Analysis on Konka's low-cost expansion
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Konka Group Co., Ltd. was formerly known as "Guangdong Guangming Overseas Chinese Electronics Co., Ltd." and was established on May 21, 1980. Japan, is China's first Sino-foreign joint venture electronics enterprise. In August 1991, it was reorganized into a Chinese and foreign public joint-stock company. In March 1992, Konka's A and B shares were listed on the Shenzhen Stock Exchange at the same time. The existing total share capital is 547 million shares, with OCT Group directly and indirectly holding 51.06%. It is a state-owned enterprise. In the early days, Konka used raw materials to produce electronic watches, radio cassette players and other products for joint venture partners. In 1984, it began to produce color TVs, but mainly for export. In 1987, Konka obtained the last domestic TV production license - the 57th "domestic TV production license". After the 1990s, Konka implemented a low-cost expansion strategy and successively established Mudanjiang Konka, Shaanxi Konka, Anhui Konka, Chongqing Konka and other production bases (hereinafter referred to as "Funkang"), becoming China's second largest color TV manufacturer and one of the "Top 100 Chinese Electronics" Enterprise" ranked 4th.
Color TV Industry Analysis
Konka is engaged in the highly competitive color TV industry. Since Sichuan Changhong introduced the first color TV production line from Japan in 1980, color TV projects have been launched in various places. Later, although the fixed-point production system for color TVs was implemented, it did not curb the momentum of their blossoming everywhere. In 1988, the government imposed a consumption tax on color TVs, and the price of Changhong color TVs was reduced by 350 yuan per unit. The first color TV price war began. In the 1990s, competition in the color TV market became increasingly fierce, and some color TV brands were eliminated. During this period, the phenomenon of joint mergers and acquisitions began to appear in the color TV industry. Shanghai's three major color TV brands Venus, Feiyue, and Veuve Clicquot formed SVA, and regional enterprises such as Mudanjiang Konka, Nantong Changhong, Shenzhen TCL, and Yunnan Hisense emerged.
The color TV market has evolved from a seller’s market in the past to a buyer’s market today. There are more than 100 color TV manufacturers in my country, but more than 50% of the market is controlled by major color TV companies such as Changhong, Konka, and TCL. In 1998, the national color TV production volume was 33 million units, while the domestic market capacity was only 23 million units, leaving a huge gap between supply and demand. Industry insiders estimate that the national corporate and commercial inventory of color TVs exceeds 10 million units, and the backlog of funds is staggering. Price competition has become the main theme of the color TV market. As a result of the price war, the color TV industry has moved from monopolistic competition to oligopoly.
Konka’s SWOT analysis
SWOT analysis method is a popular systematic analysis tool in corporate strategic management. It analyzes the company’s strengths, weaknesses, Conduct objective analysis of opportunities (Opportunities) and threats (Threats) in order to grasp the competitive situation of the enterprise and make reasonable decisions.
Advantages:
Brand advantage Konka brand has a very high popularity and reputation. According to the evaluation of relevant institutions, the Konka brand value is 7.887 billion yuan, ranking 6th among domestic brands, and is It has been recognized as a "well-known trademark in China" by the State Administration for Industry and Commerce.
Financing channels Konka's A and B shares are listed at the same time, with excellent credit standing, making it a golden customer of major banks. In 1997, 1998 and 1999, Bank of China provided Konka with financing lines of RMB 3.8 billion, RMB 4.2 billion and RMB 5 billion respectively. In 1999, Konka issued 80 million new A shares, raising RMB 1.2 billion.
Marketing Network Konka has established more than 60 sales branches in major central cities across the country, and has carried out industrial and commercial cooperation with more than 95% of prefecture-level shopping malls across the country. Its terminal sellers have reached the township level, establishing a More than 300 special maintenance stations and more than 3,000 external maintenance points have formed a nationwide sales network and after-sales service system.
Mature Management As China's first Sino-foreign joint venture electronics enterprise and one of the first public joint-stock companies, Konka has formed a standardized and efficient management system and operating mechanism. Konka is the first company in my country's color TV industry to pass international and domestic dual certifications of ISO9001 quality management system and ISO14001 environmental management system.
