Sail across the sea

Chapter 336: Cheaper than shipping from Germany

At the beginning of the year, Bob sent Dorian some samples of vitamin C and told him that it was produced by the vitamin factory he and Gao Fan built in China.

Dorian asked the company's technical department to test the samples and confirmed that the quality of these samples was not significantly different from that of the vitamin C produced by Lowe's and Wright's.

Then, Bob offered Dorian a surprising price: $8 per kilogram. According to Bob, Canghua's vitamin factory can reach a production capacity of more than 400 tons per month, which is enough to meet the production needs of Meister.

Meister's annual demand for vitamin C is about 2500 tons. Currently, it mainly purchases it from Lowe's, with a small part coming from Reis and Imperial Pharmaceuticals. The average purchase price is US$10 per kilogram, or about US$1 per ton.

If we switch to processed vitamins, the purchasing cost per ton can be reduced by $2000, which is equivalent to saving $500 million per year, which is a considerable amount.

However, Dorian does not intend to turn all his needs to China for two reasons:
First, Canghua Vitamin Factory is a new enterprise, and it is an enterprise in a developing country like China. Dorian is not confident about the credit of this enterprise. If the vitamin C provided by Canghua has serious quality problems in the future, causing heavy losses to Meister, can he get compensation from the other party?

Secondly, China is still a country in the Eastern Bloc after all, and it is entirely possible that Sino-US relations will change. Such political risks are also something Dorian needs to consider.

However, there was a new supplier whose product price was so low that Dorian would not let it go. He promised Bob that Meister could sign a 500-ton annual purchase contract with Canghua, and suggested that Bob contact other feed manufacturers so that he could unite with several peers to threaten traditional suppliers such as Lowe's.

That's right, the significance of Canghua Vitamins to Dorian lies more in the fact that it can be used as a bargaining chip in the negotiation between Meister and Lowe's. Compared with the $500 million purchase price difference each year, the quality assurance that Lowe's brand can provide is more important to Meister.

Bob was smart enough to understand what Dorian meant as soon as he heard the conditions he proposed.

In fact, the Hatch Group also evaluated the business strategy of the Canghua Vitamin Factory and reached a conclusion that was quite similar to Dorian's, which was that it was not in favor of further expanding its scale.

With an annual production capacity of 5000 tons and a price of US$8000 per ton, the sales volume is approximately US$4000 million, and the gross profit is around US$1000 million. The initial investment of Hatch Group has been guaranteed.

It would be disadvantageous for the Hatch Group to further expand its scale and trigger vicious competition with giants such as Lowe's and Wright's.

In addition, the US government probably does not want to see a Chinese company monopolize the supply of vitamin C in the US market. After all, American politicians in the Cold War era still had some strategic vision and kept in mind the idea of ​​"not letting others strangle us".

Understanding this, Bob promised Dorian that he would find more companies to promote the product and also ask someone to let Lowe's and Wright's know that a cheap vitamin C product from China had appeared on the market.

Once Lowe's and Wright's begin to notice the existence of Canghua Vitamin, they will resort to some compromising tactics in negotiations with various feed companies, and in order to maintain pressure on Lowe's and Wright's, various feed companies will also be willing to continue purchasing Canghua Vitamin.

This was also the survival strategy of Canghua Vitamin. The plan set by Bob and Dorian soon came into effect. After leaving Meister, Pedley visited several other clients, and without exception, he encountered unprecedented tough attitudes.

After asking around, Pedley found out what had happened: each company had found a new source of supply. A vitamin factory from China promised to supply unlimited quantities of vitamin C to each company at a price $2 lower than Lowe's.

That's right, the information these companies revealed to Pedley was that the Chinese factory had the potential to expand its production capacity tenfold, provided that it obtained joint investment from American feed companies.

"What? Vitamin C at $8 per kilogram. How is that possible?"

The news was quickly passed back to Lowe's headquarters, and Robison, the vice president in charge of the vitamin business, became furious.

"This Chinese factory was invested and built by the Hatch Group. Currently, their vitamin C is sold by a sales department of the Hatch Group. Our people have contacted them, and they said they can provide unlimited amounts of vitamin C raw materials at a price of US$8 per kilogram," reported Dai Lin, sales director of the business department.

"In other words, if we purchase their vitamin C raw materials directly and then sell them in the US market, it will be cheaper than shipping them from Germany." Ellin Wood, director of operations of the business department, made a cold joke.

Robison didn't laugh, but asked Dai Lin with a dark face: "Have you ever understood how they did it?"

Dai Lin said: "We asked them, and they said they adopted a new process to reduce the production cost of vitamin C. They also said that Lowe's has the exclusive license for this new process in the West."

"Are they talking about the two-step fermentation process?" Robison remembered.

Spending $1200 million to buy the exclusive license for the two-step fermentation process from a Chinese research institute was a big deal. However, after the purchase, Robison stopped caring about it because Lowe's attitude towards this process was very clear, that is, it did not intend to use it, and the purpose of spending money to buy the license was only to prevent competitors from using it.

The original equipment is still usable and the products produced are not worried about sales. Why is it necessary to adopt a new set of technology? Doesn't it cost money to change the equipment?

Robison still remembers one thing, that is, when he initially arranged for people to purchase the license for this process, he required to buy the global license, but what he finally negotiated was the license for the outside of China, and there are no restrictions on Chinese companies using this technology.

When Ogel, the chief representative of Lloyd's Register in Asia, who went to negotiate with the Chinese, reported this condition back, the group's top management did not mind it at all, because no one thought that Chinese companies could pose any threat to Lloyd's Register with this technology.

But who would have thought that something that was thought unlikely to go wrong would actually go wrong. A Chinese company used this new process to produce cheap vitamin C, posing a threat to Lowe's in the U.S. market.

(End of this chapter)