Reference 2 – a bridge to China

Background

An international manufacturer of hygienic disposable and health care products (e.g. baby diapers, lady napkins, incontinence products), with focus mainly on private label and an annual turnover of nearly € 1 billion in 2004, has 14 production units around Europe. However, it had been facing fierce competition as most of its competitors were already years ahead, being active in the emerging markets.

Bearing in mind the urge to reduce costs (labour and raw materials) and to increase revenue by serving clients in developing economies (Eastern Europe, Africa and the Middle East), going to China was an optimal strategy for stepping forward.

The challenge

Finding trustworthy and professional partners in China in the hygiene segment is difficult. The differences in hygiene standards, raw material requirements, the patent issue, the technology gap and consequent lack of qualified professionals in the field made the scenario even more complex.

In addition, the company needed not only partners for manufacturing its products, but also suppliers of raw materials both within China and abroad. Quality control and supply chain became topics of crucial importance.

The solution

As the project started from scratch, gathering information was the first step. The next was the consolidation of this information into sensible planning. To achieve this, uncountable visits were made to various factories, trade shows and supermarkets throughout different regions of China.

Needless to say, perceptibility was vital for gaining the insight into how this industry operates in China and was therefore one of the most important factors of success.

Manufacturing site planning

Some of the factories were selected for possible future cooperation. As the European company was not interested in the local Chinese market at that time, a licensing agreement was the most suitable alternative for starting the venture.

Time will tell. Collaboration with the Chinese partner will lead to a better understanding of the business environment, the culture and the necessary survival skills of this particular industry in China. At the same time, this understanding will enable better management of the risks involved in further development. Depending on the results of this first business arrangement, a possible joint venture and eventually an acquisition could follow.

Sourcing

All the information about sourcing raw materials was obtained through the potential Chinese partners: suppliers, prices, specifications, payment conditions, export tax refund scheme, logistics, quality control, and so forth. Business cases were built and saving estimations were made.

After assimilating the purchasing procedure in China for both raw materials and finished goods, the necessary adjustments were integrated into the European system, such as improvement on logistics, translation of the specifications, setting up an on-site quality control system and price realignment (to the commodity price) settlement so that the operation could be controlled and monitored at distance.

Local managers were hired and some European based co-workers were sent to China for starting up production and sourcing.

The project became an on-going process. Sage Consultancy built ‘the bridge’ between the two continents.