into the night or even until early morning. Peru is no exception—every Saturday there’s a party, frequently going on until dawn.

The driver was dismissed after the incident, and all employees were notified and given a safety awareness briefing.

To summarize the experience: Since we were new to the area and didn't fully understand the local residents' habits, we underestimated the impact their lifestyle had on normal production and work. This led to the situation described above. In future driver recruitment efforts, we will require drivers not to consume alcohol during working hours, or give priority to hiring drivers who don't drink alcohol.

Case 6: Weak sense of time

In 2012, I had scheduled a meeting with the client. One hour before leaving, I called the head of the secretariat to let him know that I was already in a taxi and would be there in 10 minutes. However, he didn't arrive until an hour and ten minutes later. Also, when we arranged a dinner gathering, the time was set for 7 p.m., but most people didn't show up until nearly 8 p.m.

Another manifestation of a weak sense of time is taking unauthorized absences from work—this is quite common in Peru as well. Let me give you two small examples: First, there was the owner of a steamed bun and baozi stall in Lima’s Chinatown. Once, when I went to buy some buns, he told me they were all sold out. When I asked him why, he was furious. He said these workers had suddenly stopped coming to work yesterday for no apparent reason—just as they were starting to get the hang of their jobs! Now he had to rehire new staff all over again. Another time, I was dining at a restaurant that wasn’t very busy. The owner, who usually works at the counter handling payments, wasn’t there. Instead, his wife came over to take our order. Later, I found out that on that day, all the restaurant’s employees had suddenly stopped showing up for work without giving any prior notice. This left the owner and his wife scrambling to deal with the situation, and the owner ended up having to step in and cook himself.

Failing to go to work without a valid reason may be partly related to the way wages are paid. In Peru, most workers are paid weekly, with salaries issued once a week. Often, before their next paycheck arrives, they’ve already spent all their money, never bothering to save any. They tend to anticipate their paychecks and indulge in spending ahead of time. Moreover, weekends are typically filled with parties—another clear manifestation of their habitually lazy lifestyle. They skip work without taking leave, and even if they didn’t get paid at all, the loss wouldn’t be significant. Peruvians generally have a deep love for soccer; on days when there’s a Peruvian soccer match, it’s especially true—many working-class employees simply don’t show up for work and head straight to watch the game instead, often without even asking for leave. A song that’s particularly popular among them goes like this: “I just want to sing and dance—I don’t want to work.” This song vividly reflects some of their attitudes toward life.

Situations like the ones mentioned above are also fairly common in other places—not just isolated individuals, but entire countries experiencing similar issues. Therefore, we should pay close attention to this phenomenon. Generally, there are two common approaches to handling such situations: One is for companies to establish rules and regulations stipulating that tardiness will result in deductions from wages based on the number of hours missed, or that repeated instances of tardiness will lead to a written warning followed by termination of the employment contract. The other approach is to provide advance notice—more than half an hour earlier than the scheduled time.

In addition, there are significant differences between Chinese and Peruvian food cultures. Peruvians primarily consume meat—especially chicken—and the most common type of restaurant is a grilled-chicken joint. The staple food is typically french fries. Given these substantial cultural differences in dietary habits, we’ve emphasized from the outset that we’re not responsible for providing food and lodging, or that Chinese and Peruvian staff will eat separate meals. Currently, we’re adopting the former approach, which helps us avoid many potential complications.

The above are some common issues that tend to arise due to national cultural differences. Since different countries have distinct cultures, it’s best to gain a comprehensive understanding of a country’s cultural nuances before entering its market—knowing what to do and what not to do—to avoid potential negative impacts stemming from cultural differences.

1.4 Government operating mode

Case 7: Frequent turnover of government personnel

In 2010, the visas of several Chinese personnel expired, and procedures for some of their identification documents were still underway. During a surprise inspection by Peruvian police, these individuals were discovered. Later, after considerable effort and substantial expenditure of manpower and financial resources, the situation was finally brought under control. At the same time, we managed to establish connections with certain government officials and smooth out some bureaucratic hurdles. However, during the resolution process, since one comrade was not present at the scene, no action was taken against him, leaving this issue unresolved as a lingering problem. In 2011, when we attempted to reprocess the necessary paperwork for that comrade, all the government officials we had previously known—especially those from the immigration bureau—had been completely replaced from top to bottom. As a result, much of the work had to be started from scratch. Moreover, the newly appointed personnel lacked experience, creating significant obstacles in carrying out our tasks.

