Global Business Plan.

5. Segmentation

1. We require the facilities to produce our air conditioners at a high quality and little waste. We seek to establish our name as the trademark for quality and dependability.
2. Our target market is the foreign organizations that are producing or offering services in China. This applies to hotels and the auto industry as well as the other major industries that operate in China. We do not seek to offer central air but air conditioners top cool rooms and offices.

6. We want the consumer to find that the small units offer more than sufficient cool air to cool their rooms or living quarters. We also want the Chinese and the foreign investors to believe that our product will not fail.
7. We are in the growth stage of the life cycle simply because we are offering the best quality that there is to offer in China. We have the technology to compete with other air conditioning companies along with the prices that are reasonable.
8. Marketing Mix

1. Product/Service

1. Floor based and wall mounted air conditioners
2. Our units will have rollaway wheels and come w/ remote controls. They can be placed on the floor or hung on the wall.
3. We offer four different models that are different by model numbers. Each unit has the name of the company on the front and will be packaged in cardboard boxes.
4. The air conditioners will be produced in a manufacturing plant and trucked to a warehouse destination.

2. Place

1. The channel of distribution is the air conditioners will be produced by the manufacturer and trucked to the wholesaler. AKLLR is in a partnership with a Chinese company. We both are the manufacturer and the wholesaler. As orders are placed, the units are trucked to retailers.
2. We will be selling our product to major hotels in Shanghai, Beijing, and Tianjin. The production facility is in Shanghai. The warehouse is also located in Shanghai.

1. Price

1. AKLLR is a profit-oriented organization.
2. The prices will range from $65.00 to $450.00 depending on the model.
3. The higher the BTU the more it will cost.
4. We off discounts if orders are made in bulk. This is a benefit for the hotels and the auto industry.

1. Promotion

1. We will use our Chinese counterparts to contact the major industries to make sales pitches and let them know the benefits of purchasing our product.
2. We will use billboard advertisements and television commercials. We will also use the local newspapers.
3. We will also offer a Web site that will provide company information and product information.

9. Budget

1. General assumptions
2. A break-even calculation
3. A three-year profit and loss projection
4. A12 month cash-flow projection

10. Control/monitor

5. We will record any returns that are made. We will also record any recurring issues.
6. We will mail surveys to consumers to find out what they would like in a cooling system.
7. We will mail surveys to our customers to find out how they like our products and if they are accomplishing their need.
8. We expect to have a very low return rate on our air conditioners.
9. In the first year, we expect to only have about a 6% increase in profit as the market learns that we are in the marketplace.
10. We also expect to get over 50% of the market share in three to five years.

SWOTT Analysis

In late 1978 the Chinese leadership began moving the economy from a sluggish, inefficient, Soviet-style centrally planned economy to a more market-oriented system.  Whereas the system operates within a political framework of strict Communist control, the economic influence of non-state organizations and individual citizens has been steadily increasing.  The authorities switched to a system of household and village responsibility in agriculture in place of the old collectivization increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprises in services and light manufacturing, and opened the economy to increased foreign trade and investment.  The result has been a quadrupling of GDP since 1978.

Measured on a purchasing power parity (PPP) basis, China in 2003 stood as the second-largest economy in the world after the US, although in per capita terms the country is still poor. Agriculture and industry have posted major gains especially in coastal areas near Hong Kong, opposite Taiwan, and in Shanghai, where foreign investment has helped spur output of both domestic and export goods.

The leadership, however, often has experienced - as a result of its hybrid system - the worst results of socialism (bureaucracy and lassitude) and of capitalism (growing income disparities and rising unemployment).  China thus has periodically backtracked, retightening central controls at intervals.  The government has struggled to:

• Sustain adequate jobs growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force.
• Reduce corruption and other economic crimes.
• Keep afloat the large state-owned enterprises, many of which had been shielded from competition by subsidies and had been losing the ability to pay full wages and pensions.

From 80 to 120 million surplus rural workers are adrift between the villages and the cities, many subsisting through part-time, low-paying jobs.  Popular resistance, changes in central policy and loss of authority by rural cadres have weakened China's population control program, which is essential to maintaining long-term growth in living standards.  Another long-term threat to growth is the deterioration in the environment, notably air pollution, soil erosion, and the steady fall of the water table especially in the north.  China continues to lose arable land because of erosion and economic development.

