1、-1-Roland Berger&Partners International Management ConsultantsBarcelona Beijing Berlin Brussels Bucharest Budapest Buenos Aires Detroit Dsseldorf Frankfurt Hamburg Kiev LisbonLondon Madrid Milan Moscow Munich New York Paris Prague Riga Rome So Paulo Shanghai Stuttgart Tokyo Vienna ZurichStrategic re
2、-engineering of Geberit China Interim report Geberit International AGShanghai,Oct.22nd,2000-2-Content(1)PageManagement Summary5A.Market environment 12A1.Macro business environment in China13A2.Market analysis of sanitary system 36A3.Market analysis of piping system 67B.Strategy evaluation and Sales&
3、Marketing80B1.Strategy evaluation81B1.1 Corporate strategy analysis82B1.2 Product strategy evaluation89B2.Sales&Marketing91B2.1 Retail channel GSHA95B2.2 Project channel GSHA103B2.3 OEM channel GDAI107B2.4 Marketing110B2.5 Benchmarking:Kohler(China)112-3-Content(2)PageC.Financial,organization and pr
4、ocesses analysis122C1.Financial situation analysis123C1.1Geberit Shanghai124C1.2Geberit Daishan138C2.Organization and processes145C2.1Organization structure146C2.2Management structure151C2.3Key process analysis157D.Restructuring options164D1.General options and pre-selection165D2.In-depth evaluation
5、176D2.1Equity buyout178D2.2Termination183D2.3Bankruptcy186D2.4Comparison of the alternatives190D3.Feasible scenarios 193-4-Back-upAcronym listBoDCCSCJVEJVFDIFICGDAIGSHAJVKTSVGMWFOEBoard of DirectorsCompetence Center ShanghaiCo-operative Joint VentureEquity Joint ventureForeign Direct InvestmentForei
6、gn Investment CommissionGeberit Flushing Technology(Daishan)Co.Ltd.Geberit Plumbing Technology(Shanghai)Co.Ltd.Joint VentureKohler Technical SpecialistVice General ManagerWholly Foreign Owned Enterprises-5-Management summary-6-China could be a market of strategic importance for Geberits internationa
7、l business(1)China is a promising market for Geberit.We have an achievable business target of RMB 200 million revenue by year 2005,from which,130 million comes from sanitary products and 70 million is generated by piping business.Among all the product lines,tank fittings,Pluvia and concealed cistern
8、 are the top 3 product lines with the potential of RMB 140 million or 70%of the totalOverall Chinese macro economic development is undergoing a strong momentum.In the next 5 years,it is estimated that GDP will grow at 7%annually,the growth of fixed asset investment will increase by 8%,and housing co
9、nstruction will also grow by 8%p.a.Chinese sanitary market is mostly a ceramic market,with an annual demand of 43 million units of sanitary ceramic products in China in 1999 which means the potential market of nearly 2 million sets for tank fittings as well as 2 million units of medium to high end c
10、isterns sold in the market.With the growth in the housing market,Chinese sanitary market will continue an annual growth of 68%.Furthermore,due to the rapid increase of bathroom decoration,the medium to high end segment of sanitary products will definitely lead the industry growth.By 2005,the share o
11、f medium to high end segment will rise from current 20%to 35%Market environment-7-China could be a market of strategic importance for Geberits international business(2)As the largest construction industry in the world,China presents an immense potential for Geberits piping products.Both HDPE and Mep
12、la possess significant product advantages over the currently used Chinese products.However,the significant price gap could be a serious barrier for a deep market penetration.For Pluvia,the opportunities are very attractive.Presently more than 15 roof projects,altogether 700,000 sqm are in different
13、phases of the process of biddingBoth Geberits concealed cistern and Pluvia roof drainage system are mismatched with Chinese traditional industry habits,this can only be solved by a long-term commitment in the China market and effective marketing.Due to the Chinese consumers traditional mindset that
14、plastic product are lower priced,Chantier doesnt have an optimistic market perspectiveRight now,for most of Geberits products,the competition is not so tough,which means a golden opportunity for Geberit to become a market leader in China.It also means time pressure for Geberit.Currently competitors(
15、e.g.Grohe DAL,Caroma)are gearing up and will become aggressive very soonMarket environment-8-Overall,the strategy of Geberit in China has not been fully achieved and sales and marketing are particularly weak(1)Strategy and sales&marketingAlthough GSHA developed a strategy when founded,the strategic
16、objectives to penetrate into the Chinese market havent been achieved-current strategy is unfocusedThe vision of GSHA is not communicated within the organization,nor is it implementedIn comparison,GDAIs strategy is going in the right direction and is in the process of being implemented,They still hav
17、e problems to solve,such as slow market responsiveness,poor customer understanding etc.The core competence of Geberit Europe stands for advanced technology,premium quality and brand,excellent pre-and-after sales services.This has not all been transferred to Geberit ChinaCurrent product portfolio of
