Advantages of Callebaut in Asia

8/6/2019 Advantages of Callebaut in Asia

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FrancineCarron-MGM1-AEBE

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MGM1-AEBE

FrancineCarron

Prof.HaiyanZhang

Assignment3

_______________________________________________________________________________

OUTLINE

I.LocationAdvantage

A.China

1)ProductionPlant

2)InnovationCenters(R&D)3)Sales&Administration

4)ChocolateAcademy

B.India

1)Sales&Administration

2)ChocolateAcademy

C.Malaysia

1)ProductionPlant2)InnovationCenters(R&D)


D.Singapore

1)ProductionPlant

2)InnovationCenters(R&D)


II.LocationSelectionCallebaut

III.DoingBusiness2011




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I.LocationAdvantages:

Callebautisacompanywithvalue-chainactivitiesworldwide.Asthis

assignment relates to theAsia divisions, Iwill focuson Callebaut’s

activitiesinthiscontinent.

A.CHINA:

Callebaut has a production plant, innovation center, sales, &

administrationactivitiesinChina.

1)ProductionPlant:

One obvious benefit of producing in China would be the cheaperlabor cost. The labor rates remain up to one-thirtieth of those in

Germany for example. China has a poor rural labor force of 900

million people that are willing to join the industrial workforce. 1

However, the benefitsofmanufacturing inChinago beyond ‘cheap

labor’. Experts believe that if companies align their China

manufacturing strategy with their overall Business Strategyand

Goals, the company can benefit from local technical, financial, and

marketingknowledgeofChina.2

China is said to have advantages when it comes to manufacturing

overotherAsiancountries.Onereasonforthisistheexperienceand

educationthecountryhasindeliveringproductsthatadheretothe

rigorousstandardsthatarerequiredbybothwesternlegislationand

consumers.3

BelowIlistafewoftheadvantagesofproducinginChina:

• Chinaisalwaysbusyincreasingmanufacturingprowess

• ReductioninDirectLabor,Material,andOverheadCost

• ReductioninIndirectEngineering,Marketing,FinancialLabor&

TransactionalCost

• Simplifysupplychainlogistics&servicetoyourAsiacustomers

1China’sCostAdvantage.ManufacturingEngineering,August2005.

http://findarticles.com/p/articles/mi_qa3618/is_200508/ai_n14880665/2ManufacturinginChina,TheBestChoice?http://www.usa-

chinanet.com/China-Manufacturing.aspx3TheAdvantagesofDirectManufacturingOutsourcinginChinabyJohnRoker




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• CenterforMaterialSourcingthroughoutAsiaforDomesticand

ChinaProduction

• Fast-turnaroundofLowCostTooling&Fixtures• CurrencyTransactionFlexibilitybetweenMulti-NationalCountries

• KnowledgeofEmergingLocalChineseandAsianMarketsManufacturinginChinaConsiderations 4

Items that are interesting to know in China is that labor costs and

LaboravailabilityaretypicallymorefavorableoutsideChina’smajor

centers,suchasShanghai,GuangzhouandBeijing.5Anotherbenefit

ofproducinginChinaisthattherearemanyotherforeigncompanies

in the area that manufacture. Therefore, the mix of industries

available in the area can affect the supply chain, logistics

management, and the availability of local talent familiar with the

foreigncompany’stypeofbusiness. 6

2)InnovationCenters(R&D):

Therearenowapproximately1,000R&DcentersinChina(ofwhich

50percentareattachedtocompaniesinthetechnologysector),and

thisnumber continuestorisethanks to the ongoing investmentby

multinationalcorporations(MNCs),theincreasingneedtobecloseto

thelocalcustomerbaseandlowlaborcosts. 7TheVicePresidentof

Global Engineering/ Greater China Engineering Lead, a leading IT

company stated the following: “For multinational technology

companies,iftheyhaven’tsetuptheirR&DfacilitiesinChinayet,the

chances are that they will…but I have seen as many failures as

successessofar.”8Chinadoesn’thavemanyR&Dcentersyetbutthe

numberkeepsgoing.Thegovernmentisalsoimplementingplansto

increase the number of foreign R&D centers inChina. Imyself am

convincedof thefact that having innovationcenters inChina could

4ThebenefitsareretrievedfromManufacturinginChina,TheBestChoice?http://www.usa-chinanet.com/China-Manufacturing.aspx5TheAdvantagesofDirectManufacturingOutsourcinginChinabyJohnRoker6Id.7BuildingSuccessfulResearchandDevelopmentCentersinChina:Leadership

andOrganizationalChallenges.http://www.russellreynolds.com/content/building-successful-research-and-

development-centers-china8Id.




