Maximizing Chinese Business Opportunities : Cheung Yan – China’s Nine Dragons Paper Queen

Cheung Yan (Zhang Yin 张茵) is an amazing demonstration of the Chinese market opportunities and potential success. China’s most wealthy person and one of the world’s most powerful female managers, Cheung Yan has moved from nothing to everything in record speed.

This quick analysis of Cheung Yan and her Nine Dragons empire  is based on a case-study I read for the "Doing Business in China" course at Hong Kong University of Science and Technology’s Management of Organizations titled "Cheung Yan: China’s Paper Queen" by Asia Case Research Center, University of Hong Kong.

Cheung Yan – China’s Paper Queen

Cheung Yan grew up in relative poverty with her military associated father suffering from persecution during the Chinese cultural revolution which has left her to take care of her family almost entirely by herself. Very early on in her life, she set out to start her own business and moved on very quickly – within only 5 years – to identify potential niches abroad at the US and realize them. She repeated that as 5 years later she moved back to China to form Nine Dragons and establish her paper empire.

There’s no doubt Cheung Yan is a visionary, who put her vision of high-quality mass-production environment-friendly paper as the engine of growth for her business. She has proven a bold entrepreneur that took calculated risks to make a decision to be a first mover in a potentially lucrative niche. Any way you look at it, she moved extremely fast to position herself where she would have a sustainable competitive advantage over her competitors – with her decision to go for recycling, targeting economy of scale mass production, shipping US to China while everyone was shipping the other way, and moving back in to China as an local flavor foreign company when the government was offering substantial promotions.

 

Impact of Management style on performance

Cheung Yan describes her management style as a combination of western and local, and I believe that summarizes her successful ability to ride both worlds to her company’s benefit. Adhering to western trend of promoting recycling and being environment conscious Nine Dragons is still very much Chinese in its manufacturing operations and management style. Being able to combine her China origin with the American base has helped the company get support from both markets and play the trade gap quite efficiently.

Cheung Yan, although now managing a company publicly traded in HK still runs the business like a private family business with a very intimate feel to it, sometimes bordering nepotism. Her family is still a big majority controlling power, employed in key positions and having a leading presence on the board. This allows her for a very tight control of how the company is run and the decisions been made, making a strong association between the company and brand to her and her family. This has led not only to the huge success of the company but also to her own wealth, social connections and fame. Looking back at some of the other Chinese companies, this kind of total-control management style seems to have the potential to yield very high returns in the Renqing-face-Guanxi based Chinese market (see Wahaha).

Whether or not her management style is the main contributing factor, Nine Dragons has been doing extremely well and growing fast to maintaining a leading role in the domestic and international paper industry. ND’s website shows sales growing from 300 million to 1.3 billion US$ in only than 3 years, as net income grows from 40 million to 300 million US$ and this is for a company that had its first paper machine operation only in July 1998.

Nine Dragon – challenges – looking at the future

Nine Dragons raised 25 million US$ for the following future plans : expansions of production capacity, widening product range, exploring new sources for materials, expansion in China and moving into production in ASEAN countries.

These plans were probably aimed at dealing with the challenge of maintaining growth and industry domination with further expansion of manufacturing capacity in China, slowly moving to lower cost ASEAN countries like Vietnam as Chinese labor and production costs rise.

The current financial crisis might prove a real challenge, as the business mainly relies on consumer products being sold and people doing lots of recycling, and in a financial crisis both are on a down trend. Higher quality and more expensive products may find it more difficult to sustain, and the consumers usually become a lot more price conscious with less focus on environmental considerations. The company’s plans to move to lower cost countries and seek new markets to obtain resources seem like a positive steps to battle that concern, and with the financial power of the company it might be able to out-compete the struggling competition. The Chinese government growing emphasis on the environment, despite the financial crisis, could prove to Nine Dragons’ advantage. It might be wise to postpone further plant constructions at the time till the situation stabilizes, yet as the situation could also pose an opportunity existing financial resources can be used to buy out the failing competition and seek lucrative investments abroad.

Comments welcome.