CONFIDENTIAL - COnnecting REpositories · A SWOT analysis is presented to identify the company's...
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Transcript of CONFIDENTIAL - COnnecting REpositories · A SWOT analysis is presented to identify the company's...
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I
A BUSINESS STRATEGY FOR
SVEDALA INTERNATIONAL (HONG KONG) LIMITED
IN CHINA
by
YIM FU CHEONG, TERENCE
MBA PROJECT REPORT
Presented to
The Graduate School
In Partial Fulfillment
of the Requirements for the Degree of
MASTER OF BUSINESS ADMINISTRATION
THREE-YEAR MBA PROGRAMME
THE CHINESE UNIVERSITY OF HONG KONG
May 1994
APPROVAL
Name： Yim Fu-Cheong, Terence
Degree： Master of Business Administration
Title of Project： A Business Strategy for Svedala International (Hong Kong) Limited in China
D r . David H . Holt
Date Approved： 《
• • 11
ABSTRACT
"The Far East and Asia have been Svedala's fastest growing markets in recent years." said M r . Thomas Older, President & Chief Executive Officer of Svedala Industri AB, in his annual report of 1992.
"Order bookings increased, particularly in the Far East.“ Mr . Older reaffirmed this message in his interim report on six months ended June 30, 1993.
Svedala International (Hong Kong) Limited was established
in June 1993, as a regional office for marketing Svedala
products to clients in the Asia Pacific region. The compa-
ny specializes in equipment and systems for civil engi-
neering, mineral processing, and bulk material handling.
Consequently, the Hong Kong office is well-positioned to
serve the China market for infrastructure development.
The distribution of Svedala products is accomplished
through an agency network which provides sales and serv-
ices to customers in their respective markets. There is
also a small team of coordinators in Beijing representing
a specific line of products.
In January 1994, the first Svedala Conference in Asia was
held in Hong Kong. A delegation team of nearly 100 Svedala
• it 111
Managers gathered together to discuss growth opportunities
for Svedala in the Far East. This MBA project, entitled 'A
BUSINESS STRATEGY FOR SVEDALA INTERNATIONAL (HONG KONG)
LIMITED IN CHINA', was inspired by this conference.
The growth picture of China is bright and conspicuous. The
average double-digit growth rate in the past decade has
lured many investors into China. This influx of investment
capital has strained China's infrastructure and pushed up
the inflation rate. Consequently, bottlenecks have oc-
curred in China's development, the most severe being lack
of energy and strained transport capabilities. Svedala,
being specialized in supplying systems and equipment for
infrastructure development, must address a proactive
strategic plan for its operation in China market.
iv
TABLE OF CONTENTS
ABSTRACT ii
TABLE OF CONTENTS iv
LIST OF EXHIBITS vi
ACKNOWLEDGEMENT vii
CHAPTER
I. INTRODUCTION 1
1.1 Svedala Industri AB 1 1.2 Svedala Products... 1
1.2.1 Civil Engineering Sector 2 1.2.2 Mineral Processing Sector 3 1.2.3 Bulk Material Handling Sector 4
1 • 3 Svedala Customers 5 1.4 Svedala's Mission in China 5 1.5 Methodology 7
11. FUTURE DEVELOPMENT IN CHINA 10
2.1 Economic Situation 10 2.2 Major Technology Introducing Projects 12 2.3 What are the Bottlenecks? 12 2.4 Energy Projects 19 2.5 Coal Mining Projects 20 2.6 Transport Projects 21 2.7 Other Construction Projects of Interest to
Svedala 24
III. OPPORTUNITIES FOR SVEDALA... 25
3.1 Crushing & Screening Division 25 3 .2 Compaction Division 26 3.3 Grinding Division 27 3.4 Bulk Material Handling Division 28
viii
IV. SUMMARIES OF INTERVIEWS AND IMPLICATIONS 31
4.1 Crushing & Screening Division 31 4.2 Compaction and Bulk Material Handling
Division 32
V . STRENGTHS AND WEAKNESSES OF SVEDALA 35
5.1 Crushing & Screening Division 35 5.2 Compaction Division 36 5.3 Grinding Division 37 5.4 Bulk Material Handling Division 38
V I . THREATS TO SVEDALA 40
6.1 Most-Favored-Nation (MFN) Trade Status 40 6.2 Drastic Policy Changes 41 6.3 Land Appreciation Tax 42 6.4 Skyrocketing Costs of Operations 43 6.5 Upward Trend of Interest Rates 44 6 . 6 Government Regulations 45
V I I . RECOMMENDED STRATEGY FOR SVEDALA 46
7.1 Business Strategy for China 46 7.2 Product Strategy 46 7.3 Pricing Strategy. . 49 7.4 Distribution Strategy 49 7.5 Promotion Strategy 51 7.6 Research & Development Strategy 51 7.7 Human Resources Strategy 52 7.8 Finance Strategy 53
VIII. CONCLUSION 54
APPENDICES. . 57
BIBLIOGRAPHY. 63
REFERENCES. . 66
vi
LIST OF EXHIBITS
EXHIBIT I GDP growth rates in the PRC 6
EXHIBIT II Electric Power Generation Capacity of China 14
EXHIBIT III Installed Capacity Per Capita of Selected Asian Countries in 1992 15
EXHIBIT IV Relationship Between Electricity Consumption Growth and GNP Growth 17
EXHIBIT V Per Capita Electricity Consumption ^ & Generation of Selected Asian
Countries in 1992 18
EXHIBIT VI Sketch of Planned Expressway in Guangdong Province 23
j
EXHIBIT VII Artist's Impression of 2 x 3 67.5MW
Pagbilao Power Station 29
_ _ V I 1
ACKNOWLEDGEMENT
To complete this research paper, a number of persons have
assisted me and shared their value opinions with m e . First
of all, I would like to thank D r . David H . Holt, m y MBA
Project Supervisor, who inspired me with entrepreneurship.
This project was carried out and accomplished under the
fruitful guidance of D r . Holt.
M r . Peter Kohle, M r . Harry Wong, M r . Lars Strom, M r . Leif
Andersson and M r . Arne Ditnblad were names worth mentioning
here. I was given detailed information by these gentlemen
to carry out this research. It could not be a success
without their kind and valuable support.
The last but not the least, gratitude should also be
expressed to all interviewees who spent their valuable
time with me to comment on Svedala as a whole.
1
CHAPTER I
INTRODUCTION
1.1 Svedala Industri A B .
Svedala Industri AB is a multinational corporation with
its headquarter based in Sweden. Its annual turnover is
about USDl billion with more than 90 percent coming from
outside Sweden. It employs more than 10,000 people in over
30 countries. The subsidiaries of Svedala have long tradi—
tions, good international reputations, well-known products
and comprehensive application expertise. Allis Mineral
Systems, McNally Wellman, Dynapac, Componenta, Denver-
Sala, and Kalmar are a few of them.
1.2 Svedala Products
Svedala group develops, manufactures and markets systems
and products used in the (1) Civil Engineering industry,
(2) Mineral Processing industry, and (3) Bulk Material
Handling industry. Advanced technical solutions combined
with substantial applications experience and a high level
of quality services are distinctive features of Svedala
group companies.
2
1.2.1 Civil Engineering Sector (Appendix 工）
Svedala develops, manufactures and delivers three main
categories of products for customers in the civil engi-
neering sector.
Crushing & Screening Division - This Division sup-
plies equipment and systems for crushing, screening and
conveyor belt transporting of materials, and environment
enhancing systems for dust encapsulation and noise abate-
ment . The crushed and screened materials, often mixed to
form aggregates, are used extensively in various types of
construction projects. The major brand name is Allis
Mineral Systems.
Compaction Division - This Division supplies equip-
ment for paving asphalt surfaces and compacting soil,
asphalt and concrete in building highways as well as dams,
bridges and other vital infrastructure elements. The major
brand name is Dynapac.
Wear Parts Division - This Division supplies wear
parts for various construction equipments whether they are
manufactured by Svedala group companies or not. The major
brand name is Componenta.