18、selling Chantier,Duofix and public products is unbalanced.Strategic focus should be on concealed cistern,tank fittings and Pluvia and HDPEAs to sales and marketing operations,GSHA has no clear strategy in developing distribution network-9-Overall,the strategy of Geberit in China has not been fully a
19、chieved and sales and marketing are particularly weak(2)Strategy and sales&marketingGeberits products are sold through 3 channels:retail sales and project sales through distributors,and OEMGeberit lacks clear planning of retail network development and has neither intention nor leverage to monitor di
20、stributors network operationsProject sales performance has been affected mainly by both poor customer services and incompatibility with current Chinese installation and application habitsThere are a number of setbacks that need to be overcome to improve OEM sales:unsatisfactory product development a
21、nd customization,slow market responsiveness and high pricingExcept for a very few marketing related activities such as seminars and attending exhibitions,essentially marketing department doesnt perform marketing functions such as building up brand etc.Kohler has done far better compared to Geberit i
22、n the area of sales and marketing,such as raise brand awareness,influence customers and design institute-10-Financials,organization and processesThe GM of GSHA lacks leadership.His management style is self-centered.It is widely perceived that he does not trust the local staff.His personality is not
23、accepted by employees.As a result,there is no motivating corporate culture,no trust between management team and staff,no motivation and commitment among the staff and high staff turnover.(e.g.CCS)The official organizational structure,which is changed frequently,is not implemented.Departments functio
24、n is not clearly defined.Some functions(e.g.HR)are overlapping and some are not implemented.(e.g.Marketing)The current operation process is production-oriented instead of market-oriented,leading to ignorance of market demands.The control of the whole process is only on paper and is not followed in r
25、eality.Although there is no open conflicts between them,the JV partners pursue their own(personal)interests.It is particularly obvious when recruitment,promotion and lay-off are concerned.GSHA is on the brim of bankruptcy.More than 70%of products sold have negative gross profit margin,resulting in a
26、n increase of operating losses in line with increase of sales.The company cannot survive without a continuous cash injection from the parent company.Although the operating losses of GDAI have been reduced as a result of improved gross profit margins and increased sales,the financial situation is sti
27、ll criticalThere is no leadership at GSHA.GSHA is close to bankruptcy.GDAI shows positive development trend-11-Geberit should aim for equity buyout and consider termination or bankruptcy as fall-back positionRestructuring options To separate from the Chinese partner is a premise to secure success of
28、 restructuring Some key problems particularly affecting to HRM are related to the Chinese partner In addition,Lidas products are contributing to the huge loss due to their-7%gross profit margin and the sharp decline in sales volume due to shrinkage of low end market Therefore,only equity buyout,term
29、ination and bankruptcy are feasible Considering cost,time,risk and the potential impact on future integration and consolidation,equity buyout should be deemed as the first choice,and termination or bankruptcy as fall-back position The buyout and termination options depend to a large extend on the wi
30、llingness of the Chinese partner and can take a long time.Therefore,Geberit should start preparations and negotiations quickly-12-A.Market environment-13-A1.Macro business environment in China-14-Overall the business environment is positive for Geberits investment in ChinaMacro business environment
31、in China8%annual growth forecasted for construction industryStrong momentum for real estate market growthSteady growth for high end real estate market7%annual GDP growth estimated in the next five yearsAnother boom for FDI1)expectedAn estimated 8%annual growth for fixed asset investment by 2005Consi
32、stent economic policies towards reform and opening upDramatic Chinese household income growth during the past 15 yearsMacro economic trendHousing supply marketGovernment policiesSocial factorsGovernments preparation for WTO entry Central governments effort to develop western regionThe emergence of t
33、op consumers group with strong purchasing powerSignificantly increased bathroom decoration standard and spending1):Foreign direct investment-15-China is one of the fastest developing countries in Asia and the globe4.1%2.0%5.6%5.5%3.2%6.2%5.3%0.6%7.5%-0.7%Annual GDP growth in China%GDP growth in Asia
