Hope group looks to export recipe for success

PUBLISHED : Thursday, 13 November, 1997, 12:00am
UPDATED : Thursday, 13 November, 1997, 12:00am

China's largest private operation, the Hope Group, is banking on Vietnam, one of Southeast Asia's burgeoning yet enigmatic economies, to provide new growth for its animal-feed business.

Chairman Liu Yongxing said contacts already had been made with Vietnam's agricultural authorities through the Chinese consulate in Ho Chi Minh City with plans to set up an animal-feed factory there.

He said the mainland and Vietnam shared many similarities economically, with both recently undergoing radical reforms to transform their antiquated economies and state enterprises - with runaway success.

'Our formula for success in the mainland could be applied in Vietnam, and neighbouring countries such as Cambodia and Malaysia in the future if the formula works for Vietnam,' Mr Liu said.

The Sichuan-based animal-feed manufacturer plans to invest 30 million yuan (about HK$27.87 million) next year in Vietnam, its first investment outside China.

The move to venture abroad comes as Hope is facing a saturated home market which sees overcapacity and increasing competition from foreign rivals.

The rush by foreign animal-feed manufacturing giants such as Thailand's Chia Tai Group, which operates an animal-feed business in Shanghai through its majority-owned Dajiang (Group) Co, has cut into the market share of domestic makers.

'We are seeing more of these super-companies, some of which with sales half of Boeing's, setting up new production lines with annual capacity of 400,000 tonnes or 600,000 tonnes a year with investment of about 150 million yuan,' Mr Liu said.

These multinationals, equipped with advanced technology and quality products, were willing to cut profit margins in the first years of operation in the hope of increasing market share, Mr Liu said, adding the strategies had proved effective in eliminating domestic players.

'The vast number of small to medium-sized domestic producers, which combine to account for the lion's share of the mainland's feed manufacturing sector, are potential targets these foreign manufacturers are aiming at,' he said.

Despite the intense competition, Hope enjoyed profit margins of between 8 and 10 per cent last year, topping the sector's average of 0.5 per cent for last year and 1 per cent in previous years.

Mr Liu attributed the group's competitiveness to its economies of scale, with sales of 2.5 million tonnes and capacity of five million tonnes last year. China produced 45 million tonnes of feed last year.

He said the group planned to expand into new businesses such as processing of flour and chicken as well as other food-related processing.

Between 200 million yuan and 300 million yuan would be spent this year on a corn processing project to produce one of the chemicals needed for the manufacture of animal-feed.

Output is expected to reach 10,000 tonnes this year and rise to 20,000 tonnes next year.

'The ultimate aim is to have the group's sales hit 10 million tonnes by 2000 and capacity rising to 20 million tonnes,' he said.

Mr Liu said plans to build new factories on the mainland would be completed when the number of plants reached 100, expected next year. It now has more than 90 factories throughout the country.

'With the number of factories rising to 100 next year, Hope probably covers almost every part of China in terms of networking and distribution, so there is no need for us to build more,' Mr Liu said.

'The focus will then be shifted to strengthening the existing network in an attempt to increase our market foothold,' he said.

Mr Liu and his three brothers own nearly 100 per cent of Hope, which had total assets of 5.2 billion yuan last year.

The brothers were ranked last year by Forbes magazine as China's richest men for the third year in a row.

Set up in 1982, the company has grown to become one of the 37 corporations strongly backed by the Sichuan provincial government, and is the only private enterprise to be included in the list.

Mr Liu said it was not in a rush to raise funds, although a number of Hong Kong-based merchant bankers had approached it for a Hong Kong listing.

'The company is fairly young. We will not rule out the chances for a series of listings for businesses that are mature enough,' he said.

He cited as an example a more mature operation within the group - New Hope - a new holding company formed by his youngest brother, Liu Yonghao, which is seeking to issue domestic A shares on the Shenzhen stock exchange.

New Hope, comprising animal-feed factories in Kunming, Guiyang, Xichang and Mianyang, hoped to raise about 300 million yuan, Mr Liu said.