THE CHINA MARKET CHALLENGES

1
THE CHINA MARKET - CHALLENGES OPPORTUNITIES
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• SEPTEMBER 28, 2002

2
CURRENT STATE OF THE INDUSTRY

• THE STORY EVERYONE HAS HEARD
• HIGH GROWTH
• UNDER-DEVELOPED IN TECHNOLOGY
• LABOR INTENSIVE

3
CURRENT STATE OF THE INDUSTRY

• THE STORY VERY FEW HAVE BEEN TOLD
• EXTREMELY COST COMPETITIVE ENVIRONMENT
• HIGHLY FRAGMENTED INDUSTRY
• VERY COMPLEX COMPETITIVE STRUCTURE
• FAST CHANGING INDUSTRY/MARKET DYNAMICS
• INCREASINGLY GLOBALIZED INDUSTRY

4
UNIQUE CHALLENGES

• EXTREMELY PRICE COMPETITIVE ENVIRONMENT
• HIGH INDUSTRY FRAGMENTATION
• HUGE INFLUX OF COMPETITORS FROM ALL DIRECTIONS
• HIGHLY COMPLEX AND DIFFERENT OWNERSHIP STRUCTURE
  INVESTOR EXPECTATION
• ENTREPRENEURIAL SPIRIT CREATIVITY

5
UNIQUE CHALLENGES

• HIGHLY FRAGMENTED INDUSTRY
• ONLY 2-3 PLAYERS WITH NATION-WIDE NETWORK
• OVER 1,000 MANUFACTURERS NATION-WIDE
• REVENUE RANGES BETWEEN US2.0 MILLION TO US120
  MILLION
• 95 OF PLAYERS HAVE REVENUE LESS THAN US25
  MILLION

6
UNIQUE CHALLENGES

• VERY COMPLEX COMPETITIVE STRUCTURE
• HIGHLY DIVERSE OWNERSHIP STRUCTURE AND INVESTOR
  EXPACTATIONS
• SOE (STATE OWNED ENTERPRISE)
• POC(PRIVATELY OWNED COMPANIES)
• FIE(FOREIGN INVESTED ENTERPRISES)
• TOE(TOWNSHIP OWNED ENTERPRISES)
• SWU(SOCIAL WELFARE UNIT), ETC.

7
UNIQUE CHALLENGES

• FAST CHANGING INDUSTRY/MARKET DYNAMICS
• MANY NEW PLAYERS ARE CONTINUOULSY ENTERING THE
  MARKET
• PAPER MAKERS HAVE STARTED TO BUILD A VERTICALLY
  INTEGRATED NETWORK
• DEMAND FOR PACKAGING WILL CONTINUE TO GROW AT A
  HIGH SPEED
• INCREASINGLY GLOBALIZED INDUSTRY

8
UNIQUE OPPORTUNITIES

• EXTREMELY COST COMPETITIVE ENVIRONMENT
• IS OFFERING INNOVATIVE COST COMPETITIVE
  COMPANIES GREAT OPPORTUNITY TO GROW
• HIGHLY FRAGMENTED INDUSTRY
• OFFERS SMART FIRST MOVERS THE WINDOW OF
  OPPORTUNITY TO BUILD STRONG PRESENCE QUICKLY

9
UNIQUE OPPORTUNITIES

• COMPLEX COMPETITIVE STRUCTURE
• GIVES THOSE WHO CAN TAKE ADVANTAGE OF THE DIVERSE
  STRUCTURE A CHANCE TO OUT-MANEUVER THE MORE
  RESOURCE RICH PLAYERS
• FAST CHANGING INDUSTRY/MARKET DYNAMICS
• OFFERS NIMBLE PLAYERS GREAT TERRAIN TO FIGHT THE
  GIANT AND WIN

10
UNIQUE OPPORTUNITIES

• INCREASINGLY GLOBALIZED INDUSTRY
• CHINAS PACKAGING INDUSTRY IS INTEGRATING WITH
  THE REST OF THE WORLD VERY RAPIDLY BY
• SOURCING GLOBALLY
• MANUFACTURING FOR MULTINATIONALS IN CHINA, AND
• EXPORTING PRODUCTS AROUND THE WORLD
• THIS TREND OFFERS GLOBAL PLAYERS OPPORTUNITIES TO
  LEVERAGE THEIR OWN EXPERTISE TO BUILD ALLIANCES
  AND GROW IN CHINA QUICKLY
• PERFECT ENVIRONMENT FOR FAST MOVING, PRAGMATIC
  ENTREPRENEURIAL COMPANIES TO SUCCEED

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CONCLUSION

• CHINAS CORRUGATED INDUSTRY IS INDEED GROWING AT
  A VERY HIGH SPEED. BUT THE MARKET IS STILL HIGHLY
  FRAGMENTED AND UNEVEN IN THE LEVEL OF OVERALL
  DEVELOPMENT
• CHINAS PACKAGING COMPANIES HAVE MANAGED TO
  BECOME HIGHLY COST COMPETITIVE BY LEVERAGING
• DIVERSE OWNERSHIP/INVESTOR STRUCTURE
• ENTREPREURS CREATIVITY COMPETITIVE SPIRIT
• OTHER LOW COST FACTORS UNIQUE IN CHINA

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CONCLUSION

• GLOBAL PLAYERS NEED TO DEVELOP A SOLID,
  AGGRESSIVE STRATEGY TO COMPETE IN A MARKET THAT
  IS STILL QUITE DIFFERENT BUT HIGHLY PROMISING
• GLOBAL PLAYERS NEED TO CLEARLY IDENTIFY THEIR OWN
  STRENGTHS VS. THE CHINA MARKETS NEEDS AND SEEK
  COMPLEMENTARY PARTNERS IN CHINA TO BUILD
  ALLIANCES AND GROW SUCCESSFULLY
• THANK YOU!