3
1.2.2 Mineral Processing Sector (Appendix II)
Production of minerals for industrial use involves grind-
ing, pumping, separation, de-watering, drying and pyre-
processing. Svedala delivers systems for all of these
processes. The equipment and systems are normally tailored
to specific user requirements. Advanced facilities for
process research and testing play a major role in the
capability for meeting these requirements. Therefore,
Svedala offers a complete spectrum of engineering serv-
ices, including installation, commissioning and start-up.
Lifetime on-site customer support involving monitoring of
performance is also provided to ensure a maximum return on
investment for customers.
There are three Divisions in the Mineral Processing Sec-
tor.
Grindincf Division - This Division designs and sup-
plies all kinds of grinding mills for size reduction of
minerals. This equipment is widely used in electric utili-
ties, cement plants, and chemical companies. The major
brand name is Allis Mineral Systems.
Pumps & Process Division - This Division offers a
broad range of equipment, instrumentation and customized
systems in mineral and chemical industries. Various pumps
4
from small to very large sizes are offered for pumping
slurries and corrosive fluids. Applications include mix-
ing, aeration, scrubbing, and separation of particles.
Other system capabilities include lime slaking, ore con-
centrating, oil bearing sand cleaning, and soil remedia-
tion. The major brand name is Denver-Sala.
Pyro Division - This Division supplies systems and
equipment for thermal processing to change the physical
and/or chemical properties of solid materials such as
ores, minerals, bulk granular chemicals, agricultural
products, and waste. The major brand name is Allis Mineral
Systems.
1.2.3 Bulk Material Handling Sector (Appendix III)
Svedala products for this sector are often delivered in
the form of complete systems for loading, unloading and
blending of bulk materials such as coal preparation, ash
handling, iron ore pelletizing, and sintering. Key custom-
ers include power stations and co-generation plants as
well as port and terminal facilities.
Highly automated and designed to minimize manpower input,
these systems are engineered by Svedala for optimal
throughput, versatility and long service life. Expertise
based on years of real-world experience enables them to be
5
integrated with virtually any type of carrier or storage
facility in power generation plants, river terminals, and
ocean ports. The major brand name is McNally Wellman.
1.3 Svedala Customers
Construction and maintenance of infrastructures create
demand for Svedala products in the construction, mining,
and m e t a l s industries. Because the need for infrastructure
is global, Svedala competes in a global market for most
its products. The degree of investment in infrastructure
is related to the development of a society and is thus
greatest in countries with high growth rates.
The economic growth in Asia has been prominent in the past
few years. The average double-digit growth in China
(Exhibit I) since its introduction of the "Open Door
Policy" in 1978 has drawn much attention to this part of
the world especially when the three big economic powers,
USA, Germany, and Japan suffered stagnant or negative
growth. Svedala recognizes this opportunity and is aggres-
sively pursuing business in China infrastructure develop-
ment .
1.4 Svedala's Mission in China
"The prediction of annual growth in China at eight to nine
percent for the coming five years is requesting us to take
• . • • ‘
6
. ‘ • • . . . . . . . . . . . . . . . . .
• • . . •
EXHIBIT I
Gross domestic product growth rates in the PRC % 20-1 “•“~ “
1 5」 • “ “
國 liwSSSSRB
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Source: PRC Statistical Yearbooks 1982-92 published by the State Statistical Bureau of the PRC and Asian Development Outlook 1993.
.. •._ ... — — — — — - - … - — • — — - 灿 • — - -•• •—’,.- — ‘ • •.
7
a corporate approach and establish a base capable to
represent all our business areas," said M r . Peter Kohle,
President of Svedala International A B . "The current devel-
opment in areas of infrastructure, energy and mining very
much coincide with our own interest and strength. Svedala
has to be a part of this development and it is our belief
that we should take steps to continue to grow in this
important market.“
1.5 Methodology
Initially, a company profile of Svedala is presented,
followed by information related to the complex factors
that can affect the business strategy of Svedala in China.
A SWOT analysis is presented to identify the company's
strengths, weaknesses, opportunities, and threats.
A significant part of analyzing the future development
opportunities in China is based on a systematic survey of
information collected from newspapers, publications by
Chinese authorities and investment companies, and Svedala
customers. The survey reveals great opportunities for
Svedala in China's numerous infrastructure projects'
especially in energy and transport sectors. However, there
are some macroeconomic factors which might threaten Sveda-
la. These threats might retard the growth of China thus
reducing the demand for infrastructure projects.
8
The analysis of Svedala's strengths and weaknesses was
carried out by interviewing Svedala customers. Because the
business strategy of Svedala is oriented chiefly at re-
sponding to customer requirements and attitudes, and
because the number of customers is quite limited, qualita-
tive research was conducted.
In general,, the qualitative method of personal interviews
is less structured and more intensive than a standard
questionnaire-based interview approach. It requires a
loner, more flexible relationship with respondents to
solicit information that has real depth and richness.
However, conversational responses and open-ended questions
do not lend themselves to quantitative (statistical)
analysis.
Because the customer base is so small, no sampling plan
for conducting interviews was required. Major customers of
Svedala were interviewed to study their expectations and
requirements for Svedala products and services.
Interviews were also conducted with important personnel
involved in Svedala's operations in Hong Kong. It is from
them that insights were obtained about future business
growth trends, the potential of the company and the likely
development of Svedala's major customers.
9
Finally, a comprehensive business strategy for Svedala in
China was recommended after conibining these data. The
strategic plan was further divided into functional strate-
gies in areas of marketing, research and development,
human resources, and finance.
10
CHAPTER II
FUTURE DEVELOPMENT IN CHINA
2.1 Economic Situation
In his Government Work Report at the opening of the Na-
tional People's Congress in early March 1994, Premier Li
Peng of China asserted that an annual growth rate of nine
percent was "appropriate". The past two years of rapid
growth at around 13 percent has already strained the
macroeconomic environment, worsening problems such as
bottlenecks in energy and transportation, and fueling
inflation, he warned. (Ref.l) The total fixed asset in-
vestment was also targeted by the State Planning Commis-
sion to 1,300 billion yuan for 1994, lower than previous
years. (Ref.2) The consequence of large-scale investment
planning in previous years was a surge in prices for raw
materials, financial fluctuations and hikes in commodity
prices. This also led to stockpiling of goods such as
television sets and air conditioners of poor quality.
Despite the slow down in growth for the Gross National
Product, down to a projected nine percent for 1994 from
1993's rate of 13.4 percent, the Premier pointed out in
11
his Government Work Report that a "rational scale of
investment and an optimal investment pattern" should be
maintained to preserve a stable economy. This would also
maintain momentum for future growth. The majority of
resources should go to construction of transport, telecom-
Tnunications, energy and important raw and semi-finished
materials, as well as key projects for harnessing big
rivers and lakes, M r . Li said.
"If we can continue to keep a rate of growth of between
eight and nine percent for a few more years it will be a
great achievement.“ M r . Li told the 2,808 deputies at the
Great Hall of the People. (Ref.l)
Nevertheless, China is still the fastest growing country
if we take the global economy at the moment into consider-
ation. M r . Percy Barnevik, President and Chief Executive
Officer of Swedish electrical giant, Asea Brown Boveri,
said in his 1993 annual results announcement： "It (China)
will become the new superpower of the world economy. In
the next ten years we will look at China in a completely
different light than we do now." He said that of all the
group's worldwide operations, China took top priority.
(Ref. 3)
12
2.2 Major Technology Introducing Projects
The State Planning Commission and the Ministry of Foreign
Trade and Economic Cooperation jointly compiled in May
1993 the major technology introducing projects from 1993-
2000. (Appendix IV).
"According to the State-set target for the Ten-year Pro-
gram for National Economic and Social Development from
1991 to 2000, the annual average growth rate of GNP shall
reach eight or nine percent in 1990s. In order to hit this
target, China should more effectively utilize the interna-
tional market, capital, technology and resources to keep
the growth rate of import and export higher than that of
GNP, which may even surpass the annual growth rate of
import and export in 1980s ” (Ref.4)
"The total introduction is about US$30 billion.... All
these projects have been approved by the Chinese govern-
ment and have been listed in the state plan with relevant
conditions necessary to the projects fulfilled."