Beijing says it will intensify efforts to stimulate growth through spending on infrastructure - such as water supply and power grids - and poverty relief and through rural tax reform. Accession to the World Trade Organization helps strengthen its ability to maintain strong growth rates but at the same time puts additional pressure on the hybrid system of strong political controls and growing market influences.  China has benefited from a huge expansion in computer Internet use.  Foreign investment remains a strong element in China's remarkable economic growth.  Growing shortages of electric power and raw materials will hold back the expansion of industrial output in 2004.

Strengths:

• Market Oriented System.
• Second Largest Economy.
• Member of the World Trade Organization (WTO).
• Cheap Qualified Labor.
• Amiable Government Policies.
• High Market Demand-Population of 1.2 billion growing by 17 million annually.

Weaknesses:

• Communist Controlled
• Partnering Requirements
• Distribution
• Financial Systems

• Low-speed on-line payments
• Less mature Venture Capital Financing
• Inefficient Stock Markets

Opportunities:

• Standard of Living Moving Upward
• Poverty Level Under 10%
• Fastest Growing Destination for U.S. Exports
• Fourth Largest U.S. Trading Partner.
• Increasingly Affluent Working and Middle Class.

Threats:

• Air Pollution
• Soil Erosion
• Fall of Water Table in North China
• Shortages of Electric Power
• Shortages of Raw Materials

Trends:

• 400 Brands of AC Reduced to 50
• Market Capacity 15 million units and growing 38.2 % last year.
• Intense Competition in this sector.
• Quality Improvements
• Production Capacity Expanding
• Prices Falling.

Financial Health of China:

China, the world’s most populous nation, experienced rapid economic growth over the last twenty years, which brought its GNP per capita to EUR 953 in 2000. It has engaged in a wide range of social and economic reforms that are moving the country away from a centrally planned to a market-driven economy. These reforms are at the root of China’s economic growth and very significant in the reduction of poverty.

At the same time China has important challenges to face in the future. It is estimated that in 1998 around 130 million Chinese were still living below the poverty line as defined by the World Bank. The population will continue to increase at least until 2050, combined with an important ageing process significantly accelerated by the population control measures. Weak productivity and increased disparities between rural and urban incomes create the conditions for an accelerated urbanization process. Vast reforms and restructuring of the industry and services sectors are needed in order to reach the productivity levels required by the openness of the economy, itself are a precondition for the preservation of high economic growth rates.

China has 1.266 billion inhabitants, around 20% of the world population. Population growth has slowed to 1.07 % per year over the last ten years.  The current forecast for 2020 is 1.48 billion.

China’s land area is 9.597 million square kilometers, or almost three times that of the EU. Of that, 250,970 km² is inland water. Only 16% of the land is cultivated. 70% is mountainous. Coastline is ±14,000 km. Land frontiers total 22,143 km. The population density varies from an average of 400 per square kilometer in coastal regions to 10 per square kilometer in the western parts.

With a GDP of EUR 1207 billion in 2000, China has positioned itself as the world’s 7th largest economy. This is the result of an exceptionally rapid economic growth over the last 20 years, during which the official average annual growth rate is estimated to have been around 10%. The concept of a market economy, now incorporated in China’s constitution, has allowed new enterprises to start up and flourish. A large part of the urban labor force is still employed in state-owned enterprises (SOEs), but the Chinese leadership made clear in the 1999 amendments to the Constitution and in the proposal for economic development to boost the national economy and absorb workers laid off in the process of SOE reform.

In terms of GDP per capita China ranked as 129th on the World Bank’s list of 210 countries in 1998, and has reached a level of EUR 953 per capita in 2000.  Foreign reserves are ± USD 183.9 billion. The share of the population below the national Chinese poverty line has successfully been reduced, from 6% in 1996 to 2.5% in 1999. The same trend appears when the World Bank poverty threshold of USD 1 per day disposable income is applied, with the number of poor people having been halved between 1992 and 1998. Their number under this criterion still amounted to around 130 million in 1998.  This development is impressive and reflects the success of the efforts of the last two decades in reducing poverty and improving the economic situation.  But it is also clear that developments have been very uneven between rural and urban areas, and between the western and the eastern regions.        

