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 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

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

months supply
4000 outlets for products
credit terms 60 days
attempts to set up subsidiaries in different
region (bypassing regional warlords)

Strength and weakness

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