2.3 What are the Bottlenecks?
When Vice Premier Zhu Rongji, the economic tsar of China,
visited Haicang Investment Zone in Xiamen, Fujian Prov-
ince, in February 1994, he called for faster construction
of a power plant, a coal terminal and other facilities,
13
Energy and transport were fully recognized to be bottle-
necks for economic development.
A spokesman for the Power Industry Ministry said that
China's power supply, estimated to be 20 percent short of
demand in 1993, would worsen in 1994. (Ref.5) There were
106,782 power cuts in 1993 in Tianjin, Beijing and Tang-
shan, four times more than a year earlier. Power cuts in
Jiangsu during 1993 were more than double the number in
1992. He said 120 million people in eight provinces and
regions lived in villages without electricity.
The spokesman for the Power Industry Ministry could not be
optimistic about 1994, with shortages worsening in the
northeast, north and east except for Anhui Province, with
only northwestern China having adequate supply. Despite an
increase in activity in the sector, he blamed the short-
ages on inadequate investment in power generation.
China's power generation capacity grew at a compound
annual growth rate of eight percent between 1981 and 1992.
(Exhibit 11). Nevertheless, this growth has not been able
to keep abreast of the country's GNP growth of 9•1 percent
during the same period, resulting in a shortage of elec-
tric power supply. China's installed capacity per capita
was only 142 watts which is very low compared with other
Asian countries. (Exhibit III).
14
• • • . • • . • • ‘ • • ‘ . • ‘ • • .. . •
‘ . . . .
• .
‘ • . • -
E X H I B I T 工I ‘ .
. . ‘ •
Blectric Power Generation Capadty Of Clidna
MW %
180000 T f \ Installed capacity T
160000 - I 一 - • 丨 一 八
140000- / \ 四 麵 _
80000. • _ r—/ ’ m y- I 、：C ？t h • • 6
40000.-:。 . (r、 t f W k f：)：
20000.-、： - � n 、： 1 r r>.秀
� - ‘ .丨：、. . r-i V-0 I ' M ' “' I' M ' ~ ~ ' I ' M ' " M ' ~ ' ' 0
81 82 83 84 85 86 87 88 89 90 91 92
Source: Electric Power Industry in China
15
• • • . ‘ - ‘‘
• • .
. . .
EXHIBIT III
Installed Capacity Per Capita Of Selected Asian Countries In 1992
Indonesia ^
Pakistan W ^
India I X
Philippines
China \ /
• , A 222 Thailand
Y A奶 Malaysia V /
Taiwan I X , • / 浦
Hong Kong ,
• 7 Si叩aPO: / 1538
Japan v /
• , I I I I ‘ ‘ < 200 400 600 eoo VOX) 1.200 1,600 w
Source： Asian Development Bank
16
Consumption of electric power in China has increased
substantially over the past few years. (Exhibit IV). This
was attributed to a rapid expansion of China's industrial
sector, an increase in ownership of electrical appliances
by families, a higher degree of office automation, and an
increased electrification of agricultural industry in
rural areas. In 1992, China's electricity consumption per
capita was only 567 kilowatt-hours. (Exhibit V ) . This was
12.6 percent of that consumed in Hong Kong and 9.7 percent
of that in Singapore. This implies that there is likely to
be major growth in consumption and a great need to expand
electric p o w e r .
To cope with anticipated higher demand for electric power,
the power generation capacity of the country will have to
be raised by more than 20,000 megawatts per year to 2000.
(Ref.6)
Transportation capabilities must also be addressed for
effective economic development. The opening of the Shen-
yang-Dalian Highway on Sept 1, 1990, ended the history of
empty highways in China. This 375-kilometer highway runs
through the prosperous and energetic Liaotung Peninsula in
the northeast of China. It links inland cities, such as
Shenyang, Liaoyang, Anshan, Yingkou, to the coastal port
in Dalian. In 1992, 13,880 thousand tonnes of goods were
transported through this highway to Dalian port, compris-
17
• ‘ ‘ •
• .
EXHIBIT IV
Relationship Between Electricity Consumption Growth And GNP Growth
^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ 口 Electricity consumption growth
/ Electricity consumption growth
/ GNP growth 91 ---：：：：：：：
92
Source: Electric Power Industry in China
18
, . . . • . .
• ‘ ‘ • • ‘ ‘ •
‘ • • • . • ‘ • .
. • . • . . .
• ‘ • .
EXHIBIT V
Per Capita Electricity Consumption & Generation Of Selected Asian Countries In 1992
kWh 7,000Y' —
y - y i 口 Consumption per capita
ffll y~~7i _ Generation per capita
6.000- ^ •
二 -6.000-
r M 4.000- 翻
I 3,000- 謂
I
2,000- _
M M t M t^ i I Source: Asian Development Bank
• . . . . — c . . — — — — . . , — .
19
ing almost thirty percent of the port's total turnover.
Due to faster flow of transported goods, the flow of
working capital due to more transactions was also speeded
u p . The improved highway also reduced fuel consumption and
vehicle wear and tear.
However, the total length of highways in China by 1993 was
only 1,145 kilometers. This was far less than the demand
for faster transportation in areas around Shanghai, Guang-
zhou, Shenzhen and Luoyang. This is also not to scale in
the world's third largest country accommodating a popula-
tion of more than 1.2 billion people.
2.4 Energy Projects
According to the report "Powering Towards Year 2000"
compiled by Nomura Research Institute in February 1994,
there are altogether 46 power projects under construction
or due to be completed before the year 2000 • (Appendix V).
It is interesting to see that 25 more projects emerged
after publication of the "Major Technology Introducing
Projects of the PRC from 1993-2000" in May 1993. The new
projects are mainly Sino-foreign joint ventures with a
majority of investors from Hong Kong, such as China Light
and Power, China Overseas and Land, Consolidated Electric
Power Asia (a spin-off from Hopewell Holdings)‘ New World
Development, CITIC Pacific, Kumagai Gumi, Hutchison Wham-
20
poa, Wharf Holdings, Henderson Land, Paliburg Internation-
al, and Orient Overseas Development Co.
2.5 Coal Mining Projects
There are currently two main categories of power plants.
They are the hydroelectric power plant and the thermal
power plant. The hydroelectric power plant makes use of
water from reservoirs to generate electricity without
consuming any natural resources like coal or gas. The
supply of water is free of charge and abundant. The driv-
ing force is immense and hence the electric generating
capacity can be enormous. However, there are drawbacks in
using hydroelectric power. The plant location may be very
remote from customers so that extensive transinission
networks are required. It also takes a rather long time to
build a dam and to install power generating equipment. The
minimum construction period for a reasonably sized plant
is no less than ten years.
There are three alternatives in thermal power plants,
namely the coal-fired power plants, oil-fired power
plants, and gas-fired power plants. Oil- or gas-fired
power plants are usually smaller and more easily in-
stalled. They are more suitable in small self-sustained
townships.
21
Coal-fired power plants can generate higher capacity
electricity at a lower cost. If carefully controlled, the
by-product ash, after burning coal, will not impose prob-
lem to the environment, but can be turned into useful
mineral lime. Therefore, most of the state planned power
projects are coal-fired power plants. They are also pre-
ferred because China is the largest coal producer in the
world. The coal mining history in China dates back to 400
B.C. Export activities can also be found during the Sung
Dynasty about one thousand years ago. The total output of
coal in 1992 was about 1,000 million tonnes. However, in
order to meet the surging demand for energy, production of
coal is expected to be increased by 50 percent to 1,500
million tonnes by the year 2000. China also has the larg-
est coal reserves in the world. The 17 largest mines in
China have reserves estimated at 17,421 million tonnes.
(Appendix VI).
2.6 Transport Projects
The most fantastic idea of China's highway development is
the construction of four national highways across the
whole of China. Two are horizontal and two are vertical
making them look like the character Each national
highway will be more than four thousand kilometers long
and run through several provinces. It is the responsibili-
ty of provincial governments to build sections within
22
their own provinces and the Ministry of Communication will
make plans to connect them together. For instance, the
Guangzhou-Shouguan Highway will be part of the north-south
national highway in the east. (Please see Exhibit VI, the
plan for highway networks in Guangdong Province in the
year 2000 and beyond.)