Until now, the Chinese government’s strategy for the reduction of poverty focused on a limited geographic area, and the objective was to raise average incomes in 592 designated poor counties through a variety of micro- economic interventions.  The objective was to lift 10 million people out of poverty each year.  The government provided public funds and credit which amounted to almost USD 3 billion in 1999 and to USD 20 billion since 1986, with subsidized loans representing half the total funding. This central government funding is supplemented by provincial and lower level poverty funds. China estimates that GDP per capita of the western regions (12 provinces and autonomous regions) is 200-300 USDs lower than the country’s average. There are a growing number of poor people in the cities, as a result of large population movements from rural areas to major urban centers. The number of unemployed has increased due to the restructuring of the SOEs and the public sector.

These inequalities and difficulties represent potential sources of macroeconomic and social instability. As stated above, the Chinese authorities are aware of the problems, and are concerned about the risks they present.

In this venture for AKLLR air conditioning business funding, it has been decided that our partner owning 51% of AKLLR, will decide on the sources of financing for the project.  There will be minimal international financing because the funding should be local to build equity in the investment of the business.  This will enable the company to firmly plant its roots in China, which in turn will transpire to be a stable business and create its foundation that it needs to succeed in the Global industry.

The financial plan for AKLLR consists of general assumptions, a break-even calculation, a three-year profit and loss projection, and a 12 month cash-flow projection. Together they constitute a reasonable estimate of AKLLR's financial future. More important, the process of thinking through the financial plan will improve the insight into the inner financial workings of the company. Many financial specialists think of the profit and loss projection as the centerpiece of the entire financial plan. This is where it is all put together in numbers and an idea of what it will take to make a profit is projected to forecast the success of the company. The sales projections come from a sales forecast in which assumed sales, cost of goods sold, expenses, profit for one year, and other expenses for the business.

THE FINANCIAL MANAGEMENT PLAN:

Important Assumptions; the financial plan is dependent on important assumptions, most of which are shown in the following table as assumptions.

General Assumptions:                                                  

               Sept      Oct       Nov     Dec      Jan       Feb      Mar      Apr      May     June     July     Aug    

Short-term interest rate: 10%     10%     10%     10%     10%     10%     10%     10%     10%     10%    10%     10%

Long-term interest rate: 10%     10%     10%     10%     10%     10%     10%     10%     10%     10%     10%     10%

Payment days estimator: 30        30        30        30        30         30        30       30         30         30         30       30

Tax Rate Percentage:     25%     25%     25%     25%     25%     25%     25%     25%     25%     25%     25%     25%

Expenses in cash %:     100%   100%   100%   100%   100%   100%   100%   100%   100%   100%   100%   100%

Personnel burden %:     28%     28%     28%     28%     28%     28%     28%     28%     28%     28%     28%     28%

Break-Even Analysis:

Break-Even Analysis; the following table summarizes our break-even analysis.

Income Statement      

• Gross Sales      $ 1,735,793.95      
• Cost of Sales      $ 564,671.06      
• Gross Profit      $ 1,171,122.89      
• Gross Profit Margin     1      
• Total Fixed Costs      $ 1,081,358.59      
• Break-Even      $ 1,646,029.65      
• Cash Remainder      $ 89,764.30      
• Controllable Expenses            
• Salaries & Wages      $ 493,178.34      
• Employee Benefits      $ 69,431.76      
• Operating Expenses      $ 78,110.73      
• Marketing      $ 173,579.40      
• Energy & Utility Expenses      $ 60,752.79      
• Repair & Maintenance      $ 17,357.94      
• Occupation Costs      $ 104,147.64      
• Interest & Principal      $ 84,800.00      
• Total Fixed Costs      $ 1,081,358.60      

Projected Profit & Loss Statement:

Projected Profit and Loss; our projected profit and loss is shown on the following table, with revenue increasing from $59,448.22 the first year to $176,280.03 the third year. This is achievable with the assumption that the industry continues to grow at its current rate of 4.5%.