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lead to great competitive advantage for China. If they can excel at

production,Iamsurethattheycanexcelatinnovationaswell.

3)Sales&Administration:

The advantages of having sales andmarketing in China is that a

company,inthiscaseCallebautcanrespondmuchfastertothelocal

market.One could say that the benefitofhaving a salesactivity in

China is that increases local responsiveness. Nowadays it is

important that the producer isclose to its customers,because it is

importanttounderstandtherapidlychangingconsumerpreferences

andtastes.HavingasalesactivityinIndiaisinlinewithCallebaut’s

strategyofestablishingitspresenceinpromisingemergingmarkets.9

According to the international market intelligence providerEuromonitor, the relatively small Indian chocolate market (with

volumesofabout55,000metrictonsofchocolateandcompoundper

year), is expected to grow on average per year by around 17.8%

between2008and2012.10

The director of Paul Halliwell, Director, Gourmet Business, Barry

Callebaut,Asiaaddedontheabovebenefitswiththefollowingquote:

“The opening of this Chocolate Academy is a tribute to the

importance Barry Callebaut places on the Indian market and thetremendous talent we have witnessed in the country’s culinary

industrythatcanbefurthernurtured.”11

BarryCallebauthas the intention to growsalesout ofChinabysix

timesin2012,havingafactoryandasalesdivisioninonecountry

willenablethemtoreachthistarget.

4)ChocolateAcademy:

Achocolateacademyisatrainingcenter.Heretheyofferworkshops,

seminars, and demonstrations, designed to inspire artisans and

culinaryprofessionalswithanactiveinterestinGourmetchocolate.12

9Id.10Id.11Id.12BarryCallebaut,Corporate:http://www.barry-

callebaut.com/56?release=4481




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Thereisnoneedformetogoindetailonwhatthebenefitsareof

havingsuchatrainingcenterincludedinthevaluechainactivitiesin

China; I can describe the need with one quote of Patrick De

Maeseneire, CEO of Barry Callebaut: “China will be our key target

market in Asia for the next coming years. Today’s consumption percapitamaybelowandmaypickuponlyslowlyinruralareas.Butthe

development speed of urban areas along the belt from Beijing to

Shanghai and to Hong Kong is breathtaking. There alone, we are

talkingofabout500millionpotential chocolateconsumerswhostart

traveling,whoareopentonoveltiesincludingnewfoodsandwhohave

enough disposable income to buy chocolate, which is seen as a

premium product. Through our industrial and artisanal customers,

whomwewillserveoutofSuzhou,wecanofferChineseconsumersand

touristsvisitingChinanewandexquisitetasteexperiences.” 13

B.INDIA:

Callebaut has the following value- chain activities in India: A sales

organizationandchocolateacademy(trainingfacility)inIndia.


OneofthebenefitsofhavingasalesactivityinIndiaisthatIndiahasa growingmiddle class with a reasonable disposable income. This

benefitactuallycountsforChinaaswell.Anotheradvantageofhaving

salesinIndiaisthatitcanincreaseitslocalresponsivenessaswellas

inChina.DuetothefactthatIndiaisaserviceeconomy,itcouldserve

asahubformoreAsiansales.

2)ChocolateAcademy:

The reason for installing such training centers is too have a quickentryintotheIndianmarketinlinewithcompanystrategytocapture

growthopportunitiesinfastemergingmarkets. 14

C.MALAYSIA:

13Id.14Id.