Disadvantages: Color TV is a labor-intensive industry. Konka is located in the Shenzhen Special Economic Zone, so production costs, management costs, and transportation costs are relatively high.
On the other hand, if Konka is only based in Shenzhen, it will be difficult for Konka's market radiation radius to cover the whole country, especially the regional markets where some local color TV brands are located, and it will be difficult for Konka to penetrate.
Opportunities: Some state-owned color TV manufacturers in the Mainland have excellent factories and equipment, high-quality cadres and workers, low production costs, and a certain market location. However, due to reasons such as mechanisms and markets, , debts are overhanging, workers are laid off, equipment is idle, people's mentality has changed, and they are eager to find a way out. The local government welcomes advantageous companies like Konka to acquire, merge and revitalize distressed companies. The state also encourages eastern coastal companies to invest and exchange in the central and western regions.
Threats: Competitors such as Changhong continue to provoke price wars by virtue of their scale and cost advantages; "new faces" such as Gao Luhua and Caixing squeeze into the color TV market at ultra-low prices; Toshiba, Sony, Samsung, Philips and other multinational companies have changed their approach of simply importing and have entered the Chinese color TV market in the form of joint ventures to achieve local production and local sales; the EU has launched an anti-dumping lawsuit against Chinese color TVs; China is about to join the WTO.
The implementation of expansion takes the recently established Chongqing Konka (referred to as "Chongkang") as an example. Chongkang has a registered capital of 45 million yuan. From the perspective of equity structure, Shenzhen Konka invested 27 million yuan in cash, accounting for 60% of the shares; Chongqing Radio Factory No. 3 invested 18 million yuan in kind, accounting for 40% of the shares. As a newly established limited liability company, Chongkang is both a holding subsidiary of Shenzhen Konka and a joint-stock subsidiary of Chongqing Wireless Factory No. 3. As shareholders of Chongkang, Shenzhen Konka and Chongqing Radio No. 3 Factory elect directors to form the board of directors based on their shareholding ratio, and enjoy investment income, participation in major decision-making and other rights in accordance with the law. The other three "fenkang" companies also follow this model. Mukang, Shaankang, and Ankang are joint ventures between Shenzhen Konka and Mudanjiang TV Factory, Shaanxi Ruyi Electric Corporation, and Anhui Chuzhou TV Factory respectively. The four companies are all controlled by Shenzhen Konka, but there is no question of who merges whom.
In terms of organizational structure, the general managers and financial directors of the four branches are all dispatched by Shenzhen Konka. The chairman of the board is appointed by a local partner to coordinate the relationship between the new company, the old factory and the local government. In terms of corporate naming, they are all "place name + Konka + electronics (or industry) + Co., Ltd." Shenzhen Konka implements its own CIS, management model and values ??in each branch. Fenkang accepts guidance and services from Shenzhen Konka in planning, production, sales and other aspects.
In fact, if Konka chooses to merge as a whole, not only will it not be able to save the local TV factory, but it will easily be dragged down by its huge debts and heavy social burdens. Choosing the joint venture method means that "the new factory will ignore the old debts", with clear property rights and clear responsibilities and rights, which is conducive to operating lightly and thus bringing the old factory back to life.
The significance of expansion
For Konka, it has expanded the scale of production, increased the degree of intensification, and increased market share. In terms of production scale, Konka headquarters has 7 color TV production lines, 3 in Mukang, 3 in Shaankang, 6 in Ankang, and 3 in Chongkang. In terms of production capacity, the color TV production capacity of its subsidiaries has exceeded 60% of the group's total output. In 1993, Konka produced 1.09 million color TVs with sales revenue of 2.2 billion yuan. By 1999, Konka produced 6.5 million color TVs with sales revenue of 13 billion yuan, an increase of nearly five times in six years, an astonishing rate. If we carry out traditional expanded reproduction in Shenzhen headquarters instead of using capital management to implement unconventional development, we will not be able to achieve such a speed. Konka invested a certain amount of incremental assets to revitalize existing assets several times. The establishment of several major companies and the expansion of production scale have laid a solid material foundation for Konka to ride on the color TV price reduction craze and achieve sales revenue exceeding 10 billion yuan.
