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Global Value Chains, Market Entry Strategies and Doing
Business in China.
Paul Calver
UKTI Global Value Chain Specialist
Advanced Engineering([email protected])
Contents
1. The Value Chain
2. Global Value Chain Opportunities
3. Global Competitiveness
4. Key Business Issues
5. Market Entry Strategies
6. Doing Business In China.
The Value Chain
Fuel Systems Components Component Parts Raw Materials
Fuel Systems
System
The Value Chain
R&D and Concept Design
Design Development Prototype
Series Production
Static and Flight Test
Supply Chain Development
Qualification Testing
Simulation and Mock-up
Manufacturing Capability
Procurement
Market Support Capability
Financing and Marketing
Market Analysis
Training
Logistics and Material Handling
Ground Support Equipment
UKChina
USA
Global
The Value Chain - UKTI Objectives
R&D and Concept Design
Design Development Prototype
Series Production
Static and Flight Test
Supply Chain Development
Qualification Testing
Simulation and Mock-up
Manufacturing Capability
Procurement
Market Support Capability
Financing and Marketing
Market Analysis
Training
Logistics and Material Handling
Ground Support Equipment
UK UK
UK
UK
UK
Slot UK Companies Into the Value Chain
Global Value Chains Opportunities
• Leverage Current Business Activities
to Meet Market Needs.
• Increase Global Competitiveness.
• Gain Market Access.
Leading to:
Stronger UK CompaniesAdapting to meet The Challenges
of the Global Market.
What Do You Have to Offer ?
Companies Need to Focus on Key Strengths and Capabilities
WJ Brookes Ltd, who manufactured traditional hand stitched brogues faced insolvency as cheap fashionable imports
flooded the market. After a chance encounter they spotted a need for stylish „Kinky Boots‟
(for men) and relying on their unique technical expertise in strong heel design
created a new niche market thus saving the factory. The company found out that its real
strength and unique capability was in materials knowledge rather than their ability
to efficiently operate sewing machines.From the Film „Kinky Boots‟
Global Value Chains Opportunities
Source: ‘Understanding China’s Manufacturing Value Chain’ Published 2008 by University of Cambridge Institute fro Manufacturing
Global Value Chains Opportunities
Global Competitiveness
A Cost Base That Matches the MarketFor Labour Intensive Activities
Americas EU Asia
Order book 28% 28% 44% ($46B)
Purchasing spend 28% 65% 7%
Currency $ €/£ $
Currency judgement OK X OK
A Major Aerospace Prime‟s Global Order Book v Spend
$1Cent +/- fluctuation = £10M on bottom line
Global Competitiveness
Source: Imcron Management Report - 2009
Volume Production
NPI S&A
UK/Europe Low Cost Source UK/Europe
“One-Stop-Shop” Suppliers
Global Competitiveness
Source: Imcron Management Report - 2009
• Lower Costs• Lower Currency Risk
• Offset Potential
Market Entry Strategies
Low
investment
risk but
returns also
limited.
Some legal
risks.
Lower capital
investments,
but may create
dependence on
suppliers/
partners.
Benefits of
flexibility,
risks of
formal
structure.
Shared
investment
and risk.
Potential for
partner
disagreement
and culture
clash
High investment required
and corresponding risk.
Benefits of control.
Risk and Return
Licensing OutsourceCertain
Functions
StrategyAlliance
JointVenture
InternalCommercialisation
Market Entry Strategies
Essential: Get a „Man-on-the-Ground‟
Co
ntr
ol
Indirect Export
Time and Resource
Agent/Dist.Arrangement
Formal Agent/Structured Dist.
Third PartyCommercial
Rep Office
JV
LicenceOverseas
Manufacture
WOFEParts
Assembly
Service Centre
Representative Office
• Limited to Services that Do Not Give Rise to Earnings or Profit• Market Research• Customer and Supplier Liaison• Assisting Trade Visits to China• Parent Company Co-Ordination
Market Entry Strategies
• Form a Company with a Chinese Partner
Joint Venture
Why JV• Commitment to IPR Protection• Good Market Access• Facilities and Workforce• In Country Knowledge
Why Not JV• Finding a Good Partner.• Due Diligence.• Loss of Control.• Different Business Cultures.• Share Profit
WOFE (Wholly Owned Foreign Enterprise)
• General Use Accepted (Manufacturing and Services)
• Some Market Sector Restrictions (MOFCOM: Guidance Catalogue for Foreign Investment)
• Why• Independence and Freedom.• Invoicing in RMB.• Convert RMB to USD and Other Foreign Currencies.• IP Protection.• Operational Efficiency.
