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

Partner selection Additional financing flexibility Modern management practices Technology transfer Location - labor, materials, transportation Successful factors for Joint Venture

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