Two Cases Study

1
Two Cases Study

• Presentation Outline
• Two joint ventures
• Huafei in Nanjing
• Shanghai British Oxygen (SBOC)

2
Huafei

• Joint venture among
• Philips Electronics N.V.,
• Huadong Electronic Tube Factory
• Jiangsu Investment co. (venture capitalist firm)
• Set up in 4/1988 to manufacture TV tubes
• Largest JV in Jiangsu province.
• 25 years, registered capital of US63 million
• Market share of 10, ranked 12th of top 500
  Industry enterprises in 1995

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• Huafei (continued)
• 5-year payback
• After expansion,
• Philips 55,
• Huadong Electronic Tube Factory 27,
• Jiangsu Investment, 18
• Structure
• President with three VPs, 7 departments
• Skills
• average age 25, younger than industry average,
  more highly skilled

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• Critical Success Factors
• Product Selection
• TV is one of the 4 big things (items)
  -refrigerator, washing machine, cassette recorder
• good growth prospect
• Location/partner
• Huadong 50 years history and manufacturer
• Trust and commitment
• Good Human resource management
• incentive scheme (bonus)
• other incentives such as housing allowance
• training programs

5
Problems

• Insufficient capital
• slow localization - difficult to get materials
  from local suppliers
• Change of customer taste - bigger TV

6
Shanghai BOC (SBOC)

• Established in 1988
• Between Wusong Chemical and British Oxygen
  Company (BOC)
• Production of industrial gases
• In 1995
• net profit 5
• turnover growth 8.4

7

• SBOC (continued)
• Organization structure
• a board with 8 rep (half-half), one foreign and
  one local general manager.
• Skills
• seek good employees with good training
• Successful factors

8

• Planning for future growth
• not able to meet 8 year payback but patience
• one half of the revenue used for R D
• Raise additional capital of 30 million bank loan
  to build gas processors at the customers cites
  as marketing strategy
• Learning from the foreign partner
• able to learn new technology and practices
• focus on quality of product
• decisions are based on consensus and consultation

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Problems

• Increasing need for capital -thread for
  wholly-owned subsidiary from BOC
• FX imbalance low foreign earnings due to low
  volume of exports
• Sourcing and retaining staff
• below market salary
• Cultural differences
• - expatriate cannot speak Chinese

10
Successful factors for Joint Venture

• Partner selection
• Additional financing flexibility
• Modern management practices
• Technology transfer
• Location
• - labor, materials, transportation

11
Shanghai Jahwa Corporation

• Background
• 1978 undertook a major change, incorporating
  foreign-based cosmetic companies (Johnson and
  Johnson, Kanebo and Lion)
• core business skin care (85), cosmetic (10)
  and household cleaning products (5)
• adopts high-tech production techniques and
  quality control

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• Performance
• one of the top 500 enterprises in China
• Sale RMB 450 million profit, 105 million

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Marketing Strategy- Product

• Unique seasonal product
• two popular products
• Liushen
• skin care product with herbal content, combines
  advanced cologne processing technology
• suppressing heat, relieving itchiness, refreshing
  the mind, preventing bites from mosquitoes

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• Liushen shower gel
• contains natural Chinese herbs
• known for disinfecting and treating inflammation
• Brand name - other products such as Maxam and
  Yashuang are known for 50 years
• Target Market-cosmetics
• K series (with Japanese company- Kanebo), high
  end
• Chinf and Chinf, mid-price
• Ruby series - lower end

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• Raw materials are primarily imported
• consistent quality
• material cost is higher

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Pricing Strategy

• Competitors focus on high-end products
• PG and Unilever
• Set price below 50 below imported products of
  comparable quality -- large segment of the market

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Promotion

• TV (China Central Television, CCTV)
• target regions in Shanghai, Guangzhou and Beijing
  (purchasing power high)
• mini-trade affairs
• billiard board

18
Place (distribution)

• Warehouse facilities in 25 distribution centers
  in China
• 23 covers eastern half, 2 covers western half
• Keeps a large inventory, warehouses have 2
  months supply
• 4000 outlets for products
• credit terms 60 days
• attempts to set up subsidiaries in different
  region (bypassing regional warlords)

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Strength and weakness

• Long history
• strong human resources management
• Limited financial resources - less adv.
• Reliance on imported materials
• over dependency on foreign technology