Hon Chuan Expands With In-house Production Strategy

Taiwan Hon Chuan Enterprise Co., Ltd., a major bottling firm in Taiwan, recently enhanced its unique in-house production strategy by setting up a joint venture with Food and Drinks (F&D), a listed firm in Thailand.

The joint venture, Hon Fu Enterprise, boasts a capital of US$4.26 million, 65% of which will be contributed by Hon Chuan and the remainder by F&D.

Under the in-house production strategy, Hon Fu will invest NT$300 million to install facilities inside the premises of F&D in Thailand for the production of PET bottles and labeling materials, which will supply the needs of F&D plants nearby.

Ho Fu's PET production lines have entered their pilot run, with a planned monthly capacity of 6 million PET bottles, or 12 million for two shifts. The labeling production lines are scheduled to begin operating in October with an annual capacity of 60 million pieces. The company's annual output value is expected to hit NT$300 million.

Hon Chuan pioneered the in-house production strategy in Taiwan's beverage market by successfully securing business from a number of major clients. Under the arrangement, it has so far set up production facilities inside the plants of Uni-President Enterprises in Yangmei and Juifan, northern Taiwan, as well as the Yienchao plant of Coca Cola in southern Taiwan. In mainland China, the company has also successfully stationed facilities inside the premises of the Coca Cola plants in Shanghai and Guangdong. As a result, the revenue of its mainland operations doubled to NT$600 million in the first half this year. The company's total revenues reached NT$3.5 billion in 2004.

Riding on this success, Hon Chuan has set up a joint venture with ABC Co. of Indonesia, also under the in-house production mode. Installation of production facilities is scheduled for imminent completion; the facilities will have an annual capacity of 10-12 million PET bottles. Under the same arrangement, its production facilities in Thailand will enter mass production at the end of this year. The company is now seeking similar partners in the Indian market.

The in-house production mode enables Hon Chuan to shorten construction time and cut costs for manufacturing plants. It also augments the competitiveness of its products, thanks to savings in shipment costs. However, such an arrangement often makes it difficult for Hon Chuan to solicit businesses from the rivals of its existing clients. For instance, it may not be easy for the company to solicit business from Pepsi Cola, due to its cooperation with Coca Cola.

Deciding which measures are needed to solve this problem, whether they be the allocation of dedicated manpower, the signing of confidential protection agreements, or providing different packaging materials to different clients, will remain a major challenge for Hon Chuan in the future.