Zhejiang firm seeks growth

Updated: 2013-05-06 07:13

By Zheng Yangpeng (China Daily)

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Zhejiang firm seeks growth
A worker at an ice-cream production line of Youcan Foods Group Ltd in Hangzhou, in East China's Zhejiang province. Its namesake ice-cream cones were part of the childhood memories of many Hangzhou residents. In 2005, the private company took a strategic business shift by branching into food-related logistics and commerce because it believes only a budding business would have a bright future in China. [Photo/Provided to China Daily]

Adding value creatively when others struggle to do business

Chinese entrepreneurs like to create mini-conglomerates. Dai Tianrong, a deputy to the National People's Congress and an industrialist from Zhejiang province, told China Daily how he has made his mini-conglomerate thrive at a time when many others are struggling to do business.

Dai has engineered his own "transformation of growth model", as the Chinese business media describe it, changing from a largely traditional manufacturing business into one increasingly driven by services.

In the process, Dai successfully leveraged all the resources available to him, both visible and invisible, toward a longer and more integrated value chain.

If the thousands of privately owned companies in Zhejiang followed Dai's example, the coastal province, which currently is still heavily dependent on export-oriented manufacturing, could be "transformed" to become more competitive in value-added services.

Dai founded his ice cream making company Youcan Foods Group Ltd in 1992 in Hangzhou, the provincial capital city. In a market yet to be fully open to major international brands, it quickly grew into a significant player locally for chilled and low-temperature foods.

Its namesake ice-cream cones form part of the childhood memories of many Hangzhou residents.

But Dai was not content to be just one of many. He closely observed all the goings-on in his market. "For private companies like ours, we've learned from the day when we were born that, to keep swimming in an ocean competition, you can only rely on two factors - you have to get close to the market and get close to your customers as much as possible."

In 2005, Dai decided that food-related logistics and commerce, then only a budding business in China, would have a bright future. He decided on a strategic shift for Youcan.

Before 2007, Youcan's logistics arm only served its own company. Believing in a bright future for logistics, Dai set up a joint venture with Uni-President Enterprises Corp, one of the largest food manufacturers in Asia, headquartered in Taiwan, to deliver a cold-chain logistics service to the external market. The joint venture was named Uni-Champion Logistics.

"Cold-chain logistics is the most sophisticated and expensive of all types of the logistics business. In the West, 80 percent of food is delivered by cold-chain logistics. In China the percentage is just 20 percent," Dai said.

Because of the relatively high threshold for entry, there are still few competitors in the industry.

For example, Dai said, an ordinary truck costs 80,000 yuan ($12,841) while a refrigerated truck normally costs 160,000 yuan. And Youcan's refrigerated trucks, with thicker sidewalls and two compartments set at different temperatures, cost as much as 220,000 yuan.

Higher costs also mean higher risks. So Dai wanted to do better than other companies' crude "warehousing-plus-transporting model" and lower the costs in an innovative way.

Youcan developed its unique "check-free delivery model". Generally speaking, when a truck is sending goods from the warehouse to convenience stores, it stops at store A, unloads the requisite goods and cannot leave for store B until the staff from store A finish checking the goods with the truck driver. The process typically takes from 20 to 30 minutes and inevitably delays a truck's delivery round.

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