Changhong's case was not the first one. It will not be the last one. Japanese, Korean, Hong Kong and Taiwanese companies have gone through the same paths. Those companies follow the right business rules to conduct their businesses without problems. There is nothing wrong with a "export driven economy model" until there is no need. China needs it badly now. Changhong did not have a capable sales and marketing rep. itself. The company has to rely on a middleman (Apex) to deal with a large company such as Wal Mart. Without the middleman (Apex), Wal Mart will not give its purchase orders to Changhong at all.
Did Jay do a pretty good job to be a middleman so far for most of the westerners who intent to invest in China companies? I thought you thought so.
It was China's system that has a problem. Ni and those high ranking CCP people are the ones who benefited and should be blamed. Average Chinense are the ones who suffer. Not you of course.
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Ni Runfeng's Heritage
By staff reporter Zhang Fan and intern reporter Li Weina
Ni Runfeng left Changhong at the worst of times. After twenty years at the helm of China's biggest television set maker, Ni, 60, was officially removed from his post as head of the state-owned Sichuan Changhong Group on July 8.
Multiple crises have brought the electronics giant to one of its lowest points in recent years. Anti-dumping tariffs imposed by the United States, Changhong's biggest export market, have sent Changhong's exports plummeting. Price wars in the domestic market have seriously eroded the profit margin of projection color TV's, Changhong's latest star product. Delays in payments from Apex Digital, Inc., a major US importer of Changhong products, further threaten to slow Changhong's cash flow to a halt.
The provincial government and Communist Party leadership of Sichuan, who announced Ni's departure on July 8, cited age as the only reason he was leaving. State policies decree that top leaders of state-owned enterprises should not continue to serve in those positions past the age of 60.
Analysts say the most recent woes may seriously mar the legacy of this charismatic businessman who was once regarded as the soul of Changhong, a hero who steered the company through many crises and made it a national leader in consumer electronics. Ni was unavailable to comment for this story.
In April, the United States Department of Commerce slapped 24.48% import duties on Changhong-made TV sets. This has taken a heavy toll on Changhong's exports.
Customs figures for May show that no TV sets were exported from Mianyang, Sichuan province, where Changhong is based. In April, the figure totaled 72,379.
Liu Haizhong, a spokesman for Changhong, told Caijing in a recent interview that the company's exports totaled more than US$ 200 million for the first half of 2004. During all of last year exports totaled US$ 600 million. Exports are usually stronger in the second half of the year, he said.
Liu, speaking earlier this year, said that Changhong sold a total of 12 million color TV's in 2003, one third of which were exported, including one million to the US.
Analysts say Changhong's revenue from color TV sales this year could drop as much as 10 percent, from a record of 11.1 billion yuan (US$ 1.34 billion) in 2003.
Crumbling to the ground was not only Changhong's US-bound exports, but also its once highly profitable partnership with its major US buyer.
Changhong entered into cooperation with the Ontario, California-based Apex in 2001, when, after an eight-month sabbatical, Ni returned to lead Changhong. At the time, price wars caused by an oversupply of TV's in the domestic market had driven profit margins to very low levels.
Apex, started by two Chinese-Americans in 1997, has specialized in importing cheap Chinese-made household electronic products into the US market. In the deal with Changhong, Apex bought large quantities of color TV's, relabeled them under its own name, and sold them at Wal-Mart.
The cooperation gave Changhong's then sagging sales a shot in the arm: in 2002, the company reported a total of 12.58 billion yuan (US$ 1.52 billion) in sales from its core business, a hike of 32.27% from the previous year. Export value grew six-fold year-on-year to reach 5.54 billion yuan (US$ 669 million).
As Changhong's revenue shot through the roof, however, huge outstanding payments left increasingly large gaps in its books. Annual financial reports show that in 2002, Apex owed 3.83 billion yuan (US$ 463 million) to Changhong. The figure had grown to 4.44 billion yuan (US$ 536 million) a year later.
The overdue payments slowed Changhong's cash flow and forced it to take out large short-term bank loans, the total of which rose from 85 million yuan (US$ 10.27 million) in 2001 to 2.7 billion yuan (US$ 326.09 million) in 2003.
Both Changhong and Apex declined to comment on their business relationship.
A spokesman for Ji Longfen, Apex's president, said on July 13 that Ji has declined all requests for interviews because "he keeps a very low profile." But Ji gave four interviews to Caijing in March 2003 alone, offering detailed information about the ongoing cooperation between the two firms.
Changhong spokesman Liu Haizhong cited the transition between the departing leadership and the incoming one and refused to offer comments. "Once the handover is completed, the new leadership will make arrangements [regarding the Apex deal)," he said. "It is unavoidable."
Sources say that Ni's firm-handed governing of the Apex account is partly to blame for the straits the company now finds itself in. Changhong's fast-growing overseas marketing department reported directly to Ni in the last few years, with no oversight or supervision from other organs of the group, says one source who wished to remain anonymous.
The impacts from what appears to be a failing deal with Apex, however, may not hurt Changhong as seriously as expected, says another source. Apex now owes Changhong a total of 2 billion yuan (US$ 241.55 million), or less than half of the amount of last year, says the source.
caijing.com.cn
This article was from China.
BH |
