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(originally published by Booz & Company)


A “Hands-on” Approach to Surviving the Recession

Noble Group CEO Richard Elman discusses risk, opportunity, and his growth strategy for the commodities business.

The Noble Group Limited, a Hong Kong–based leader in global supply chain management for agricultural, industrial, and energy products with revenues of US$36.1 billion in 2008, has a telling corporate motto: “hands-on.” This describes not just the company’s collaborative approach to doing business, but also its philosophy on growth. And it may provide a key for any company that is seeking to manage its way to recovery, even in uncertain enterprises such as commodities and logistics.

As founder and CEO Richard Elman explains, “We have to consider every morning that our business is fragile, and that it can break very easily.” He places risk analysis at the core of his business model and makes well-calculated decisions on a case-by-case basis. Over the years, commodities-based businesses have experimented with primarily vertical structures (owning every part of the supply chain) or with horizontal approaches (seeking global reach only in one or two parts of the business). Both have their vulnerabilities; vertical structures are expensive and difficult to control, and horizontal structures are dependent on suppliers and customers.

The Noble Group approaches the business differently — perhaps even counterintuitively — by owning assets and controlling selective pieces of the supply chain in both directions, choosing each component based on the judgment of the firm’s top decision makers and supported by rigorous analysis. Continuously honing their acumen, and exercising it actively, is the heart of their strategy. This approach controls the company’s scale and means that it is only as successful as its last accurate insight, but it also gives Noble Group a flexibility and capability that companies with a more formal strategy may lack.

Despite the downturn, Noble Group recently reported solid financial results for the first quarter of 2009. Although revenues and profits were down, reflecting the weakened commodity price environment, Nobel Group’s net profit margin increased and it maintained high liquidity with a cash position at near-record levels. Elman spoke with strategy+business in March 2009 about his company’s approach.

S+B: How did Noble Group develop its unique approach?
ELMAN: We are fundamentally merchants. We recognized many years ago that our business was not based on assets. It was based on arbitraging information from different places and industries. With the advent of the Internet and cell phones, those opportunities for arbitrage disappeared rapidly. We knew we had to do something else. We understood that we had to add some value to the transaction, and one of the ways to do that is to control part of the supply chain. We also saw that, in some of the businesses — agriculture, in particular — if you don’t control the whole chain, you’re not fully in the business.

We did not have the resources to compete with the likes of Cargill Inc., 150-year-old companies with billions of dollars in assets. So we were selective, developing what we like to refer to as a global niche business. We identified areas where we could build a chain and put the assets in place that should be rewarding: not always rewarding in the same spot in the chain, but rewarding overall. And that put us in a position to capture the margin.

For example, if you grow soybeans in Argentina and then crush the beans in China and sell the oil in China, somewhere along that chain there should be a margin. Let’s say that another company comes along and says, “We want to buy your beans for North Africa.” If there’s a premium over what we can get in China, we will sell into North Africa and then look at the market to see if we can buy the beans from someone else to satisfy our Chinese crushing business.

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  1. Ram Charan, “Sharpening Your Business Acumen,” s+b, Spring 2006: Incorporating external trends into your strategic position.
  2. Yoshiyuki Kishimoto, Hiroyuki Sawada, and Chieko Matsuda, “Japan: Lessons from a Lost Decade,” s+b, Spring 2009: One context for viewing Noble’s success: a difficult time for all commodities businesses.
  3. Alfonso Martinez and Ronald Haddock, “The Flatbread Factor,” s+b, Spring 2007: One set of trends promoting Noble’s business may be the life cycle of emerging markets.
  4. C.K. Prahalad and Hrishi Bhattacharyya, “Twenty Hubs and No HQ,” s+b, Spring 2008: Another model for responsive corporations.
  5. Sheridan Prasso, “Ambassador for the Asian Century,” s+b, Spring 2008: Profile of Singaporean diplomat Kishore Mahbubani on the rising tide of business in Asia. 
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