AKLLR Air Conditioners 3 Year Plan

  Increase of:     ** (showing industry average expenses)     4.50%     4.50%

SALES                          Year 1                  %                  Year 2                   Year 3

Wall Mounted                       $1,337,765.28      77.07%      $ 1,397,964.72       $ 1,460,873.13

Floor Based                             $ 256,620.57      14.78%         $ 268,168.50          $ 280,236.08

Accessories                            $ 141,408.10        8.15%         $ 147,771.46           $ 154,421.18

TOTAL SALES       $1,735,793.95    100.00%      $ 1,813,904.68       $ 1,895,530.39

                                   

COST OF SALES           Cost                         %                              Same Costs     

Wall Mounted                       $ 428,084.89       32.00% 24.66%      $ 447,348.71       $ 467,479.40

Floor Based                          $ 102,648.23       40.00%   5.91%      $ 107,267.40       $ 112,094.43

Accessories                            $ 33,937.94       24.00%   1.96%        $ 35,465.15         $ 37,061.08

TTL COST OF SALES: $ 564,671.06       32.53%            $ 590,081.26       $ 616,634.92

                                         

GROSS PROFIT       $1,171,122.89          67.47%          $ 1,223,823.42   $ 1,278,895.47

OTHER INCOME                        

INTEREST INCOME                        

TOTAL INCOME     $1,171,122.89         67.47%          $ 1,223,823.42    $ 1,278,895.47

                                   Percentages remain constant (except marketing to 5%)

CONTROLABLE EXPENSES:      Year 1               %              Year 2                 Year 3 

Salaries & Wages                                  $ 493,178.34      28.00%      $ 507,893.31       $ 530,748.51

Employee Benefits                                $ 69,431.76          4.00%      $ 72,556.19         $ 75,821.22

Operating Expenses                              $ 78,110.73          4.50%      $ 81,625.71         $ 85,298.87

Marketing                                              $ 173,579.40     10.00%       $ 90,695.23         $ 94,776.52

Energy & Utility Expenses                   $ 60,752.79         3.50%       $ 63,486.66         $ 66,343.56

Repair & Maintenance                          $ 17,357.94         1.00%       $ 18,139.05         $ 18,955.30

Other                                                     $ -                       1.50%        $ -                       $ -

TTL CONTROLABLE EXPENSES: $ 892,410.95      52.50%      $ 834,396.15       $ 871,943.98

OCCUPATION COSTS:                     $ 104,147.64       6.00%       $ 108,834.28      $ 113,731.82

INCOME BEFORE INT. & DEP:      $ 174,564.30        8.97%      $ 280,592.99       $ 293,219.   INTEREST and PRINCIPAL:            $ 84,800.00          3.00%      $ 84,800.00         $ 84,800.00

DEPRECIATION:                              $ 10,500.00          0.01%      $ 10,500.00         $ 10,500.00

COMPANY PROFIT:                        $ 79,264.30          5.96%      $ 185,292.99       $ 197,919.67

INCOME TAXES:                             $ 19,816.08          1.14%      $ 20,707.80         $ 21,639.65

NET INCOME:                                  $ 59,448.23          3.42%      $ 164,585.19       $ 176,280.03

Marketing Budget                

• Expected Revenue           $1,735,793.95      
• Cost of Units Sold            $ 564,671.06      
• Salaries and Wages           $ 493,178.34      
• Utilities                              $ 69,431.76      
• Occupancy Costs              $ 104,147.64      
• Equipment/Supplies         $ 156,221.46      
• Income Before Income Taxes           $ 148,595.46      
• Marketing Budget   =  10%  or   $173,579.40

Projected 12-Month Cash Flow Statement:

        In the following chart, it is stated the forecast of the financial cash flows for the next 12 months for AKLLR Air Conditioners.  (See next page.)  

Operational Feedback on AKLLR’s Venture:  

Supply Chain Management (SCM) is managing the flow of goods, services, and information between suppliers, manufacturers, wholesalers, distributors, stores, consumers, and end users.  We believe that this is a very important part in our process.  We also believe that our quality of our supply chain management will determine the success of our company.  Supply chain management is the means that our company finds the raw components we need to make our product and service.  The product that we offer is the best stand-alone air conditioners in the market.  The service is the warranty and customer service that we provide after the purchase by our customers.