For mainland state-owned enterprises, Konka's "entry" has brought the special economic zone's enterprise mechanism, capital and technology, allowing stalled production lines to restart, laid-off workers to re-employ, and local supporting facilities Enterprises also emerged, increasing local tax revenue and improving the local industrial structure. According to statistics, the establishment of several major companies has provided 5,500 jobs for the mainland and created a cumulative profit and tax of 420 million yuan.
Enlightenment of expansion
1. Stick to the profession and complement each other’s advantages. In its 20-year history, Konka has worked in telephones, VCDs, stereos, fax machines, and real estate, but it is the one that is truly successful. There are only color TVs, and Konka’s strength is color TVs. When Konka expands to the mainland, it basically focuses on color TVs or relatively relevant projects, rather than blindly "diversifying" in areas with which it is unfamiliar.
The partners chosen by Konka to cooperate are also color TV manufacturers with considerable foundations in terms of factories, equipment, management, and talents. Otherwise, launching new projects and setting up new stalls will not only waste corporate resources, lengthen the production cycle, but also lose the company's original advantages.
2. Acting in accordance with economic laws Konka's low-cost expansion is a successful exploration of Konka's capital management, and it is also the result of acting in accordance with economic laws and market rules. This is reflected in two aspects: First, Konka wants to establish a production base in the mainland, which is completely based on its own strategic planning and market layout; second, each branch of Konka uses capital as a link and is established and operated according to the modern enterprise system. . Konka did not accept the "free transfer" approach proposed by some local governments, nor did it act as a "philanthropist" to simply "transfuse blood" for mainland enterprises. The purpose of a business is actually very simple, which is to make profits and pay taxes for the country.
3. Only by "activating" assets can they be valuable. When Konka invested in the central and western regions and negotiated cooperation matters with mainland enterprises, how to evaluate the assets of state-owned enterprises became a focus of the negotiations between the two parties. Some people believe that the assets of mainland enterprises are seriously undervalued, which is a result of the loss of state-owned assets. This understanding also exists in other East-West enterprise cooperation and is a relatively common problem. In fact, the value of assets ultimately needs to be measured by the market, not just what is on the books. Products cannot be sold, assets are idle, workers are laid off, and no amount of book value is of any use. Moreover, as a state-controlled enterprise, Konka's "loss" is also "lost" to state-owned enterprises.
4. The operating mechanism bans the same factories, production lines, workers and middle-level managers. There is even no shortage of perfect management systems and excellent technical personnel. However, completely different outcomes occurred before and after the joint venture with Konka. . On the surface, it is because the original enterprise lacks brand, marketing network and liquidity; on a deeper level, it is actually a problem with the leadership system and operating mechanism. Each branch operates according to the modern corporate system, and the highest authority is the board of directors, not the administrative departments. The input mechanism of Shenzhen Konka is not necessarily that advanced. The key is that it can continue to execute orders and prohibitions.
5. To "internationalize", you must first "domesticize". In fact, the domestic market has become an important part of the international market, and subtle changes in the international market will be sensitively reflected in the domestic market. If Chinese companies want to go international, they must first establish a foothold in the domestic market. Konka basically follows this path. After gradually completing domestic production and sales layout through low-cost expansion, it then establishes production bases in India, the Philippines, Mexico and other countries, and begins its transnational operations.
Konka's low-cost expansion model has explored an effective way for cooperation between Eastern and Western enterprises. The basis is complementary advantages and mutual development; the key is to use property rights as a link to establish a modern enterprise system; The purpose is to quickly expand the business scale of advantageous enterprises, revitalize existing assets, and revive distressed enterprises to achieve a win-win outcome. The low-cost expansion model is suitable for enterprises with core capabilities in fully competitive fields. What needs to be reminded is that companies that implement low-cost expansion strategies must have core capabilities. Otherwise, blind expansion regardless of their own actual conditions is likely to be a trap