Besides the massive national highways, more roads will be
built coping with regional economic development. Guangdong
Province will invest 15 billion yuan in 1994 to upgrade
its highways. (Ref.7). Since the Pearl River Delta is a
centre of economic development, road construction here has
the highest priority. The most well known road project to
Hong Kong people is Hopewell's 300-kilometer Guangzhou-
Shenzhen-Zhuhai Superhighway connecting the three biggest
cities in the southern part of China. Wai Kee Holdings is
another big player investing in the Guangzhou-Sanshui and
Meilin-Guanlan Highways. The 80-kilometer Foshan-Kaiping
and 286-kilometer Shenzhen-Shantou Highways have also
secured World Bank loans to signal a green light for
full scale construction in 1994. These projects, together
with the Shanghai-Ningbo Highway, Shanghai-Hangzhou High-
way, Luoyang-Kaifeng Highway, and Holhott-Boatou Highway
in other provinces, will bring the total length of high-
ways in China to 10,000 kilometers before the end of this
century.
23
EXHIBIT VI
COAL YARD STACKER/RECLAIMER
1 SHIP UNLOADER 、 ‘ -• “ ‘ ‘ ’ � � Artist's impression of 2 x 3 6 7 . 5 M W Pagbilao Power Station _ •..…_. —... - •....-…——一——•-.:———— ：—-- ： — — -——...
24
2.7 Other Construction Projects of Interest to Svedala
1 Yangtse Gorge Hydroelectric Power Project - E s t i m a t e d investment： 10.5 billion US dollars 一 Construction period： 18 years - P o p u l a t i o n resettled： 1.5 million
2 Pudong Economic Development A r e a , Shanghai . - E s t i m a t e d investment： 17.5 billion US dollars
3 Yangpu Development A r e a , Hainan Province - E s t i m a t e d investment： 12.8 billion US dollar on
container port and industry development
4 . Beijing-Kowloon Railway Project — T o t a l length： 2,370km - C o m p l e t i o n date： end of 1995 • • - P a s s e s through nine provinces and cities
5. Tumenjiang Development A r e a , North Eastern China - E s t i m a t e d investment： 30 billion US dollar - E s t i m a t e d development period： 20 years
6. Water Rerouting Project, Northern China _ To solve the severe drought hazardous to northern
China, the Water Rerouting Project intends to bring 30 billion cubic meter of irrigation water from the Yangtse to 400,000 hectares of agricul-tural area in northern China.
7. Railway System Improvement Project (Dual Line) of North Western China
- T o t a l length： 1,600km - C o m p l e t i o n date： 1995
N
25
CHAPTER III
OPPORTUNITIES FOR SVEDALA
3.1 Crushing- & Screeninq Division
Due to the extensive infrastructure projects planned in
China, processed "aggregates" will be needed in very large
quantities. Aggregates is a mixture of stones with differ—
ent sizes. It is a major component of both asphalt and
concrete materials which are widely used in the construc-
tion of highways, dams, airports, railways, and buildings.
If the content of the different stones is correctly pro-
portioned, the aggregates will achieve a maximum density
and give strength to the underlying structure. Irregular
shapes of stones will also increase internal friction of
the aggregates. Therefore, raw stones and rocks have to be
crushed and screened before being mixed together to form
aggregates.
Wai Kee Holdings, the largest quarry operator supplying
rocks and aggregates in Hong Kong, will set up five quar-
ries very soon together with Anderson Asia, a wholly-owned
subsidiary of Cheung Kong (Holdings), to provide aggre-
gates to projects in Guangdong Province alone. The company
26
is planning to set up more quarries near Shanghai to serve
the Pudong Development Area, the Shanghai-Ningbo Highway,
and the Shanghai-Hangzhou Highway. The next targeted place
for Wai Kee's quarries will be the world's largest hydro-
electric project, the Three Gorges Dam on the Yangtze
River. The dam will take 17 years to build at an estimated
cost of 95.4 billion yuan. (Ref.8).
K . wah International Holdings also plans to establish a
wholly owned construction materials supply factory in
Pudong area. The company will invest HKD40 million into
the plant which has a site area of 500,000 square feet.
(Ref.9).
3.2 Compaction Division
The construction of highways and airfields needs various
equipments to build the different layers of embankment,
subbase, base, asphalt base, asphalt binder, asphalt
wearing course, and/or concrete surface. Vibratory rollers
and asphalt pavers are required to compact these layers
and to lay down pre-compacted asphalt properly.
In the first quarter of 1994, there were two equipment
tenders, one in Fujian Province and the other in Henan
Province, calling for altogether seven units of vibratory
rollers and three units of asphalt pavers to be used in
27
highways. Ten more tenders from other provinces are ex-
pected to be announced within 1994.
Since the construction of the first Shenyang-Dalian High-
way in 1986, more than 200 units of asphalt pavers and 500
units of vibratory rollers have been imported to China.
These equipments were used to build a total of 1,145
kilometers of new highway. If China aims at completing
10,000 kilometers of new highway by the end of this cen-
tury, at least 3,000 units of vibratory rollers and 1,000
units of asphalt pavers are expected to be imported.
In addition to numerous dams, railways, and airports to be
built, the potential demand for Dynapac compaction equip-
ment is tremendous. For instance, it is estimated that
more than one thousand units of vibratory rollers will be
needed just by the Three Gorges Dam alone.
3.3 Grinding Division
As elaborated above, China is already the largest coal
producer in the world with current output of about 1,000
million tonnes per year. At least 60 million tonnes of
coal has to be added to this capacity each year in order
to supply enough raw materials to the planned coal-fired
power plants. This expansion target can be achieved by
either setting up new coal mines or improving the existing
28
mining efficiency. This is an extremely good opportunity
for Allis Mineral Systems which provides all phases of
grinding and classifying equipments for solid fuels (coal)
grinding. Allis also provides unique process engineering
and design skills to solve grinding problems for custom-
ers .
3.4 Bulk Material Handling Division
As more and more coal will be produced in China, the mines
will have to install enhanced equipment for transportation
and stockpiling. This is yet another opportunity for
McNally Wellman's s t a c k e r / r e c l a i m e r and conveyor b e l t
system. Another prospect will lie on the new coal-fired
power p l a n t s .
Exhibit VII shows that most coal-fired power plants are
located next to deep water harbors. This is in part the
result for a great deal of cooling water from harbors
needed in the heat exchanger of power generating systems.
The deep water harbor is also necessary to accommodate
large cargo ships carrying coal to the p l a n t . Therefore,
whether coal comes from sea ports or from inland sources；
unloading equipment is needed to dump material onto con-
veyor belts and transport it to bucket wheel
stacker/reclaimer systems. The stacker/reclaimer, which
runs on rails, will stockpile coal onto the coal yard or
29
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30
reclaim it from the coal yard for use in plant boilers.
Such a system was recently sold to Hong Kong Electric at
HKD140 m i l l i o n . If all planned power projects in China are
realized, the opportunity for McNally Wellman is enormous.
31
CHAPTER IV
SUMMARIES OF INTERVIEWS AND IMPLICATIONS
4.1 Crushing & Screening Division
M r . V i n ce C . W . Chong： "According to m y quarry managers,
the crushing and screening equipment supplied b y Allis
Mineral Systems is very b a d . You need to convince m e and
m y staff w h y I should b u y your crushing plants in m y five
new quarries in China."
M r . Chong is the Assistant General Manager of W a i Kee
Holdings Limited, and he is responsible for setting up
five new quarries in Guangdong Province. W a i Kee currently
has four quarries located at Niutou Island and Sanj iaoshan
island in Zhuhai, Dapeng in Shenzhen, and Siu Lam in Hong
K o n g . It has a long term supply contract until the year
2000 w i t h Anderson Quarry Limited, a wholly-owned subsicii-
ary of Cheung Kong (Holdings) Limited. The current supply
of aggregates under this contract exceeds two million
tonnes p e r a n n u m . Since 1992, Wai Kee has become the
largest supplier of aggregates and rock products in Hong
K o n g . It is expected that the total sales for the year
1993/1994 will be a historic high of eight m i l l i o n tonnes.