AKLLR has developed a plan to manage all of our resources that go toward meeting our customer demand.  The plan takes into account costs, quality, and value to our customers. The plan includes a vital part of our process, which are our suppliers.  We have set pricing, delivery and payment processes with our suppliers.  Our process includes managing inventory of goods that include receiving shipments, verifying them, and transferring them to AKLLR manufacturing facilities.

AKKLR has scheduled activities necessary for production, testing, packaging, and preparation for delivery.  We are determined measure quality levels, production output, and worker productivity.  Our plan is to coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get our products to customers and set up an invoicing system to receive payments.  The final part of our plan is to have a return mechanism in place. This phase of the plan is to create a network to receive defective and excess products back from customers and supporting customers who have issues with delivered products.

One of our biggest challenges will be working with a Chinese partner in a joint venture. We believe that this will provide AKLLR with more benefits though.  Our manufacturing philosophy will be based solely on Just-In-Time manufacturing (JIT).  The focus of JIT is in reducing waste by for the purpose of reducing costs, improving delivery, improving quality, adding flexibility, improving performance, and increase innovativeness.  We expect to have stable suppliers that will provide us with our materials according to our build schedule.  There will be an enormous amount of savings due to lack of waste.

After production of air conditioners at our facility, we will use our trucks to deliver them to the warehouse in Beijing.  We currently have five trucks.  We use two trucks to transport air conditioners to the warehouse and the other three trucks to deliver from the warehouse to our customer locations in Beijing, Shanghai, and Tianjin.  We will use inventory software at our warehouse to manage our inventory.  Customers that have accounts will be able to place orders online or phone our customer service department which is also located in Beijing.

Payments will be paid to our bank account once delivery is made to our customer.  This is agreed upon when the purchase agreement is signed by the customer and AKLLR.  Deliveries will be made to hotels, automotive plants, industrial companies, consulting firms, residential customers, and those that may not have normally felt that air conditioners were affordable. Defective air conditioners can be returned to AKLLR. Warranty information will be provided with every air conditioner.

We will randomly survey our customers to find out where we can improve in our process. We seek to make a profit but we will not compromise the quality of our product.  We expect to have more warehouses as our air conditioners become more popular and known around the country.  We currently offer eight different types of air conditioners and we will monitor the best selling models. Our production schedule will reflect the best selling model.  AKLLR will either have the model available in a vendors’ store or we will truck the air conditioner to arrive at the stores in two days.

Changes in the market, regulations, liabilities, and new requirements in response to the company’s security needs add to the complexity owner/operators face in assessing requirements for facility maintenance, modification, and other lifecycle actions. The information required to accurately assess the current setting is often missing, inaccurate, and difficult to translate to useful forms.  Owner/operators have a wealth of data, but no protocols for international relations to support integrated decision making. Universal and open communication standards are needed to enable industry-wide interoperability and improved efficiencies.  Both technical and financial parameters must be harmonized in new ways to facilitate the sustainability of lowest life cycle costs.

Intelligent facilities will also provide the means for capturing the critical information needed to engineer future facilities for radically improved performance, cost-effectiveness, and lifecycle sustainability.  These technologies will also offer the potential to capture a wealth of operational performance data that can be fed back to planning and design functions to benefit future programs.

            The program strategy will focus on evaluating and demonstrating best-in-class technologies that our company can put to use in the near future.  An incremental rollout of technologies will allow building an integrated suite of tools and systems that support the ultimate vision while supplying value to the stakeholders in the future.  The objective is to show benefits at each step in the development of an intelligent self-maintaining, repairing operational facility.

The program will develop and demonstrate a "toolbox" of technologies and capabilities enabling:

• Low-cost, reliable sensing to enable comprehensive facility monitoring and command/control
• Operational performance monitoring and condition assessment of different types and classes of capital facilities
• Modeling of the performance and condition of a capital facility across its entire life cycle.  Including simulation for accurate forecasting of requirements and evaluation of the impact of planned or potential actions/events
• Integration of equipment, systems, and processes with the Asset Lifecycle Information System

Command & Control Mechanisms:

A fact that is very profound when addressing the issue of command and control in international relief operations is that as long as there is a functioning government in a stricken country then that is in charge, and is the one authority that the international teams and personnel have to relate to.  Problems arise when there is no authority or when there is conflict with the authority.