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1)ProductionPlant:

Malaysiahas always been very attractive for foreign companies to

invest in production plants. However over the past years, there is

been an increase in the rate ofmanufactories opening inMalaysia.The reason for rapid production expansion are that Malaysia’s

balance of payments goes from strength to strength as does its

financialsystem.15Malaysiain2010hadaGDPgrowthof5%. 16Atthe

sametime,Malaysia isshifting fromlow-endmanufacturingtoward

activitiesthatbetterleverageitsstrengthsandnaturaladvantages.17

With strong competencies in production, assembly and substantial

talentsinfabricationandproducttesting,thecountryhasremaineda

relevant player in the global manufacturing industry.18 Although

there is increased competition in the region, which has promptedMalaysia to expand its manufacturing philosophy even more.

Malaysiaisagoodcandidateforanyforeigncompanytoinvestina

manufacturing facility because it has a stable socioeconomic

environmentandislocatedintheheartofAsia.Ithasagreatphysical

infrastructureandawell-trainedworkforce.

2)InnovationCenter:

Malaysia is an ideal base for a production center but also for anoperation headquarter, distribution or center for shared services.

The success in this key sector is based on a close-knit network of

relationshipsbetweenindustry,science, and research.Malaysiahas

theworld’slargestsingleresearchestablishmentdedicatedtorubber

–theMalaysianRubberBoard(MRB).19Thefactthattheyhavethe

largest R&D center immediately attracts more companies to open

innovation Centers in Malaysia. Also, the Malaysian government’s

15Malaysia-MovingForwardUptheGlobalValueChain:Soundeconomic

policiesandafocusonhigh-valueactivitiesputsMalaysiainanadvantageouspositionforfuturegrowth.

http://www.areadevelopment.com/InternationalLocationReports/dec08/Malay

sia-high-value-growth-028.shtml16Id.17Id.18Id.19FDIOpportunities’inMalaysia.TunAbdulRazakResearchCentre2005

http://www.tarrc.co.uk/pages/fdi.htm




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commitmenttoR&Disreflectedintheincreasingfinancialresources

devotedtoR&Dineachdevelopmentplanaswellastheintroduction

ofvariousincentivesandsupportschemes.

3)Sales&Administration(Marketing):

ThereasonsandbenefitsforhavingSalesactivitiesinMalaysiaare

thesameasinChinaandIndia.Malaysiaaspreviouslymentionedhas

the perfect location for being a center of shared services. Hence,

there is no need for repetition and I refer to the above mention

China/Indiabenefits.

D.SINGAPORE:

1)ProductionPlant:

As Malaysia, Singapore has natural strategic advances from their

locations as gateways to Asia. They have used their location to

becomemajor financial centers, and theyprovide tax incentives to

encourage the transfer and development of technological and

intellectual property. 20 Both governments are committed to high

levelsofGDPgrowth.21

There are cases in Malaysia, where the government has provided

100%financing,andinvestmenttomultinationalsthatcouldenhance

technology transfer. Multinationals are transferring state-of-the-art

development andmanufacturing to take advantage of the financial

incentivesofferedbyMalaysia. 22

When looking at the facts it seems that investing production in

Malaysiacouldlowertaxcoststhroughouttheentirevaluechain.The

great tax benefits probably explainwhy Singapore was one of thefirstplacesthatCallebautopeneditsmanufacturingfacilities.

2)InnovationCenter(R&D):

20Singapore&Malaysia’sGrowingCompetitiveCapabilities,http://www.wtec.org/loyola/em/04_08.htm21Id.22Id.




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According to PriceWaterhouseCoopers (PWC) Singapore, offers tax

advantagesfor foreign companies investinginR&D. Thereisa100

percenttaxdeductionallowedforR&Dexpensesincurredfornew

businessonR&Dprojects,providedtheresultantbenefitsoftheR&DisownedinSingapore.23Currently,a150percenttaxdeductionis

allowedonlyinrespectofconsumablesandstaffcostsincurredfor

qualifyingR&Dactivities.Thisshouldbeexpandedtoincludeother

incidental expenses, (such as utilities, rental, professional fees,

license fees, etc) which are incurred for undertaking R&D in

Singapore.24 Whenever countries provide great tax initiatives for

foreigncorporation,itisalwaysagoodstrategyasaforeigncompany

toenterthosemarkets,asthiswillreducecosts.


ThereasonsandbenefitsforhavingSalesactivitiesinSingaporeare

thesameasinChina,India,andMalaysia.Aspreviouslymentioned,

it has the perfect location for being a center of shared services.

Hence, there is no need for repetition and I refer to the above

mentionChina/India/Malaysiabenefits.