Market Entry Strategies
Purchase
Get Experience, Save Costs and Increase
Global Competitiveness.
Establish
Build a Network, Enter the Culture, and Obtain a Local Market Cost Base.
Sell
Rationalise, Become Global, and Obtain Local
Market Revenue.
Purchase. Establish. Then. Sell
Is it Right for You
Internal Assessment
Supplier/Partner Selection
Testing the Water
Realising Full Benefits and
Keeping it Right
Expanding the
Relationship
„Establish‟
„Sell‟
Market Entry Strategies– P.E.T.S
Doing Business In ChinaKey Business Issues
• Understanding the Market.
• Selecting Your Market Offering.
• Developing Your Market Entry Strategy.
• Amortising Your Costs.
• Sourcing Aerospace Materials.
• Intellectual Property Protection.
• Where to Locate.
• Business and Cultural Differences.
• Legal Barriers.
• Finding a Partner/Getting a „Man-on-The- Ground‟.
• Making Money Quickly
IPR Theft• Huge problem of piracy / counterfeits
• The majority of the world‟s counterfeits originate in China• [at least] 86% software in use in China unlicensed
In China Copying is the Highest Form of Flattery
Doing Business In ChinaIntellectual Property
Provided Courtesy of Rouse – © Rouse 2008
„There Should be a Law Against it!‟- There is!
• June 1980 China joins WIPO and begins roll- out of IPR statutes
• Dec 2001: China joins WTO – signs TRIPS Agreement
• China’s IP laws are in line with international standards and being regularly upgraded
• Dec 2008 Patent Law has just been amended for third time
• Issue is effective enforcement.
Doing Business In ChinaIntellectual Property
Provided Courtesy of Rouse – © Rouse 2008
Managing Your IP in China
1. Get a good IPR position
2. Due diligence
3. Good contracts & licences
4. Preventative measures
5. Swift & effective enforcement
Doing Business In ChinaIntellectual Property
Provided Courtesy of Rouse – © Rouse 2008
Doing Business In ChinaIntellectual Property
Provided Courtesy of Rouse – © Rouse 2008
FIRST MEETING
• Arrive early
• Formal
• Shake Hands
• Ni Hau; Nimen Hau; Zao
• Hierarchical seating
BUSINESS CARDS
• Take lots
• English and Mandarin
• Your name
• Offer & accept with both hands
• Study
• Respect
INTERPRETERS
• Yours and/or theirs
• Speak clearly, simply, short sentences
• Don’t assume
Doing Business In ChinaBusiness Culture
Provided Courtesy of Hopkinsholt – [email protected]
TEA
• Green
• No milk
• OK to slurp
HIERARCHY – TITLES
MOBILE PHONES
GUANXI
• Connections; long-term relationships; personal; network
• Enhances esteem
• Mistaken for corruption
FACE
• Take great care
• Tact needed
• Give and receive face
• Lose face
GIFTS
• Be prepared
• Not high value
• ‘Cultural’
Doing Business In ChinaBusiness Culture
Provided Courtesy of Hopkinsholt – [email protected]
CORRUPTION
• WTO improving matters ....slowly
• Still a way of life
• Poorly understood in Chinese culture
STATE OWNED ENTERPRISES (SOE vs Private Companies)
• Totally different business culture
• Insular
• Hierarchical
• Risk averse
• Non-business drivers
BANQUETS
• Essential part of business process
• Rituals
TOASTS
• Endless!
• Hierarchy
Doing Business In ChinaBusiness Culture
Provided Courtesy of Hopkinsholt – [email protected]
NEGOTIATION
• Much better than us
• Empowered?
• Lock in agreed points
• Indirect
• Patience, Patience, Patience
HEALTH & SAFETY
• A Challenge!