(Ref.10).
32
The crushing & screening equipment u s e d in W a i Kee's
quarries are supplied either b y Nordberg or Jaques, the
head-on competitors of Allis Mineral Systems. M r . Chong
seems satisfied w i t h the machine quality and services
rendered b y the v e n d o r s . Although Allis supplies equipment
similar to those of Nordberg and Jaques, M r . Chong is
skeptical about the performance of Allis because there is
no reference here nor service b a c k - u p .
4.2 Compaction and Bulk Material Handlincr Divisions
M r . G o r d o n Y . S . Wu： "I have the ABB (Asea Brown Boveri)
power generating system in m y Shaj iao power plants and the
Dynapac vibratory roller in m y GSZ (Guangzhou-Shenzhen-
Zhuhai) Superhighway.工 like the Swedish m a c h i n e s . They
are not cheap but they provide the quality I n e e d . I can
b e the best salesman for ABB."
M r . Wu is the Managing Director, and founder, of Hopewell
Holdings L i m i t e d . He has recently transformed Hopewell
from a domestic building developer to a regional infra-
structure developer focusing on China, the Philippines
Thailand, and Indonesia. He was a pioneer in introducing
the Build-Operate-Transfer (B〇T) concept to this region
m o r e than 10 years ago in building highways and power
stations.
33
In the transport sector, Hopewell will complete very soon
the first phase of the GSZ Superhighway between Guangzhou
and Shenzhen. This was the largest single foreign invest-
ment project in China 10 years ago when the Pearl River
Delta emerged as a manufacturing centre of China/s light
industry. M r . Wu envisioned a great demand in this area
for faster transportation of goods and he has been well
supported by the Chinese government at the highest minis-
try levels. He is currently trying to repeat the same
story in Thailand by building an elevated rail and road
system to solve the notorious traffic congestion problem
in Bangkok.
Hopewell has bought 25 units of vibratory rollers from
Dynapac for the construction of the GSZ Superhighway. M r .
Wu himself is very impressed by the performance of these
rollers. Dynapac expects Hopewell to purchase more ma-
chines during construction of the second phase of the GSZ
Superhighway between Guangzhou and Zhuhai.
In the energy sector, Hopewell completed the 2 X SSOMW
Shajiao B power Station in Shenzhen in 1987. The 3 X 660MW
Shaj iao C Power Station is due to be completed by Septem-
ber 1995 and the 2 X 367MW Pagbilao Power Station in the
Philippines is due to be completed by January 1996. (Ref.
11).
34
McNally Wellman has supplied all the coal handling equip-
ment to Hopewell's power plants mentioned above. When
Hopewell pursues more power station projects in China, the
Philippines,and Indonesia, McNally Wellman should benefit
from the very good relationship with Hopewell.
35
CHAPTER V
STRENGTHS AND WEAKNESSES OF SVEDALA
5.1 CrushincT & Screenincf Division
Most of the quarries in China are owned by local govern-
ments , T h e municipal authority leases quarry operations to
一 local enterprises which currently use rather primitive
methods to make aggregates. Stone sizing is not carefully
controlled and quality processing is not very good. As a
consequence, batching plants that use aggregates have
problems producing quality concrete or asphalt. The
strength of the concrete or asphalt is also affected by
poor quality aggregates. Svedala can provide quality
equipment and processing methods to resolve these problems
and is therefore in a strong market position.
When China starts to build first class international
standard highways and high rise skyscrapers in Shanghai
and Chongqing (the skyscraper in Chongqing will be the
second tallest building in the world for those already
announced projects), the requirement for aggregates will
become very stringent. Then local quarries must import
sophisticated crushing and screening equipment. Allis
36
Mineral Systems will have a strong advantage over domestic
suppliers for quality equipment.
Nevertheless, Nordberg is another good brand competing
with Allis on a worldwide basis. Both companies are recog-
nized by their high-quality and high-price products.
However, Nordberg has a better presence in Hong Kong than
A l l i s . It has its own company and people for application,
sales and service while Allis relies on an agency network.
Consequently, unless Allis can position itself better for
marketing to China, it could be at a disadvantage.
Although Allis and Nordberg compete in the up-market
segment, Jaques from Australia is able to fill orders at
the lower-end market. It has a set-up in Hong Kong similar
to that of Nordberg. Jaques has a further advantage in
that most quarry operators in Hong Kong come from Austra-
lia. As customers, they seem very familiar and satisfied
with Jaques, crushing and screening equipment. Therefore,
although Allis is very strong in overseas markets, it has
a lower profile in Hong Kong and China.
5,2 Compaction Division
Dynapac is the pioneer company in developing self-pro-
pelled vibratory rollers with nearly forty years experi-
ence. The brand name was well known in China in the 1970s.
37
When Deng Xiaoping introduced China's "Open Door Policy”
in 1978, Dynapac was one of the forerunners in exporting
machines to China. It also actively participated in a
technology transfer scheme initiated by the Chinese gov-
ernment and was the first vibratory roller manufacturer
outside China to sign a license agreement with a local
partner to assemble Dynapac products.
The initial license arrangement was so successful that
Dynapac was able to rely on its Chinese partner to be the
sole player in the China market. However, disputes inevi-
tably emerged between Dynapac and its partner due to hard
currency problems. Dynapac decided to completely pull out
China, a move that was especially prompted after the crack
down of the democratic movement in Tiananmen Square in
1989. This gave Bomag, a worldwide head-on competitor of
Dynapac, the chance to dominate the China market. Bomag
captured a major share of the market after several years
of hard work and aggressive promotion. Bomag's foothold in
China is currently so strong that Dynapac cannot easily
launch a comeback. It is particularly difficult when Bomag
has already established good relationships (guanxi) with
customers.
5.3 Grindincr Division
The Grinding Division of Allis Mineral Systems has its own
c
38
presence in Beijing. The office was established there
several years ago to pursue business opportunities in two
of the largest iron and steel mines, Anshan and Baoshan.
Crushers and grinding mills were sold to these two mines
in 1986 and 1992. Some additional equipment was sold to
various smaller coal plants in China.
The strength of the Grinding Division is its sales refer-
ence of the two big plants. Company staff, who have access
to vice ministers of several strategic government minis-
tries in Beijing, are an important asset to Svedala. The
weakness is that sales references in the coal mining
industry are few and not significant.
5.4 Bulk Material Handling Division
Power plants cannot afford to have breakdowns. Besides
disastrous economic losses, power failures also create
social and security problems. Therefore, reliability is
the most demanding criterion for equipment used in power
plants. Reliability is a crucial design criterion for
McNally Wellman equipment. It provides extensive engineer-
ing support to customers ensuring reliable operations for
their power plants.
McNally Wellman has an added advantage over competitors
with very good, sales references in Hong Kong and China.
39
Hong Kong Electric Company Limited and Hopewell Holdings
Limited are loyal customers of McNally Wellman. All the
coal handling equipment in the Lamma Island power plant
and the Shaj iao B & C power plants were purchased from
M c N a l l y Wellman. McNally Wellman also cooperates well with
the Huaneng International Power Development Corporation in
China. Consequently, the Bulk Material Handling Division
is in a very strong position to compete with quality
systems for infrastructure energy projects in China.
40
CHAPTER VI
THREATS TO SVEDALA
6.1 Most-Favored-Nat ion (MFN) Trade Status
MFN is an economic trade agreement between the US and PRC
that allows normal trade relations without excess customs
or tariffs. MFN status must be confirmed every year in
June by the US President. However, since the crack down of
the democratic movement in Beijing in June 1989, China has
faced very tough challenges from the US Congress about
renewal of China's MFN status. The Democrats were in favor
of withdrawing it, but Republican President, M r . George
Bush, insisted on not confronting China. While M r . Bush
was President, China's MFN status was marginally renewed
each year through June 1993.
M r . Bill Clinton, a Democrat, was elected US President in
1993, and he linked MFN renewal to the human rights situa-
tion in China. Although he renewed China's MFN status in
1993 (until June 1994), he warned that if China did not
improve its human rights record substantially, it would
lose its MFN status in 1994.
