Unicon Concrete Products (h.K) Ltd

Executive Summary

Big changes are taking place in Hong Kong. With the sovereignty changing hands from the U.K. to the People's Republic of China, the market in the Hong Kong is set to change.

Hong Kong Housing Authority (HKHA) has put out an aggressive plan to develop new residential blocks. In 1998 they plan to produce 179 blocks alone. Of these 179 blocks 50% are expected to use prefabricated facades and slabs. Although the engineering of the slabs and facades have not changed over the last several projects, essentially becoming a standard, Unicon and other producers of precast material must continue to get approval from HKHA. The current supply in Hong Kong for precast facades and slabs is only 20 blocks per month (a deficiency of approximately 70 blocks), Unicon is only able to supply 7 blocks of the 20.

There are 70 blocks that are unmet. Eliminating some product lines and/or expanding the plant by 67% will not be able to take advantage of the potential market. Prior to HKHA opening the market to competition outside of PRC, we must increase our production plant to produce the maximum possible. Opening a new plant in the RPC will allow Unicon to purchase land and skilled labour at a cheaper rate.

Table of Contents

Executive Summary 1

Issue Identification 3

Environmental and Root Cause Analysis: 4

Alternatives and/or Options 5

Recommendation and Implementation 5

Monitor and control 6

Issue Identification

Immediate Issues

Capacity

Current capacity can create between 64-101 slabs and 25 facades per day. On average Unicon has the capability of producing 7 blocks per year. HKHA has put together a four year plan. For the next year 179 blocks would be created of which 50% require precast material.

Current production in Hong Kong for precast is only 20 blocks per year which Unicon produces 35% of. This produces a deficit of 70 blocks per year. Due to this demand, new competitors will feel that it is in their favour to get in to the market.

Product availability

Unicon currently produces Partitioning Walls, facades, slabs and stairs. Company sales for fiscal 1997 can be seen in Exhibit A. To utilize the plant for the maximum sales may require cutting some of the products. Although all products have an average margin of 30%, facades and slabs have the most potential for growth. Eliminating the remaining two items maybe short sighted as it is more than 40% of Unicon's sales.

Personal

Salaries for skilled trades people at peak times can be HK$3,000. In the past, jobs have not been consistent and thus employing trades and terminating their employment which cost 10% of salary is fairly expensive.

Approval

For every project, facades and slabs require technical drawings to be submitted for approval. Approvals are required regardless if the slabs have been used in other project. These approvals take time (approximately 28 days) and money (about HK$150,000).

Environmental and Root Cause Analysis:

Hong Kong Housing Authority (HKHA) is a government agency responsible for affordable housing. Over the next 4 years they plan to produce over