Holland America Line Global Case Competition 1st Place
The China QuestionBarrett Stapelman, Timothy Kim, ErikMeister, Benjamin Hagen
Decision• Non-Equity based joint venture with NIES• Majority-owned cooperative partnership with Nahai to form a joint venture company
Market Entry• Nominal GDP o Total: $7.298 Trillion • 2nd in the world o Per Capita: $5,413• Foreign Direct Investment Stock o $116 Billion• Human Development Index o 0.663 o On the rise from 0.4 in 1980
Cultural Implications of Entry• Hofstede’s Scale o Low Sense of Individualism • People think about the group rather than their individual preferences o Low Degree of Uncertainty Avoidance • Chinese people are comfortable with ambiguity and are not uncomfortable with uncertainty. o Long Term Orientation • The Chinese are very long term oriented, they think of success in terms of the future as opposed to immediate gratification.
Option 1: NIES Soil Treatment• Chinese Gov. pledged $3 bil USD in the next 5 years for POP- contaminated soil remediation; Canada- $3.5 bil CAD in 10 years• 410,000 Chinese people die every year – socially beneficial• NIES partnership: o Low risk, extensive remedial experience/expertise o Identified/inventoried 300 sites in 3 provinces• Growth Potential: PS2’s facility in Wolseley, SK has processed 16,000 tons over the past 5 years, NIES has identified 300+ sites ranging from 300 to 2,000,000 tons
Option 2: Nahai Oily Sludge Treatment• Become majority-owners in cooperative partnership with Nahai• Patent expires in 2019, good to establish brand now• 3% oil to sludge – 180,000 tons in Zhoushan alone• Nahai has solid assets and a wide range of permits for easier access/setup• Solid trust between owner and Antle• Joint venture of potentially 20 years, must have fixed term, Cooperative vs. Equity• Ideal access to trade port• Use service contracts to our advantage
Risk Management• Chinese Bankruptcy Laws are favorable• PS2 assets far outweigh liabilities• NIES Joint Venture is very low risk due to governmental nature and lack of invested capital
Future Market - ChinesePharmaceutical Waste Management• China has invested $125 billion in the last three years to spread healthcare to over 95% of the population• China to triple healthcare spending to $1 trillion by 2020• China’s aging population will require an increasing amount of medication• We own the patent for pharmaceutical waste technology that depolymerizes plastic and reduces carbon dioxide emissions fivefold
Timeline• 2013- o Establish Non-Equity joint venture contract with NIES o Establish majority-owned cooperative joint venture with Nahai• 2017- o Begin operations with pharmaceutical waste management• 2018- o Begin paying full taxation on joint venture• 2019- o Patent for TPS Technology Expires• 2033- o Potential contract expires with Nahai
SWOT Analysis – Option 1 Option 1 SWOT Analysis Strengths WeaknessesGuaranteed money Needs a $3 million investmentA lot of money offered by the government Would strain the metrics of the PS2NIES is a government agency which really Would strain corporate resources and thereduces the risk of the project organizational structureNIES has extensive remedial experienceand expertiseNIES has identified and inventoried morethan 300 sites in 3 provincesThe project served as a free marketingcampaign for PS2s technology Opportunities ThreatsA lot of potential money RiskyInternationalizing their equity based Not much long term potentialbusinessGetting into the Chinese market
SWOT Analysis – Option 2 Option 2 SWOT Analysis Strengths WeaknessesNahai is the leader in the management of Needs a $3 million investmenthazardous waste and oil sludge in the Would not be initially profitableZhoushan area Riskier than option 1Nahai has an excellent infrastructure Involves more travel costsincluding an oil storage facility, a oil wasterecovery facility, bilge water treatmentprocess and a solid waste destructionfacilityNahai possessed the only wastemanagement processing permit inZhoushanallows PS2 to easily penetrate the marketZhoushan has a harbor, easy to access forforeign contactNahai has solid assets and had obtained awide range of permitsNahai is in a region that generates 180,000tons of oily sludge waste per yearThe Nahai owner is similar to the owner ofPS2 which created a solid sense of trustbetween the two owners Opportunities ThreatsThe JV with Nahai would further define Risky business ventureand develop other technologies for A potential change in the company structureopportunities in China beyond Zhoushan for PS2Sustainable profitLong term business potential