34、,1998/1999China1)EstimateJapanMalaysiaIndonesia IndiaPhilippinesTaiwanSingaporeHong KongThailandGermany1.4%USA4.1%Source:OECD,Roland Berger&Partners analysis14.213.512.610.59.68.87.87.57.91992199319941995199619971998199920041)-16-The key indicators of the first half of 2000 show a strong confidence
35、in the Chinese macro economic trendFixed asset investment hit RMB 754 billion in the first half of 2000,up 12.1%compared with the period of last year,among these,the investment of real estate was RMB 201 billion,up 24.1%Sales volume of the retail market reached RMB 1625 billion,up 10.1%,and the disp
36、osable income per urban resident increased by 7.7%Foreign trade volume achieved a significant growth of 37%,amounted at USD 217 billion,among these,export was USD 115 billion,up 38%,import was USD 102 billion,up 36%Key indicators in the first half of 20008.2%GDP growth achieved in the first half of
37、2000Source:County Information Centerfirst half of 1999first half of 200036503950+8.2%Billion RMB-17-In the next 5 years,macro economic development will be optimistic in ChinaWTO accession will bring 1.75%more foreign investment,USD 100 billion incremental FDI per year,will boost economy growth by 1%
38、annuallyThe fixed asset investment is estimated to grow at 8%per yearChina plans to accelerate the urbanization process by 2%per yearReal estate market will grow at 7-8%p.a.in the next five yearsThe trend of Chinas macro-economy7%annual GDP growth1)in the next five years1978=1001):excluding the infl
39、ation factor 2):EstimationSource:China Infobank,Asian monitor,RB&P analysis10117214892831941161980198519901995200020052)+10.8%p.a.+7.8%p.a.+11.6%p.a.+8.1%p.a.+7%p.a.-18-A boom for foreign investment can be expected in China in the next 510 yearsFDI growthGrowth of European Union investmentBillion US
40、DBillion USD45.245.440.33.541.737.5199019951996199719981999200460.9%p.a.4.173.994.480.152.742.131990199519961997199819994.2%5.7%6.6%9.2%8.8%11.1%The weighted share of European companies investment in total FDI is increasing70.11.5%p.a.12%p.a.1)1)Estimation based on the assumption of WTO entrySource:
41、Sate Statistics Bureau,RB&P analysis70%p.a.15.8%p.a.-19-WFOE(wholly foreign owned enterprise)is becoming a more and more widely-accepted approach for foreign investmentComposition of FDI in ChinaLegal formation of foreign investmentSource:State Statistics BureauBack-up18.5%7.0%8.1%8.3%7.8%50.3%154.8
42、56.9European UnionJapanUSATaiwanHongkongOthers23.925.624.921.5Billion USDBillion USDThe accumulation of actual foreign investment to the end of 1999Actual foreign investment of Jan.July 20001%15%34%50%9.93.0EJVWFOECJV6.8EJV:Equity Joint Venture CJV:Cooperative Joint VentureOthersTotal:307.6Total:19.
43、9-20-The fixed asset investment is estimated to grow at 8%annually in the next 5 years,and more than 60%will be invested in construction projectThe growth of fixed asset investmentComposition of the fixed asset investment in 1999Source:China Statistic Yearbook 2000,RB&P analysisBillion RMB2840.62985
44、.34386.02001.92494.12297.419951996199719981999200414.8%8.8%13.9%5.1%8%p.a.Billion RMB14%24%62%1879.3400.6Purchase of machinery equipmentConstruction and installationOthers705.3Total:2985.3-21-Construction industry will grow steadily at an estimated 8%annual rateGross output value of construction ind
45、ustry2226.01515.11374.11246.21157.9950.5199519961997199819992004Billion RMBGrowth of government infrastructure investmentGrowth of residential housing supplyGrowth of real estate marketGrowth of renovation market21.8%7.6%10.3%10.3%8%Source:China Statistic Yearbook 2000,National Planning Commission,R
46、B&P analysis-22-The total floor space of housing supply has experienced an average annual growth of 6.5%in the past 5 years,more than 8%growth can be expected this yearGrowth of total housing supplyAverage annual growth of urban residential supply is 12.7%,which is leading the total growth rate of 6
47、.5%,and will continue to be the growth engineRural residential supply growth is limited due to slow farmers income growthWTO entry is expected to stimulate another high-growth period of office building supplyTrend of housing supply25%26%25%26%25%26%41%44%47%49%51%48%24%25%28%30%34%26%199519961997199
48、819982000Billion sqm+6.5%p.a.Urban residentialRural residentialNon-residential1.461.621.661.711.872.031)1):Projection based on the progress of the first half year of 2000Source:China Statistic Yearbook 2000,China Construction Industry Yearbook 1999,RB&P analysis+8.5%-23-Building construction can be
49、divided into residential buildings and non-residential buildingsBack-upBuildings classificationTotal constructionResidential buildingsNon-residential buildingsUrban residentialRural residentialIndustrial buildingsCommercial buildingsOthers Manufacturing plant Hotel Retail store Restaurant Entertainm
50、ent Others Public buildingse.g.:airport,exhibition center,stadium Institutional buildings Hospitals Schools OthersOthersOffice buildings-24-Total housing supply in 1999 reached 1.87 billion sqm in ChinaThe floor space completedNationalBeijingShanghaiJiangsuZhejiangGuangdongResidential Urban Villas a