If the operation is to be carried out in an area where there is no government authority one can come to terms with the command problem by asking what should be done, or achieved.  And from that point of departure decide who should be in command.

The term command & control is somewhat difficult to use in the field of international relief operations.  That is because “command & control” very much reflects a top-down perspective and a military approach.  The humanitarian-civilian approach is built on “bottom-up” perspectives, which are more consensuses co-operational to its nature.

AKLLR Organizational Chart:

Exit Strategies:

Divestitures can take several forms: The sell off, the spin off, the equity carve-out and the management buyout (MBO). In AKLLR’s case one of the exit strategies would involve a sell off. A sell off occurs when a firm sells part of its assets to another firm. The buying firm purchases only a part of the seller’s assets or specific business units.

There are three financial reasons why AKLLR would take this action:

• The assets would be sold to their Chinese partner who would take over operations. (Hand over to joint venture partner)
• Assets would be sold to reduce market diversification in order to allow concentration on core market activities. (Diversification)
• Assets would be sold to raise capital without recourse to capital market –which may be unwilling to supply capital- and shutting-down operations in China. (Financing)

Historically the tendency of U.S. businesses is to first sign a contract and then build a relationship hoping to make it work. Contracts are not blueprints—and certainly not in China. There, a contract is like a prenuptial agreement—the contract is about who gets what when the business doesn’t work. In China, you need to develop the commitment up front to make the venture successful.

The most important challenges of doing business in China are:

• China lacks predictability in its business environment due to lack of a consistent body of laws and regulations.
• China has a government that has made a partial transition to a market economy but parts of its bureaucracy still tend to protect local firms and state-owned firms from imports while encouraging exports.
• There are still remnants of a planned economy, prone to over investment and overproduction, unrelated to supply and demand.

Investors do not fully investigate the market situation or perform the necessary risk assessment.

With FDI flowing heavily into china –still a communist country- exit strategies must be front and center for any company doing business there. Basic barriers such as an inconvertible currency and laws restricting foreign ownership of Chinese assets, among other factors, contribute to an investment landscape in which the exit is less than straightforward. Historically, foreign investors in China have had only a couple of convoluted options all of which dance around the fact that foreigners could not buy and sell shares in a Chinese company. Typically mandatory joint venture partnerships with minority stakes were the norm.

In 1995, the Chinese government passed a law that created companies limited by shares or joint stock. But these did not permit the complicated capital structures typically seen in a VC portfolio. In many cases, foreign investors created joint venture companies, these would typically use the foreign investor enterprise model, which were designed for long-term investments like factories and wouldn’t need a legal structure to accommodate selling them off in the short term.  

Finding the Right Supply Partner:

One of the biggest determinate that makes or breaks a sourcing program in the People's Republic of China (PRC), is finding the right partner.  It seems that everything these days is made in China and that it would be easy to find a supplier.  In reality, finding the right supplier can be a daunting task.  China is a massive country over 700 cities making up one quarter of the world's population spread over an area of four million square miles with extreme variation in price, quality and production ability.  Probably the biggest headache for American buyers when conducting supplier research is that there are no comprehensive industry guides.  Furthermore, ISO certification does not carry the same weight as in the West and websites do not always realistically portray the supplier's ability.  The fact of the matter is that only through physical inspection of the facilities and review of actual production samples will gain a true understanding of a supplier's ability.  It is a daunting task, but the time, energy and funds spent on a trip to China during the initial supplier identification phase will pay dividends in the long run.

Ability to Control Quality: 

In an ideal world, the manufacturer could handle their QC internally and defective goods would never leave China.  In reality, there is often a lot of hand holding required to ensure the suppliers fully understand your specifications and quality concerns, especially during initial production runs.  Setting up your own sourcing center in China is not a realistic option for most US buyers.  However, there are some simple rules to keep in mind, which can limit risks.

• Always see an actual production sample from the actual supplier before issuing payment or placing a Purchase Order (PO) This lack of transparency complicates service, price and communication.
• Ask the supplier to provide their internal QC documentation as part of the buying process.
• Employ local auditors and independent laboratories if unable to conduct final QC on the systems.  Their service fees are very small compared with cost of faulty products in your supply chain.