41
If China does lose its MFN status with the US, it will be
an economic disaster to both China and Hong Kong. Mainland
products in the US market would be subject to much bigger
tariffs, ranging from twice to as much as 10 times current
levels. Hong Kong would lose as much as HK$101.3 billion
in reexports with the US as the main destination. There-
fore, people will lose interest in investing in China thus
reducing substantially the demand for more energy and
highways. This in turn will affect business opportunities
of Svedala in these industries. (Ref.12).
6.2 Drastic Policy Changes
The Chinese Communist Party adopted practices similar to
those in the USSR in China after 1949. The policy changes
have been so drastic that there is a common saying of
”When the development is stagnant, the central government
will release more autonomy to local governments. Then the
regional authorities will abuse the autonomy resulting in
chaos. If c h a o s emerges, austerity measures will follow
and the development becomes stagnant again." Even during
the regime of patriarch Deng Xiaoping, this kind of cycli-
cal pattern appeared in 1984 when leftist Deng Liqun
fought back against liberalization, in 1986 when Party
Chief Hu Yaobang fell from grace, in 1989 when students in
Beijing demonstrated for more democracy, in 1992 when Deng
Xiaoping prompted faster growth of economy, in 1993 when
42
Vice Premier Zhu Rongji launched the austerity program,
and in 1994 when the Bank of China unified its foreign
exchange system.
Many companies got confused by these drastic policy
changes and were scared away during bad times. Svedala
should adopt a long term strategy which can address such
threats.
6.3 Land A p p r e c i a t i o n Tax
The Land A p p r e c i a t i o n Tax is a new tax proposed in 1994.
It is part of the macroeconomic adjustment program by
Beijing to curb runaway real estate speculation and land
abuse. However, many legitimate property developers will
also be trapped by this new tax. The hardest hit company
may be Kumagai Gumi which has committed to develop the
massive Yangpu area in the northwest of Hainan Island。 The
progress of this development has been dramatically retard-
ed since the announcement of this tax proposal. The Chair-
man of Kumagai Gumi has continuously petitioned Vice
Premier Zhu Rongji, who masterminded economic reform in
China, to abandon the proposal.
If this tax proposal comes into force, many real estate
development projects will lose their attractiveness to
investors. Some may be delayed and some may be down-sized
43
due to higher financial burdens. This in turn will reduce
the demand for more energy and efficient transport facili-
ties and should be regarded as a threat to Svedala.
6.4 Skyrocketing Costs of Operations
Because Svedala is based in Hong Kong, operational costs
here are crucial for its future planning. More years of
pain over office rents are facing companies in Hong Kong,
and the territory is now poised to overtake Tokyo as the
most expensive place in the world for maintaining offices.
(Ref.13). Prices will keep spiraling as demand outstrips
supply. Record rentals have recently been set in Central,
where supply is particularly tight, with tenants paying
more than HKDIOO per square foot per month for prime space
in the Exchange Square, a high quality building. A number
of companies, such as Shell, Apple Computer, and AT&T,
have relocated from Central to Causeway Bay in order to
expand their offices at lower rents.
A high inflation rate in Hong Kong is another cost factor.
The consumer price index increased by 8.5 per cent in
1993 compared with that of a year earlier. This is basi-
cally the cost of living for Hong Kong people. With the
unemployment rate standing at a persistently low level of
less than two percent, Hong Kong employees are asking for
salary reviews much higher than the official inflation
44
rate due to relatively high mobility created by job oppor-
tunities in Hong Kong.
The inflation rate in China is even higher than in Hong
Kong. The national retail price index rose by 20.1 percent
in the first quarter of 1994, compared with the same
period a year ago, while prices in the 35 major towns and
cities increased by 24.6 percent. (Ref.14). Inflation
remains a major headache for the Chinese government, and
M r . Ye Zhen of the China State Statistical Bureau said
controlling price rises would be the primary responsibili-
ty for officials at all levels in 1994.
6.5 Upward Trend of Interest Rates
The US Federal Reserve raised the federal funds rate, at
which banks charge each other, thrice in 1994 from 3
percent to 3.75 percent. This m o v e "^reversed the downward
trend of interest rates during the previous three years.
Although the increment was described to be very mild, it
may have signaled the end of the low interest rate era.
M r . Alan Greenspan, Chairman of US Federal Reserve, re-
peatedly made it very clear that interest rates must go up
to head off inflation in the U S . (Ref.15)
Since the Hong Kong dollar was pegged to the US dollar at
a fixed rate of 7.8 in 1983, the monetary policy of Hong
45
Kong Government has been to maintain this peg at all
costs. If there was a mere difference in interest rates
between the two currencies, arbitrage activities would
emerge take this advantage. Therefore, the Hong Kong
Government has no choice on interest rate levels but to
follow the trend in the U S .
China faces even higher pressure to increase interest
rates in order to subside inflation. This upward trend of
interest rates will inevitably increase the costs of
capital for investment projects. Therefore, the demand for
more energy and efficient transport facilities might be
scaled down.
6.6 Government Regulations
China often imposes regulations that restrict imports of
strategic items from industries which could threaten
domestic manufacturers. This is a form of protectionism,
and government officials argue that it is essential to
protect a domestic small company, such as Stone, to com-
pete with giants such as IBM or Microsoft in a free market
arena, eg. computer hardware and software. So regulations
exist, such as issuing import licenses only to vibratory
rollers for at least 18 tonnes self-weight and asphalt
pavers with a minimum nine metres working width. These
restriction controls are threats to the Compaction
Division of Svedala.
46
CHAPTER VII
RECOMMENDED STRATEGY FOR SVEDALA
M r . Peter Kohle, President of Svedala International AB,
has set the stage in his announcement for growth in China.
Based on this regional emphasis, a business strategy is
proposed for Svedala's efforts in China, and this is
supplemented by functional strategies in support of the
business unit enterprise.
7.1 Business Stratec^y for China
Svedala has strong potential in a promising high growth
market. Consequently, the China business unit should be
organized for growth, positioning its products for well-
defined infrastructure projects in the major development
areas of China. This can be accomplished through product
and marketing strategies explained in this chapter and
complied with an effective organization to service Chinese
clients.
7.2 Product Strategy
After analyzing externally the opportunities and threats
47
and internally the company's strengths and weaknesses, it
is possible to construct a product portfolio according to
the Boston C o n s u l t a t i v e Group's growth-share matrix. This
is illustrated below ：
high (star) (question mark)
Crushing & Screening
Bulk Material Handling Grinding Compaction
Market ^——：
Growth (cash cow) (aogj Wear Parts Pumps & Process Pyro
low
high Market Dominance low
A 'cash cow' product is one with good income from an
established product. No 'cash cow, products for Svedala
exist in the China market. However, the company has good
products with profit and growth capabilities in its 'star'
section. It can therefore make use of the Bulk Material
Handling Division to provide necessary funding its
products and for those in divisions connoted 'question
marks., A product in the 'question mark, category often
has 'Star' potential for rapid growth but requires consid-
erable underwriting and marketing effort.
Products in the 'dog' category have low potential and are
often dropped or ignored. However the company should not
48
drop the Wear Parts, Pumps & Process, or Pyro division
products but integrate them into the total China scheme as
a complete line of products and services. A comprehensive
description of Svedala products in all three sectors,
namely Civil Engineering, Mineral Processing and Bulk
M a t e r i a l Handling, should be part of the company's product
portfolio, and appear prominently in product brochures.
This is a way of promoting the corporate image of achiev-
ing product synergy and integrated services.
Social and cultural considerations must also be addressed
in the product strategy. China is one of the most ancient
countries on earth with more than five thousand years of
recorded history. Both civilization and technology (such
as the Four Inventions, paper, compass, explosives, and
printer,) were so highly developed early in China that the
country was referred to as the 'Middle Kingdom'. It means
the centre of the earth. Culturally, this concept of
'face' is very significant for the Chinese. It is a major
mechanism governing social relationships and provides the
strongest social sanction. Buying something 'big and
unique' enhances one's face. Therefore, 'big and unique'
items should be included in the product strategy for
designing and marketing Svedala's portfolio.
