Hang wah man

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Hang wah man

  1. 1. FMO Sustainability Development: KDS Business Case<br />November 2010<br />
  2. 2. Beijing KDS PCB Co Limited (“KDS”) <br /><ul><li>KDS manufactures high end printed circuit boards (“PCB”) for customers in China and overseas;
  3. 3. KDS obtained ISO9001 quality system and ISO14001 environment system accreditation, American UL security certification, green product certification issued by SONY Corporation and RoHS certification;
  4. 4. KDS employed approximate 325 people;
  5. 5. Owners were two private individuals, ex-civil servants, aeronautics engineers;
  6. 6. Clients are major international automotive and consumer products manufacturers;
  7. 7. Turnover 2007 – approximate USD 15 m
  8. 8. Profit 2007 – approximate USD 2 m</li></li></ul><li>Production Process <br /><ul><li>The production process involves chemical etching, precision drilling and brushing (cleaning) and laminating and screen printing;
  9. 9. The process is labour intensive and involves some chemical processes;
  10. 10. KDS operated 2 shifts of 8 hours each, most of the workers are “unskilled”;
  11. 11. KDS provided customary dormitories for workers, taxes and insurance premiums where not always paid over ;
  12. 12. The production process involves chemical etching, precision drilling and brushing (cleaning) and laminating and screen printing;
  13. 13. The process is labour intensive and involves some chemical processes;
  14. 14. KDS operated 2 shifts of 8 hours each, most of the workers are “unskilled”;.</li></li></ul><li>FMO Analyses (Pre FMO involvement)<br /><ul><li>FMO classified KDS as Category B for its environmental risks and Category B+ for social risks. The environmental and social risks of the project are considered to be low with minimal adverse impacts;
  15. 15. KDS has good labour relations, however generic PRC issues remain and the labour force ismainly contracted on a temporary basis. In addition, the working conditions were not ideal, with a poorly lit working environment;
  16. 16. KDS does have a Code of Conduct on labour issues, but has indicated it commitment to update current policies to higher internationally accepted standards;
  17. 17. The Company has an ISO 14001 certified environmental management system (EMS), and their production process is EU 2006 compliant. Albeit that the ISO 14001 certification is NOT based on IFC Performance Standards and the relevant EHS Sector Guidelines</li></li></ul><li>FMO Analyses (Pre FMO involvement)<br /><ul><li>Major international clients (roughly 60% of Total Revenue of KDS) were auditing KDS in total 28 times in 2008 – mostly social and environmental compliance;
  18. 18. Each client had its own requirements – similar but not equal;
  19. 19. KDS had a team of 5 permanent staff to assist clients with the audit and prepare reports;
  20. 20. Sony awarded KDS with GreenPartner status but audit requirements where onerous.</li></ul>KDS management reluctant to introduce yet more requirement (on E&S issues) for FMO on top of the requirements from its major clients<br />
  21. 21. Compliance versus Value Creation<br />KDS management reluctant to introduce yet more requirement (on E&S issues) for FMO on top of the requirements from its major clients<br /><ul><li>Major international clients (roughly 60% of Total Revenue of KDS) were auditing KDS in total 28 times in 2008 – mostly social and environmental compliance;
  22. 22. Each client had its own requirements – similar but not equal;
  23. 23. KDS had a team of 5 permanent staff to assist clients with the audit and prepare reports;
  24. 24. Sony awarded KDS with GreenPartner status but audit requirements remain onerous;
  25. 25. Clearly management drew a line in the sand – it refused to spend more time and money to satisfy some vogue requirements from westerners that only costs.</li></ul>KDS management and owners did not recognise value in operating under an environmental an social sustainable regime and refused to comply to FMO´s requests<br />
  26. 26. Collaboration among all Stakeholders<br /><ul><li>Organised meetings with most significant clients (representing roughly 60% of Total Revenue of KDS);
  27. 27. Aggregate, Map and Categorise E&S requirements;
  28. 28. Compile one set of mutual acceptable requirements on the basis of highest standards apply;
  29. 29. Agree on a system or systems of assuring that the requirements will be met;
  30. 30. Agree on check and controls to assure ongoing compliance.</li></li></ul><li>Implementation (Theory)<br />Environmental and Social Action Plan<br /><ul><li>Require KDS to obtain SA 8000 certification within 24 months so that no labour issues remain;
  31. 31. Re-design and implement EMS on the basis of IFC Performance Standards and the relevant EHS Sector Guidelinesand re-certify EMS on ISO 14001 . </li></ul>Pricing agreements <br /><ul><li> there was no need.</li></li></ul><li>Implementation (Practice)<br />Luck<br /><ul><li>December 2008 / January 2009 – at CNY 80% of workers send home as a result of a sudden downturn in the automotive industry. When Chinese Government introduced the stimulus packages KDS could not find the “unskilled” skilled labour back. NO SYSTEM Very convincing event for KDS management to adopt SA 8000;
  32. 32. Beijing Olympics 2008 - Chinese Government shut down 80% of all industry in greater Beijing area. To great surprise of KDS management the Beijing municipality did allow KDS to continue production due to the just obtained ISO 14001 certification;.</li></ul>Frustration<br /><ul><li>SA8000 accreditation is easy said than done – western concepts versus eastern believes;
  33. 33. Money talks is true for owners – not for middle management;</li></li></ul><li>Advantage for KDS<br /><ul><li>Two “standards” accepted by 60% of KDS clients – total client audits reduced to 8 in 2009;
  34. 34. Revenue increase 50%;
  35. 35. Headcount 260, a 12% increase vis-à-vis 2007 + casuals (approximate 15);
  36. 36. Production increase with almost the same work force – 10/2010 (also due to elimination Client Audit Entertainment Team);
  37. 37. 80% less overtime;
  38. 38. Labor cost increase 21%;
  39. 39. Market share growth in the Chinese automotive market;
  40. 40. More productive staff/Increase on efficiency;
  41. 41. Direct Cost to Company of SA 8000 approximately USD 93.000.</li></li></ul><li>Conclusion<br /><ul><li>Compliance versus Creating Value (for all stakeholders);
  42. 42. ESG not for the sake of ESG, but for the sake of $$$$
  43. 43. Triple Bottom-line reduced to BOTTOM LINE convinced Management;</li></li></ul><li>KDS – ISO 14001 Certificate<br />
  44. 44. KDS – ISO 14001 Certificate<br />
  45. 45. Contact Details<br />Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO)Netherlands Development Finance Company (FMO) Hang-Wah ManSenior Investment Officer Tel: + 31 (0)70 314 96 67Fax: + 31 (0)70 314 97 58E-mail: H.Man@fmo.nl Website: www.fmo.nl<br />

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