Legal Matters• Legal Considerations o Regulations for the Implementation of the Law on Sino-foreign Equity Joint Ventures (2001) • Chapter 1,Article 3: Joint ventures established within Chinas territory must be able to promote the development of Chinas economy and the improvement of the science and technology for the benefit of socialist modernization. • Chapter 2, Article 7: When applying for establishing a joint venture, the foreign and Chinese parties shall jointly submit the following documents to the examination and approval authority: (1)an application for the establishment of a joint venture (2)the feasibility study report jointly prepared by the parties to the joint venture (3)joint venture agreement, contract and articles of association signed by representatives authorized by the parties to the venture (4)list of candidates for chairperson, vice-chairperson and directors nominated by the parties to the venture (5) other documents required by the examination and approval authority. • Chapter 5, Article 39: Where a joint venture needs to establish branch offices (including sales offices) outside China or in HongKong or Macao, it must report to the Ministry of Foreign Trade and Economic Cooperation for approval.
Legal Matters• Chapter 6, Article 43: The technology transfer agreements signed by a joint venture shall be submitted for approval to the examination and approval authority Technology transfer agreements shall comply with the following stipulations: (1)the fees for use of technology shall be fair and reasonable (2)unless otherwise agreed upon by both parties, the technology exporting party shall not put any restrictions on the quantity, price or region of sale of the products that are to be exported by the technology importing party (3)the term for a technology transfer agreement is generally no longer than ten years (4)after the expiry of a technology transfer agreement, the technology importing party shall have the right to use the technology continuously (5)conditions for mutual exchange of information on the improvement of technology by both parties of the technology transfer agreement shall be reciprocal (6)the technology importing party shall have the right to buy the equipment, parts and raw materials needed from sources they deem suitable (7)no unreasonably restrictive clauses prohibited by the Chinese law and regulations shall be included• Chapter 7, Article 44: Joint ventures shall implement the principle of efficiency in the use of land. Any joint venture requiring the use of a site shall file an application with local departments of the municipal (county) government in charge of land and obtain the right to use a site only after securing approval and signing a contract. The size, location, purpose and contract period and fee for the right to use a site (hereinafter referred to as site use fee), rights and obligations of the parties to a joint venture and fines for breach of contract should be stipulated in explicit terms in the contract.• Chapter 9, Article 61: Taxes on the following imports by a joint venture shall be reduced or exempted in accordance with the relevant provisions of the Chinese tax law. (1)machinery, equipment, parts and other materials ("other materials" here and hereinafter mean required materials for the joint ventures construction on the factory site and for the installation and reinforcement of machines,) which are part of the foreign partys share of investment according to the provisions of contract (2)machinery, equipment, parts and other materials imported with funds which are part of the joint ventures total investment (3)machinery, equipment, parts and other materials imported by the joint venture with additional capital under the approval of the examination and approval authority, and for which China cannot guarantee production and supply (4)raw materials, auxiliary materials, components, parts and packaging materials imported by the joint venture for production of export goods Taxes shall be paid or added according to regulations when the above-mentioned duty-free materials are approved for sale inside China or used for the production of items to be sold on the Chinese domestic market.• http://www.grandall-law.com/china-laws-regulations/laws-regulations-joint-ventures/regulations-for-the-implementation-of- the-law-on-sino-foreign-equity-joint-ventures-2001.html
Legal Matters• In 2010, PS2 filed for a PCT patent application which is an international patent treaty• Exempted taxation for first two profit-making years