Two Cases Study
Presentation Outline
Two joint ventures
• Huafei in Nanjing
• Shanghai British Oxygen (SBOC)
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 US$63 million
• Market share of 10%, ranked 12th of top 500
Industry enterprises in 1995
• 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
• 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
Problems
• Insufficient capital
• slow localization - difficult to get materials
from local suppliers
• Change of customer taste - bigger TV
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%
• 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
• 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 customer’s
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
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
Successful factors for Joint Venture
• Partner selection
• Additional financing flexibility
• Modern management practices
• Technology transfer
• Location
- labor, materials, transportation
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
Performance
• one of the top 500 enterprises in China
• Sale RMB 450 million; profit, 105 million
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
• 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
• Raw materials are primarily imported
– consistent quality
– material cost is higher
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
Promotion
• TV (China Central Television, CCTV)
– target regions in Shanghai, Guangzhou and
Beijing (purchasing power high)
• mini-trade affairs
• billiard board
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
month’s supply
• 4000 outlets for products
• credit terms 60 days
• attempts to set up subsidiaries in different
region (bypassing regional warlords)
Strength and weakness
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Long history
strong human resources management
Limited financial resources - less adv.
Reliance on imported materials
over dependency on foreign technology