Unicon Concrete Products Case

Executive Summary

Unicon is a major player in the flourishing Hong Kong market for pre-cast concrete products and Mr. Li, the deputy managing director is pursuing the idea of “blanket” approval for Unicon’s custom design concrete products with one of its largest customers, the Hong Kong Housing Authority. This proposition could offer savings to both Unicon and the customer but this could adversely affect the relations with other customers and the manufacturing operations.

I recommend pursuing the blanket approval process with HKHA as this will greatly reduce lead time and costs. Facade and slabs are the growing trend in the industry and will allow Unicon to take advantage of the cost savings that come with it.

1. No need for engineered documents, saving on time and engineering costs.

2. Operational efficiencies

3. Reduced lead times

4. Product standardization

5. Increased quality

The tradeoffs that implied with this move are worth the risk of this approval process. If Unicon is to stay competitive in the ever expanding market, management must have a plan to expand capacity. This will become necessary to fend off new competition from mainland China.

Issue(s) Identification

There are several issues that need to be addressed that will determine how Unicon will be successful moving forward.

1. Authority over Hong Kong has reverted to PRC recently: Under the terms of Hong Kong reverting back to PRC authority a moratorium from PRC companies bidding on HKHA project ends in 1998

2. The Design of Construction dictates the method of fabrication: Due to the Hong Kong Building Code and the process for change control the method of construction is dictated by the originating Architect and Structural Engineer.

3. HKHA has estimated that 179 residential blocks are needed within the next two calendar years to meet the forecasted demand. It is anticipated that 50% of these blocks shall be of pre-cast design and construction. The total industry in Hong Kong is only able to support the construction of 20

blocks per year. Unicon only has capacity to manufacture sets of facades and slabs for seven blocks per year due to long approval times, lack of space and workforce availability. Unicon must stay competitive and make process changes to reduce lead times and eliminate unnecessary costs

4. Slabs and Facades cannot be stocked items because designs are not standardized amongst the four HK manufacturers. To make these stocked items, commitment for both products in terms of volume and design needs to be made G.C’s

Environmental and Root Cause Analysis

1. HKHA. 80% of company’s sales come from HKHA. HKHA is a government agency responsible for providing affordable housing for rent and ownership. They recently announced that they are going to build a large number of new blocks, and it is expected that 179 blocks will be tendered next year alone. Regulations were being revised to permit firms outside Hong Kong to supply facades and slabs, which means increased competition.

2. Lead Time: Approval for Superstructures and substructure drawings prepared by registered Architect and structural engineers takes 2 months. If the superstructure was not designed initially keeping the precast material in mind, and had to resubmit revised designs for approval, this could result in substantial delays in the process because the precast has to be a standard dimension to be economically viable.

3. Social: Hong Kong is heavily overpopulated. Affordable housing is one of the most critical problems facing the Hong Kong government. Purchase of units is much more expensive than rent.

4. Technological: precast materials are favorable option (although cost is 3%4% higher than traditional pouring because they reduce overall construction costs, assembly time is shorter, site construction is simplified and site congestion is reduced.

5. External Environment: Honk Kong is an important centre of economic activity. 60% of all China’s exports passed through Hong Kong and that number is expected to grow. That growth will support the growing economy of Hong Kong. The economy of Hong Kong is rapidly growing. The construction market is expanding. 80% of the market is controlled by 12 largest construction companies. Unicon had historically worked with all of them.

6. Internal Environment: Space, is an issue, must decide whether money should be invested in a new facility or reorganize the space they have. The decision will affect capacity and margins

7. Labor Demand: Precast material decreases the reliance on skilled reliance which is in short supply in Hong Kong. The skilled labor as a result is very costly. Reduction in on-site workers reduces this cost considerably.

Alternatives and/or Options

As we previously reviewed; there are also few alternatives/options to be considered:

Alternative #1:

Short Term

1. Obtain Manufacturing Patents and Design Pre-approvals with overall blanket approvals and focus on pre-cast buildings only. Purchasing 3 new molds for both Slabs and Facades.

2. Re-allocate plant space and outsource stairs and partition walls to PRC competitors and discontinue Manufacturing of these products since they are low margin industry standard designs.

3. Increase