49
7.3 Pricing Strategy
AS part of the overall marketing strategy for rapid growth
and a high quality image, Svedala should price its
products at a competitive level with comparable products.
However, Svedala, which strives to provide top quality
products/ recognizes that good products never come with
cheap prices. Therefore, it should emphasize the 'total 、、’.
price, concept to customers. The initial cost outlay for
Svedala equipment may be high at the time of the purchase,
however, customers will benefit from subsequent lower
operating and maintenance costs due to Svedala's superior
design and performance.
Fortunately, Chinese managers in general support big
spending provided they secure sufficient funds. Their
perquisites (if there are any) are somehow linked up with
the amount they spend. Such perks are most likely to occur
in the form of extra pocket money and free trips abroad
for factory training. Therefore, price is not a critical
factor in the process of selecting suppliers.
7.4 Distribution Strategy
The marketing strategy must also have an effective organi-
zation for China. Consequently, Svedala should abandon its
agency network and develop company managed offices in
Beijing, Shanghai, and Guangzhou. This will provide the
50
presence it needs in China and Svedala can therefore
b e t t e r accomplish the following：
1. demonstrate corporate strength； , ^
2 develop long term strategies b y company staff ratner . t h a n short term sales effort b y contract agents；
3 transform the sales pattern from an ‘export p u s h b y . a q e n t s ' to an ‘import pull b y local s t a f f； •
4 achieve b e t t e r customer satisfaction b y rendering . s e r v i c e s directly to them b y skilled company personnel；
5 . collect and disseminate information first hand for both the company and its clients.
It is logical to establish Svedala's presence in Beijing
because it is not only a political centre but also an
information centre. Many formalities and negotiations,
especially where tenders are concerned, must be accom-
plished in Beijing even though the end users authorized to
m a k e contract purchases are elsewhere.
While Beijing is the information centre concerning formal-
ities, Shanghai and Guangzhou are the primary business
centers for sales and services. These cities are in close
proximity to the four Special Economic Zones and the 14
coastal cities which enjoy rapid growth due to more
aggressive open door p o l i c y . Haikou and Chongqing are
potential candidates for setting up new offices to service
clients in China's largest economic zone, Hainan Island'
and to address the needs of the inner area of China to the
w e s t .
51
7.5 Promotion Strategy
A growth marketing strategy is incomplete without a strong
promotion strategy. Consequently, Svedala needs to support
heavy promotion to do business in China. Since 'guanxi' is
a critical factor determining the success of a company,
promotion activities involving direct contact with custom-
ers are preferred. These should include seminars and
exhibitions at international trade shows, direct presenta-
tions to government ministries and companies involved in
infrastructure projects, and demonstrations of equipment
and systems. These efforts have to be carried out exten-
sively on a national and regional basis to targeted gov-
ernment and private customers. It is by repeated promo-
tional activities that the company can create corporate
strength and reinforce its commitment to serve its custom-
ers. Establishing a reputation that can spread by 'word
of mouth' is crucial in the Chinese culture, and buying
behavior of Chinese managers is based extensively on
‘guanxi‘ connections..
7.6 Research & Development Strategy
R&D should focus on upgrading the technology of Svedala
products and services. As explained earlier that price is
not a critical concern, Svedala should differentiate
itself from other competitors to be the technology leader.
Considering the importance of quality and new technology
52
needed in China, it will be the distinct features which
add value to Svedala products and services that will
appeal to Chinese managers.
R&D people should also scrutinize carefully the import
regulations of China so that imported products conform to
legal specifications and are acceptable to clients. As
noted earlier, high taxes and more rigid restrictions
exist to prevent importation of equipment in direct compe-
tition with domestic manufacturers. Consequently, Svedala
can distinguish itself by being sensitive to China needs
and its desire to protect important industries.
7.7 Human Resources Strategy
AS mentioned earlier under Distribution Strategy, company
offices should be opened in strategic locations in China.
At least one staff for each Business Division (particular-
ly for crushing & Screening, Compaction, Grinding and Bulk
Material Handling Divisions) should be assigned in each
office to pursue business opportunities in their respec-
tive areas. These people preferably will be locally-
trained and skilled employees who can facilitate communi-
cation and understand the social and cultural priorities
of potential customers. Although the costs for new offices
and personnel staffing will be higher than agency net-
works, the advantage of personal marketing and skilled
53
services b y Svedala employees will be important.
Since the Crushing & Screening, Grinding and Bulk Material
Handling Divisions involve substantial engineering design
work at the initial stage of projects, technical represen-
tatives from factories should be stationed in Hong Kong to
provide effective technical support to customers. These
r e p r e s e n t a t i v e s should also train local personnel t o
replace them as soon as possible to reduce high expatriate
costs while also maintaining a continuously strong region-
al team.
7.8 Finance Strategy
Svedala Industri AB should pump financial resources to
svedala International (Hong Kong) Limited to support its
expansion into China. The funds should come internally
from the working capital of Svedala Industri AB or exter-
nally from long term loans or equity funding. The scope of
horizon should be up to the year 2000.
54
CHAPTER 工工
CONCLUSION
Svedala is a fast growing company specialized in designing
and m a n u f a c t u r i n g systems and equipment in the civil
engineering industry, mineral processing industry, and
b u l k material handling industry. Its customers are mainly
engaged in developing infrastructure projects such as
coal-fired power plants, highways, reservoir dams' air-
p o r t s , railways, ocean p o r t s , and sewage p l a n t s , there-
fore, it has great opportunities in countries where the
growth of economy is very h i g h .
in the past decade, China was the fastest growing country
in the w o r l d , the average growth rate of its gross Nation-
al product in that period was nearly 10 p e r c e n t . However,
the insufficient power generating capacity and transporta-
tion capability have been bottlenecks in its development.
China has to call for faster construction of these facili-
‘ties.
The State Planning Commission has approved 46 power plants
and 10,000 kilometers of highways to be built before the
55
end of this c e n t u r y . These projects present m a n y opportu-
nities to Svedala in its Crushing & Screening, Compaction,
G r i n d i n g , and B u l k Material Handling D i v i s i o n s . The Crush-
ing & Screening Division supplies sophisticated machines
to quarries producing quality aggregates as raw construc-
tion m a t e r i a l s . The Compaction Division supplies highly
productive v i b r a t o r y rollers and asphalt pavers to compact
the u n d e r l y i n g construction m a t e r i a l s . The Grinding Divi-
sion supplies high quality grinding mills to coal mines
producing coal as solid fuel. The Bulk Material Handling
Division supplies reliable equipment for coal handling and
preparation in coal-fired power p l a n t s .
Svedala has its strengths and weaknesses pursuing these
o p p o r t u n i t i e s . The strengths are its prestigious brands
and well developed p r o d u c t s . The m a i n weakness is its
rather low profile presence in C h i n a . These views are
fully supported b y interviews with its customers.
Apart from opportunities, strengths, and weaknesses, there
are some macroeconomic factors such as China's MFN trade
status, its drastic policy changes, the proposed Land
Appreciation Tax, skyrocketing costs of operations, upward
trend of interest rates, and government regulations are
all threats to Svedala. These threats will create ripples
in China's development towards the 21st century. Svedala
must prepare contingent plans to address these threats.
56
Finally, if Svedala analyzes these SWOT elements and takes
a proactive strategy complemented b y functional strategies
in m a r k e t i n g , staffing, R&D, and financing, it can posi-
tion itself in well-defined segments of China's develop-
tnent b y supplying differentiated and integrated systems of
products and services. Svedala should then be able to achieve its objectives of 40 percent growth in China
annually until 1996, and 20 percent growth thereafter.