AGE
MANDARIN Learn Some!!
KARAOKE......... A Serious Business
Doing Business In ChinaBusiness Culture
Provided Courtesy of Hopkinsholt – [email protected]
Doing Business In ChinaBusiness Culture
Provided Courtesy of Hopkinsholt – [email protected]
The Indian Aerospace Market
Paul Calver
UKTI Global Value Chain Specialist
Advanced Engineering([email protected])
General Aviation/ Helicopters, $168
Airport & Airport Services, $4,749
Commercial MRO,
$2,100
Certification, $1
Consulting, $82
Training, $356
Pilot Supplies & Navaids, $35
Financing, Leasing,
Insurance etc, $4,200
Indian MarketCivil Aerospace
Aviation: Forecast Spend 2015 (USD Millions)
Total = $11.8bn
CivilResearch and Development
• Design, development and fabrication of multirole lighttransport aircraft.
• Development of India's first all-composite traineraircraft.
• Hardware and software initiatives in parallel processingtechnologies
• Design and fabrication of advanced compositestructures.
Dept. of Science & Industrial Research ($1.84bn)
Civil Aircraft ProgrammesNAL
70 Seater Programme
Hansa Trainer - CompositeSARAS – 14 Seat
• $75m (of $480m) Approved• Target In Service 2015
• Up to 5000 Short Haul Planes Required (maybe)
Maintenance Repair and Overhaul
Design and Engineering Services
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2010 2011 2012 2013 2014 2015
Market Projections: Engineering Services(USD Millions)
(Source: National Asscoaition of Software & Servcies Companies)
Engineering Services
Embedded Software
Technical Publications
Other Software
India Becoming an Aerospace Technology Sourcing Hub
Defence Projects
Dominated by the Russians in the past -Sukhoi 30s, Mig 29s, transport, helicopters etc.
Opportunities for UK include:
•126 Medium Multi-Role Combat Aircraft.
• 12 VVIP Helicopters
• 57 Advanced Trainers (Air Force and Navy).
• 16 Multi-Role Helicopters
• Jaguar Upgrade.
• Light Combat Aircraft
• AN-32 Aircraft Upgrade (100+ Aircraft)
• Light Utility Helicopter (187 aircraft)
• Boarder Security.
34% Increase Over Last Fiscal Year
Offset is a Key Issue
Defence Research & Development Organisation
• 37 Listed Laboratories/Establishments (www.drdo.org)• 20 Technology Gaps Indentified
• superior aerodynamics• hypersonic flight technologies• new-generation antennae• stealth• lasers• tank protection• nanotech• auto take off and landing• aerostats and high-energy microwave• network centric operations
DefenceResearch and Development
Defence and Space Manufacturing
Indigenous Defence & Space - Manufacturing Forecast Spend 2015 (USD Millions)
Metals, $1,084
Composities, $591
Systems and Accessories,
$1,478
Avionics, $1,380
Standard Parts, $394
Manufacturing Ooutsourcing,
$1,478
Consumables, $492
Spend or ‘buy’ Projection of Indian CompaniesSource: Genser Aerospace 2007 Growth $2.8bn to $6.9bn
Traditional Supply Chain
Hindustan Aerospace• >$2000m• Dominate ComponentMarket
• Outsourcing 35% of Manufacturing Capacity(www.hal-india.com)
Bharat Electronics Ltd• >$1000m• Main Customer HALand Indian Defence
Changes to Defence Procurement
• Private Indian Companies Can Bid to Supply Directly to the Indian Government Teaming
with Foreign Companies.
• On a Case by Case Basis the FDI Limit can be Increased from 26% to 49%.
• 13 Companies on the RUR Approved List.
UKTI Will Bring The RUR Companies to the UK on the 8th – 12th March 2010.
• Tata Motors
• Godrej & Boyce
• Mahindra & Mahindra
• Ashok Leyland
• Bharat Forge
• Bharat Heavy Electricals (a public sector company)
• HCL Technologies
• Infosys Technologies
• Kirloskar
• Larsen and Toubro
• Tata Consultancy
• Tata Power
• Wipro
Changes to Defence ProcurementThe RUR Companies