Security:

To ensure blueprints, design specs, tooling and brand names are protected.  This is a concern shared by most international purchasers doing business in the PRC.  Do not disclose the product's final use or branding and remove confidential information from prints and samples. Consider dividing your product into individual components or focusing on only key components to conceal the big picture during the request for quotation stage.  Let the supplier quote based on the product and order size.  This may involve employing a sourcing agent to conduct the initial research on your behalf with out disclosing your vital information.

Recommendations

        A contingency plan is a well thought out, alternate course of action that avoids disruptions in business operations. The contingency plan will be used to ensure the long-term viability for AKLLR Air Conditions Corporation. The Chinese Government has recognized for several years that economic reform and market opening are essential components of sustainable and balanced economic growth. China's shift away from a planned economy model to a market economy has been difficult but is being rewarded by sustained economic growth and improving living standards. Reforms have been particularly difficult in sectors that traditionally relied upon substantial state subsidies. The aging state-owned industrial sector is now under significant pressure from domestic and foreign competition. As a result of WTO accession, these pressures may intensify. On the other hand, many Chinese economists point out that China’s private sector will benefit from WTO accession, as the government will be limited by international rules from favoring state-owned enterprises.

        While China has a more open and competitive economy than 20 years ago, substantial barriers have yet to be dismantled. Import barriers, opaque and inconsistently applied legal provisions, and limitations on market access combined to make it difficult for foreign firms to operate in China in 2001. The central government continues to protect noncompetitive or emerging sectors of the economy. Provincial and local governments have strongly resisted reforms that would eliminate protection of local enterprises or reduce government receipts. This inhibits the central government's ability to implement trade reforms.

Management Risk

        AKLLR Air Conditions has been established to globalize an innovative air control filtration technology, which is applicable to a wide range of markets. Our launch products will market air conditions for domestic households, businesses, aircrafts and automotive industry. Sales of this product in United States already exceed 3000 units, ordered by existing customers in the past month. This plan concerns the introduction of that product into the China market and seeks contingency for working capital and continued R&D activity. The strategic competitive advantages are performance and cost advantages. The air condition unit saves substantial maintenance time, filtration system, and electricity, while consistently filtering to a higher level of air quality clarity. It's simple design smaller size and low-pressure operation also allows a substantial cost advantage in production. These performance and cost advantages are sustainable in the short to medium term as a result of the web of intellectual property protection built around the technology. The sustainable competitive advantages will be increased over the medium to longer term by reputation building and the fruits of our R&D program.

Marketing Strategy

 The strategic plan is to seek a license agreement with a major air control filter manufacturer and to achieve penetration of China market via that licensee's distribution system. Royalty income from this arrangement will allow AKLLR to fund ongoing R&D for the diffusion of the technology into other air condition markets and other industry applications, e.g. irrigation, aquaculture, brewing and swimming pools.

The primary market consists of air conditions filter manufacturers. Air control builders, wholesalers, retail stores and the end consumer are the secondary market. By exceeding the expectations of the secondary market it will generate and pull through the distribution channel. Telephone contact has been made with senior executives from each of the companies in the target market. Initial interest has been positive and meetings have been arranged and will be conducted in the near future. Once a confidentiality agreement has been signed, a video presentation will be made and a product presentation and demonstration will occur for each of the manufacturers. At some point we would expect a preferred candidate to emerge. Before further technical details would be revealed, a heads of agreement would be signed outlining the future licensing agreement. This process will be expected to be complete by end of fiscal year, with a view to launching the product in time for the 2005 summer season.

                                        References

China Business Resources:  Article by
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China Human Resources Roundtable gaining the human capital edge
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Christina Hung - Client Relations Executive - Tel: (852) 2585 3312
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China Invest Monthly Newsletter: The free practical information guide for China market entry, tax, legal and trade issues.  Copyright © 1998 - 2004. Klako Group. All Rights Reserved. General Enquiries:

Frank E. Allen & Associates, Inc.
Specialists in Human Resource Search & Placement

The Supply Chain Management Research Center Web site provides information pertaining to supply chain management ().

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