Agg
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60
APPENDIX IV
MAJOR TECHNOLOGY INTRODUCING PROJECTS FOR THE PRC FROM 1993 TO 2000
industry N o . of Projects
Agriculture Energy Coal Transportation ^^ Railway Civil Aviation ® Post and Telecommunications 7 Petroleum g Chemical . Environmental protection ^ Education Building material ^
Machinery Electronics Forestry Light Industry Textile Pharmaceutics Metallurgy ^ Urban Construction 、 Public Health ； Nonferrous Metal Industry ^ Meteorology
.......> . • • • - “ ., • ‘ •• ‘ "“
. • • . . • •
61
APPENDIX V
The Sino-Foreign joint Venture Power Projects Planned To Construct In The Coming Eight Years
P r o j e c t s , t = : i t y (Province, M ^ a U t y s Region)
, , 2 X 800 or 2 X 1 0 0 0 S h a n g h a i
1. Waigaoqiao(Pha.e2) Zhejlang 2. JlaxlngCPhaseZ) 二 3. ligangCPhaseZ) 二 j iangsu
4. Ilgan8(Phase3) Shanghai 5- Shldongkou(Phase2) 二 shanxi 6 . Y a n g c h e n g ^ ^ 6 6 0 I n n e r M o n g o l i a
7. TuoketuoNo.2 ^^^^^ Inner MongoUa
8. Dalhai 2x 600 Shanxi 9. UatongNo.2 2 x 600 Hebel
10. Shalingzi (Phase 2) 2x 600 IleUongjiang 11 . S h u a n g y a s h a n 2 x 660 G u a n g d o n g 12. Zhuhal 2 x 350 Guangxl
13. Belhai 2 x 660 Jiangsu “ 础 u 2 x 350 Shandong 15. Klzhao 2 x 300 Shandong 16. Shiliquan 2x 600 Shandong 17 . l a k h e n g 2 x 300 S h a n d o n g
18. S h i h e n g ( P h a s e 2 ) ^ x 300 S h a n d o n g
19. Here (Phase 2) 2x 350 l ujian 20. Meizhouwan ^ x 350 l ujtan
21. Songyu 2x300 Hubei 22 . I l a n c h u a n ( P h a s e 2 ) ^ x 600 B e i j i n g
23. Pingu 2 x 300 Uaotiing 24. I xpansion of Liaoning 2 久 350 Shaanxi 25 . Shenxnu 2 j-q C o m m i s s i o n e d In t h e e a r l y
26. D a l i a n ( P h a s e 2 ) " N i n t h F ive y e a r Plan" p e r i o d
2 X 330 ConuTxlssioncd In the early 27 . D a n d o n g " N i n t h F i v e - y e a r I lan" p e r i o d
2 X 350 Commissioned in the early
28 . N a n t o n g ( P h a s e 2 ) " N i n t h F ive y e a r H a n " p e r i o d
4 X 660 Commissioned In the early & middle
29. F u z h o u ( P h a s e 2 ) " N i n t h F ive y e a r Flan" p e r i o d
j-Q Commissioned In the middle
30. Y u e y a n g ( P h a s e 2 ) " N i n t h F ive y e a x H a n " p e r i o d
2 X 600 Cominissloned In the middle & 1詹r 31. S h i d o n g k o u N o . 2 ( P h a s e 2 ) � " N i n t h F ive y e a r Tlan" p e r i o d
2 350 Commissioned In the middle & Utter j
32. L u o h u a n g ( P h a s e 2 ) " N i n t h F ive y e a r Tlan" p e r i o d
2 X Coimnlssloned in the middle & l itter 35. Shantou (Phase 2) "Ninth Five year flan" period
2 X 600 Commissioned In the middle & Utter 34. Y l n g k o u ( P h a s e 2 ) " N i n t h F ive y e a r Flan" p e r i o d
. Year 2000, Nomura Research Institute. Source： Powering Towards lear
• .... • •
62
APPENDIX VI
THE 17 LARGEST COAL MINES IN CHINA
Name Output Reserves
million tonnes million tonnes
Datofig 34.1 2,579 Pingdinshan 18.2 . ^^^ Kailuan 17.5 Xishan 15.8 Y a r w a n 15 7 之‘二 il 6 9 9 2
二 e i 14.0 二
Xuzhou 12.9 5
Fen 罕 feng g•雲 430 Fuxin 丄 ， Xinwen 10.8 ^52 Shuangyashan 10.2 712 Luan 10.1 ⑷ Yima 10. III Jincheng 10.0 雪主， Yanzhou 10.0
63
BIBLIOGRAPHY
Books
Cliffs, New Jersey: Prentice Hall, 1991.
Stanton, William J . Fundamentals of Marketing, 7th ed. Tokyo： McGraw-Hill, 1984.
A d d i s o n - W e s l e y , 1 9 9 2 .
Periodicals
Chiu, J a c k y . . Hong Kong:
Nomura Research Institute, 1994
Report on Six M l ^ ^ e d June 30. 1993. Svedala.
Annual Report, 1992, Svedala.
Fragments, Lat^^t- News f r o - . q v e d a l a Group.
P〜；— — T V ^ ^ n W ^ n a . Active P a r t i c i 2 a t ^ V^ai Kee Holdings
Limited, 1994.
64
Eye on Asian Economies, 4th quarter 1993, Credit Lyonnais
Securities.
Prospectus. Consolidated Electric Power Asia Ltd.
Interviews
Rill i-1 tilde Paul Quality Assurance Manager, Nishimatsu K u m ^ g a f J o i n t venture, Western Harbor Crossing, Hong
Kong. Interview, 24 February 1994.
Chong, Vince C.W. Assistant General Manager, Wai Kee China Investments Ltd., Hong Kong. I n t e r v i e w , 29 March 1 9 9 4 .
Timmv K Y Manager, Construction Equipment Chu' illlltlelt, Thl Jardine Engineering Corporation,
Limited, Hong Kong. Interview, 3 February 1994.
… p^ni-i Manacrer, The Third Jinan-Qingdao Highway Fan, project, S S e m e n t Department of Beijing Urban
Construction Corporation, China. Interview, 1 March 1994.
IP, Norman S.W. Manager, China Division, International Bank of Asia, Hong Kong. Interview, 15 February 1994.
Johnston, Don. General Manager, Anderson Asphalt Limited,
Hong Kong. Interview, 20 January 1994.
Lo, Sai-hung. Plant Manager, Sung Foo Kee, Limited, Hong
Kong. ^._-Interview, 30 December 1993.
Nicol, Alexander. Plant Manager, Wimpey Asphalt Hong Kong
Limited, Hong Kong. Interview, 3 February 1994.
65
Reid, lan. Executive Director, Pioneer Asphalts (Hong Kong) Ltd., Hong Kong. Interview, 5 January 1994.
Wu, Gordon Y . S . Managing Director, Hopewell Holdings
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Yeung, Perm. Manager, Mechanical 巧』二 Jardine Engineering Corporation, Limited, Hong J^ong.
Interview, 3 February 1994.
66
REFERENCES
1 . T.i aims at 9pr growth for the next few y e a ^ South China Morning Post, March 11, 1994, p p. 9.
2. Ph.na tightens pnonomic control in ” ^ . ： ， ： f a c i l i t y . South China Morning Post, Marcn 11, 1994, p p . i.
3 p n ^ 卜 — g i a n t Plans to give China priority.
• Business Post, March li, 1994, p p . 1.
4 Ma-ior Introducing Projects for the P R ^ ^ ^
4. S r - 二 0 . State Plannxng commission and Ministry of Foreign Trade and Economic Cooperation, May 1993.
5 . Power s h o r t a g e to worsen next year. Business Post,
December 10, 1994.
6. Pow^ririQ Towards Year 2000. Nomura Research Institute,
February 1994.
7 r.nanadona to spend $13b on h i g h w a ^ ^ South China Morning Post, February 22, 1994.
8. money to keep coming. Business Post, February
21, 1994.
9. K. wah e x p a n s i n n drive focuses on inriyRt-.rial projects.
Business Post, January 20, 1994, p p. 5.
10. Positive Thinking. Acti^^^ participation. Wai Kee Holdings Limited, 1994.
11. prospectus• Consolidated Electric Power Asia, November
24, 1993 .
67
12. Hong KOHQ will lose B I L L I O N S ^ O m ^ g j ^ j ^ Business Post, April 19, 1994, p p . 1.
13. High rents -drH..^ nut firms' • P r o p e r t y Post, January
19, 1994, p p . 1.
14. Half of State 器 f ter South China M o r n i n g Post, April 19, 1994.
15 g^pp-nsoan incr^^^^^ interest rates again. Business
‘ P o s t , A p r i l 19, 19^4, pp. 1 .
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