After further consultation, we came to understand that many Peruvian government officials are rotated every two to three years—or even more frequently, each time the government changes. This means that it’s extremely difficult to maintain long-term relationships through public relations efforts; instead, one must continually reinvest and start anew. To some extent, this has created inconveniences for some of our work and is an aspect we need to pay close attention to.

The degree of political stability in each country is the primary factor that enterprises considering overseas expansion must take into account. In addition, it’s essential to have a relatively deep understanding of how the government operates, how various state agencies function, and the relevant laws and regulations—only then can we better plan our work.

Case 8: Worker Strike

Workers' strikes are commonplace in Peru—almost as routine as eating meals. The cultivation of awareness among people to fight for and protect their own rights begins at the kindergarten level. Strikes are directly led by trade unions at all levels, yet each strike must be approved by the Ministry of Labor beforehand, making them legal actions. Any unauthorized resumption of work during a legally sanctioned strike is considered illegal. The primary goal of these strikes is always to secure workers’ interests, such as wage increases. Peru experiences two large-scale strikes each year. Before a strike begins, trade unions identify and train key activists to mobilize and rally support among workers. At the same time, they submit lists of strikers and other relevant information to the government authorities for approval. The main form of protest during strikes is marching and demonstrating; during these periods, roads are often blocked, and all vehicles are prohibited from entering construction sites. As third parties, we too are significantly affected. Strikes can be categorized into two types: scheduled strikes and indefinite strikes. However, many strikes continue indefinitely until their demands are met. In the town of Marcona, there are two major strikes each year—in April and October. Initially, these strikes tend to be relatively mild. But if they drag on for an extended period, violent incidents such as vandalism and looting may occur toward the end, causing injuries to travelers and resulting in serious consequences.

During workers’ strikes, employees do not go to work. Sometimes, the municipal government even joins forces with the strikers to shut down markets. This not only disrupts the normal production and operational order in mining areas but also impacts third-party contractors working within those mines. Therefore, when operating overseas—whether as the party A or as a third party—any potential disruptions caused by workers’ strikes must be taken into account.

Additionally, in Peru, once a company has more than 20 local employees, the workers gain the right to establish a union and advocate for their interests. The number of employees at Shoukan Company has now basically reached this threshold. During this period, several workers took the initiative to propose establishing a union and began challenging the company. For these active individuals, we promptly terminated their contracts upon expiration, and handling the situation appropriately can help avoid potential complications.

1.5 Community Relations

Case 9: Chinalco’s Path in Peru

On August 1, 2007, Chinalco completed its acquisition of a 91% stake in Perú Copper Corporation of Canada, thereby gaining the mining rights to the massive Tormoc copper mine—a major copper deposit owned by Perú Copper. However, before actual mining can begin, an environmental and social assessment must first be conducted. Morococha town happens to be located right at the heart of the future Tormoc copper mine site where construction is set to commence. Therefore, it is of great significance to properly manage relations with the local community residents. After painstaking efforts, it wasn't until December 2010 that the project's Environmental and Social Impact Assessment Report received approval from the Peruvian government—much of this approval was centered on addressing relations with the local community. As of August 2012, Chinalco had spent 50 million U.S. dollars to build a new Morococha town and carry out the comprehensive relocation of all town residents. Yet, some holdout households remain unwilling to move, primarily because Chinalco failed to fully take into account all their needs. Consequently, managing relations with the local community will continue to be an ongoing process for some time to come. The total investment in this copper mine will reach 2.2 billion U.S. dollars, and production is expected to start by the end of 2013.

Many enterprises that have gone global—especially those involved in mining and ore processing—still feel considerable pressure when it comes to managing community relations. If community relations can be properly addressed from the very beginning of a project, it will lay a solid foundation for the project’s subsequent implementation.

We’ve encountered numerous challenges in our operations. Throughout the process of addressing these issues, we’ve received strong support from Shougang Mite. In fact, many matters have been handled through communication channels established via Shougang Mite. What I’d like to emphasize here is that when expanding overseas, it’s best to select suitable partners in the host country. Another approach is to enter the international market through mergers and acquisitions. In situations where you lack experience, fully leveraging the existing expertise and talent of your partners or acquired entities is an effective way to quickly understand and integrate into the local environment, thereby facilitating smooth business operations.

The above discussion has covered the key issues encountered and resolved by Shoukan Company in its interactions with external stakeholders. Given that the company’s business scope is relatively limited, its external relationships are also fairly straightforward. We hope this can serve as a useful reference for companies taking their first steps abroad.

(The author is the Deputy Director of the Geological Research Institute at Shougang Geological Exploration Institute.)