II.LocationSelectionAnalysisCallebaut:

Imostly explained in the above section alreadywhy it is good for

Callebaut to have its presence in China, India, Malaysia, and

Singapore. But here I will further extend my reasoning. Callebaut

entered Asia through the Singapore market and so spread to

Malaysia,China,andIndia.Indiawasthelastcountrytheyentered.

Callebautisspeculatingontheriseofthegrowingmiddleclassesin

IndiaandChina tosource itschocolateproducts. Therefore,having

selected the previous locations Callebaut can respond quickly tocustomer needs. Ibelieve thatCallebaut’sAsia Strategywas a very

wellthoughtthroughplan,astheyhaven’tmadeanymistakesinAsia

sofar.Sometimesonehearsfromcompaniesthatfailedenteringthe

AsianmarketbutCallebautisnotoneofthem.Thefactthattheyhave

23EncouragingR&Dbyfine-tuningtaxrules.PriceWaterhouseCoopers:

http://www.pwc.com/sg/en/budget-2011/budget-2011-01.jhtml24Id.




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a few production plants and training center inAsiawill help them

reach their 2012 targets. For the near future, I recommend that

CallebautalsoopensaproductioninplanttobettercatertheIndian

customer.

III.DoingBusiness2011:

Whenanalyzingthedocumentnamed‘DoingBusiness2011’,onecan

readfromthestatisticsthatitisrelativelyeasytoimportandexport

fromChinaataverylowpricecomparedtoothercountries.China

has installed in their ports a TC-SCAN system, which reduces

clearancedelays.TheDB2011textalsomentionsthatthetaxsystem

andmakingpaymentsinChinaisrelativelyeasy.Chinahasaonetax

per tax base system. On Chinese taxation it mentions that “Chinaunifiedaccountingmethodsandexpanded theuseofelectronictax

filingandpaymentsystemsin2007,savingfirms368hoursand26

payments a year. In 2008 and 2009 China unified criteria for

corporate income tax deduction and shifted from a production-

orientedvalueaddedsystemtoaconsumption-orientedone,saving

firmsanother106hoursayear.”25ChinaandMalaysiaalsolowered

theprofittaxratesofthepast6years.

ThisisincontrastwithIndiathatstillhasacomplextaxsystemthatvariesfromregiontoregion.Maybetheformersentenceprovidesa

possible explanationonwhy Callebaut hasn’t opened a production

facilityinIndia.OneoftheimplementationIndiahasdonetomake

the foreign companies lives easier is the roll out of an online VAT

registration system,which replaces theold physical stamp system.

TheDB2011highlightstheonlineimprovementsofIndia,Singapore,

andMalaysia.Singaporehasastrongandefficiente-governmentfor

example.

It isalsovery cheap to import and export fromMalaysia.Malaysia

beingnumber one for exportingand Singapore is the cheapest for

import.Malaysiaalsoimprovedin2011inregisteringpropertythis

isveryinterestingforMNC’sbuyingproperties.Anotheradvantageof

Malaysia is Malaysia now offer strict protections for minority

investors: regulated approval of related-party transactions, a high

25IFC-DoingBusiness2011




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level of disclosure, clear duties for directors and easy access to

corporateinformation.26

OtheradvantagesofSingaporearethatithasincreaseditsminority

investorprotectionlaws.Italsoimplementedtaxcutstocopewiththeglobalrecession.Singaporeretainsthetoprankingontheeaseof

doingbusinessthisyear,followedbyHongKongSAR(China),New

Zealand, the United Kingdom, the United States,Denmark, Canada,

Nor-way,IrelandandAustralia.27

WhenreviewingthereportDoingBusiness2011,itbecomesobvious

that China, India, Malaysia and Singapore are strategically well

chosencountriestolocatevaluechainactivitiesinasaresultoftheir

strategic locations in Asia, lower production costs, trained labor,lucrativetaxlawsanddesireforcontinuousoveralldevelopmentin

all the areas of the value chain. Once again, I must say Callebaut

pickedoutAsia’s topperforming countriesand itmustcontinue to

expandfurtherinAsiaandotheremergingmarkets.

26Id.27Id.

Documents

Advantages of Callebaut in Asia