Jadelink Market Essay
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Comentario en Internet de Harvard Business Review : “The experienced entrepreneurial chief executive officer (CEO) of Jadelink International Limited strives to create a modern jewelry brand representing a new perception in jade. The CEO has achieved early success of growing sales rapidly and bringing Jadelink products to Shanghai, the trendiest city in China. But the company wants to expand business to the Asian and international luxury goods markets. This requires intensive capital to continue to build up the company scale. This case examines the consideration of venturing a new business in the China market, managing business growth and acquiring venture capital.
It also allows discussion of factors leading to a successful entrepreneurship and dealing with business highly associated with industry tradition, people connection and product design and innovation”.
Q1: How would you characterize Chung as an entrepreneur? What lessons did he learn in the past few years as an entrepreneur? See the comments on above Kent Chung us the CEO and founder of Jadelink International Limited, company based in HK.
He is an accountant that worked for Deloitte Touche Tohmatsu (DTT) and then he started his own accounting Firm. He likes business and he likes to be an entrepreneur, he: * Sold cosmetics in HK. He learned that he invested a lot in expensive furniture there. * Sold Silk stocks (medias de seda) in Lo Wu
* Published Puntonghua (mandarin) Books. * Opened a Cigar shop that currently still operates in a four stars hotel (with profits). * He lost HK $12 millions in an investment of an online education project. In this case, he learned that people want pleasure and looking good, not inspiration or education. The key point is to know the desires and trends of consumers.
He summarized the lessons as follows:
* Business startup: Team spirit, company infrastructure, work coordination, trust. * Entrepreneur: Hard work, multitasking, flexibility, pressure-resistance, independence * Drivers of a company: Clear business direction and product familiarization. Mastering financial foundation is important.
First Chung bought a tea garden in 2004. Rich Chinese started to buy expensive/premium tea. Problems faced: Farmers knew what leaves are better and they keep them for themselves. Picking tea in an intensive labor, the farmer did well but the motivation dropped quickly once they make enough money to live leisurely. Manage farmers was hard.
Jade was more suited for Mr. Chang. His wife studied gemology and his younger brother’s father in law (el suegro de su hermano menor) was a veteran of the industry that known everything of sourcing and stones cutting. Jewerly market in China was booming.
He founded the company Jadelink International Limited in 2005, with the investment of a Silent Investor, and his wife.
Q2: What was the value proposition of Jadelink?
Jadelink controlled all the operation flow Material Purchasing and processing. * Product design, manufacturing and retailing took place in different subsidiaries.
* Team in HK: Design * Plant in Foshan (Guandong province): Cutting, slicing and polishing. * Several Contractors and Artisans in HK were outsourced (for final phases of the process) in order to avoid dependence of one of them.
a) Jadelink conducted market research, ask for customers’ feedback, and design according customers taste. In addition, they have an exclusive technique in stone-cutting enabled Jadelink to use almost 2/3 of a jadeite rough to make the maximum number of jewelry items.
b) Chung use to ask to candidates to probe their abilities spontaneously (designers mainly). Chung selected excellent professionals to build up the company.
How did Chung succeed in starting up Jadelink?
Once the company “Jadelink” was founded, Chung only took 25 months to set up:
* A heading office and retail store in HK
* A manufacturing plant in Foshan
* 8 retail shops at vantage points in Shanghai
* A company website and e-business in Japan
* In 2008 there are more than 80 employees.
Asi o mas exitoso??
3. What did Chung do to establish the company?
He has a very clear idea:
Jade is precious for Chinese, but if one wants to buy jade jewelry, would the person think of any particular company??
The initial investment was approximately HK $ 30 million.
* Chung $ HK 10million (cash)
* Silent Investor $HK10 (cash)
* Wong (wife) invested her stock of jade merchandise
4. Outline the current problems facing Jadelink. How did these problems arise? In 2006, Jadelink had sales of a couple of million HK dollars, which increased several times in 2007. In the first two months of 2008, when the sales volume was three times the sales for the same period in 2007, the business broke even. Chung was confident that no potential competitors could emerge fast enough to threaten Jadelink’s business in a few years. Therefore, he wished not only to open 30 to 50 shops in all major cities of China but also to promote the brand internationally, expanding to Taiwan, Singapore and Japan, making Jadelink a leading player in the industry. Chung believed that Jadelink was good enough to survive well in the market with this existing scale.
However, if he wanted to push the growth of Jadelink forward, he would have to expand the company within five years, which would require an estimated RMB100 million (about 16 million dollars) investment. As Jade industry is capital-intensive, there is too much capital being backlogged in the raw jadeite. The production period usually lasts long, which puts a lot of pressure on capital turnover. Besides, the payback period for a Jadelink shop is two years and it requires about six months for a counter in a department store.
As a result, though the company has started to make profit, the existing amount of cash flow is not satisfying enough. More stores and years are required to obtain enough funding to implement Chung’s plan for expansion. If Chung chose to develop at a conservative pace, using the company’s retained earnings, he might miss the opportunity to grow with the expanding China market. Also, potential competitors could also emerge. Therefore, Chung decided to obtain external funding from venture capitalists and other forms of private equity. Internal management problems as the management system was not clear enough. Practices were not recorded, and there is a lack of clear guidelines and training manuals.
Q5: What were the issues that caused Chung to obtain external funding?
In the eyes of venture capitalists, his company was small and few investors understood the jade industry or recognized the market potential. Chung was concerned they were treaty Jadelink as on their pretty production divisions and simply put it under the existing structure without recognizing his vision and Jadelink’s strengths.
Q2: Give recommendations for promoting the expansion of Jadelink. 1. Optimize the internal management system. Jadelink should record practices and set up clear guidelines and training manuals. As Jadelink expands, the company will come across more problems in daily activities. Some of the problems may be similar so there is no need to discuss how to handle it every time. With clear guidelines and training manuals, employees will know how to deal with the affairs under certain circumstances. 2. Attract professional staff. Since the policies、customers’ preference、culture and resources are different in varies countries, Jadelink should hire experts who have a good knowledge of each country in order to adjust to and broaden the market.
Designers are supposed to know one country’s custom and culture well so that they can manufacture products which cater for the need of customers in different countries. 3. When searching for external funding, Chung had better choose the investors who would respect his effort and vision in addition to focusing on the monetary value of Jadelink. Thus the investors would feel an attachment to the company and be able to relate to their own affections for the company, and they will have the same target as Chung, which is to transform Jadelink into a world-famous brand. Otherwise investors may hold different opinions against the CEO, which would make the operation and management difficult.