SilkTulip – challenging investment into a chemical factory

Initial Situation

“SilkTulip” was a management buyout of the subsidiary of a German conglomerate. The company produced chemicals for the textile industry in Europe. There were important markets in the industry, especially in China. They promised significant growth for the future, while the markets in Europe were shrinking and connected to the typical risks of saturation.

The proportion for freight charges for the transport of goods to Asian customers was extremely high. The raw materials were still largely sourced from the former parent company.

The Process

The basic decision to invest was made. However there was neither a strategy nor a reliable budget when Sanet was brought into the project. Sanet was to comprehensively support the management in strategy development and implementation. Together, the strategic approach was determined.

The first step was to find the right country for the investment. Important criteria for the selection were defined. These included the protection of chemical formulas, the transportation costs, the proximity of a deep-sea port, the availability and pricing of raw materials and resources, the labour market and its cost as well as some enterprise-specific requirements. The scope and reliability of governmental investment aid, such as the expected tax benefits and exemption from customs duties, and the cost for …. also played an important role.

In Phase 2, it was necessary to carry out a site assessment and to reserve the land for the factory until the governmental investment support had been negotiated and secured. Parallel to this process, the first key personnel, who were to be involved in the construction phase, were selected.

In Phase 3, the factory plans drawn up by the investor were to be converted into a tendering procedure to organise the tender, to prepare the localisation of sourcing and to outline in plan form all the necessary measures to SoP.

The Particular Challenge

For a number of reasons, the project presented a particular challenge for a consulting company. These consisted of some untypical requirements for a strategic investment.

For example, the personnel resources of a company dissolved out of group management did not allow the appointment of an experienced, in-house project management, who would also have been able to share responsibility with the consulting company. The responsibility for the preparation of the final decision and the initial training of a small project team about the requirements of the investment country lay exclusively with Sanet.

At the instigation of the company’s financial investors, several reviews of the company’s overall strategy and its investment policy took place. This caused considerable time interruptions to the overall process. During this period, the consulting company had to reconcile the stakeholders such as contractors, suppliers of materials and equipment, industrial parks and authorities to the delays and ensure their loyalty.

Finally, during an interruption in Europe, a tendering procedure was determined, which proved to be unfeasible once the project continued. Sanet then had to develop and implement a restructuring of the tendering procedure in the shortest of time periods.

All these challenges were able to be overcome thanks to the unconditional loyalty and absolute trust between the customer’s management and the Sanet team.

The Process and the Outcome

A two-stage qualification process was developed for the choice of investment land. The number of possible investment countries was reduced to two, namely Vietnam and Thailand. China, Singapore, Cambodia and Indonesia were discarded in the first phase.

The Sanet offices were then commissioned to carry out a comparative feasibility analysis in both countries. The investor then purposely created a competitive situation in order to find out, in an unbiased way, the strengths as well as the risks associated with making a decision for either country. Based on the customer’s evaluation system, the decision was made for Thailand.

In the next stage, plot offers from three industrial parks were evaluated. Layout, location with regards to governmental funding zone, labour market and logistical environment were the deciding factors.

At the same time, negotiations and grant applications were taking place with government agencies. The result was eight years tax exemption, five years tax abatement at 50% and long-term exemption from import duties.

Simultaneously, localisation of sourcing began. Suppliers from Thailand, Indonesia, China and other countries were qualified and first quotes obtained for over 700 chemicals. Even in this phase, high six-figure savings in material usage became apparent.

For the construction work, the twelve tender packages, which had been planned in Europe, were reduced to well under half and responsibility for the coordination of most services was concentrated to one general contractor. Alone the tendering procedure suggested by SANET reduced the investment costs for construction by over 30% due to improved implementation.

At this point, Sanet’s task came to an end. One of the customer’s project managers in Europe then compiled for Sanet a detailed list of more than 100 measures involving time and costs planning, which commissioned Sanet with duties until SoP. In 2013, a perfect production facility was inaugurated and taken into operation.