Oppor t u n i t i es f or Bol l egr aaf Recycl i n g Mach i n er y in East Asi a

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Six Tiger s and a Huge Wakening Dr agon;

Oppor t u n i t i es f or Bol l egr aaf Recycl i n g Mach i n er y in East Asi a

Bedum, June 2004 K.J.T. Salomons

PART I

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Six Tiger s and a Huge Wakening Dr agon;

Oppor t u n i t i es f or Bol l egr aaf Recycl i n g Mach i n er y in East Asi a

Rijksuniversiteit Groningen

Faculty of Management and Organisation Assessors: Drs. R. Julien

Dr. J.A. Neuijen

Bollegraaf Recycling Machinery Assessor: Mw. M. Meijering

K.J.T. Salomons Bedum, June 2004

PART I

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Preface

This thesis is finally ready and within a few weeks I will be graduating receiving my Masters title from the Faculty of Management and Organisation at the University of Groningen. How good that feels!

To me, finalising this thesis and research really is a personal milestone. A pleasant period has come to an end in which I was allowed to develop myself on various levels, academically as well as socially.

With positive feelings I look back on the past several years, attending lectures, doing exams, discussing cases and studying theory as well as applying theory in reports. But it was also a period with plenty of time off, which I spend making money and developing myself in my company and with my dear family. I could actually see my son growing up, something most fathers miss these days. I am very thankful for that.

I would like to thank Jennita, my wife, for her strong support during the past years of study and the recent year when I was conducting this research. Thank you for the sacrifices you made and the support you gave to get me going. I would also like to thank my parents, parents in law, friends and brothers and sister for your interest and support in the past period.

Thank you, drs. Rob Julien and dr. Bram Neuijen for our conversations and your suggestions and comments, softly pushing me in the right direction. Thank you Martine Meijering, my Bollegraaf assessor, for your time, discussing and brainstorming on the various issues which we came across.

Thank you Mariska for the fun I had being your roommate, and of course: thank you for the music!

Thank you, board of Bollegraaf Recycling Machinery for giving me the opportunity to work for and with you in your company. I wish you lot’s of success, especially in East Asia! And last, but not least: thank you God for everything!

K.J.T. Salomons June, 2004

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Executive Summary

Early 2002, Bollegraaf Recycling Machinery’s competitive position was weakened by several factors.

In the foregoing years, the company’s buyers in North America and Western Europe experienced strong consolidation, which lead to serious price competition and a weakened bargaining position for Bollegraaf Recycling Machinery. In addition, these markets had become increasingly saturated causing a decrease in demand. But the most important factors were a too strong dependency on the North American market (and one customer in particular) which was not only a risky situation in itself, but which was also threatened by the low value of the US dollar, making Bollegraaf Recycling Machinery’s products increasingly expensive on that market. These developments made the board of Bollegraaf Recycling Machinery decide to look whether there were new markets that they could service. This report contains the information of a market research regarding the East Asian region.

This research was based on the following research question:

In which East Asian countries does a (potential) market exist for the recycling machines that Bollegraaf Recycling Machinery produces, and how do these foreign markets need to be serviced?

It is however, impossible and also unnecessary to research all East Asian countries in detail in order to find the best and most interesting markets or countries in East Asia. Therefore, a preliminary screening was conducted to select the most promising countries. This was done, using five variables which are respectively: existing agents, availability of information, net urbanisation, percentage compostables in the MSW stream (the lower, the better) and percentage paper in the municipal solid waste (MSW) stream (the higher, the better). The latter three variables all have one thing in common and that is that they are a measure of wealth. Wealth tends to concentrate in cities and a wealthier population consumes relatively less compostables and more consumer goods, made of, or packed or wrapped in paper. In addition, a high percentage of compostables in the MSW stream causes deterioration of quality of the recyclables in the MSW stream and frustrates the mechanical sorting process. Paper on the other hand is a valuable recyclable material, making this variable even more useful. Based on these criteria, seven Prospective Target Countries were identified which are: Hong Kong, the Philippines, Thailand, Malaysia, South Korea, Taiwan and Singapore. Thailand and the Philippines were excluded due to time constraints, Indonesia was included on explicit demand of the board of Bollegraaf Recycling Machinery and China was included because of its huge domestic market, its strong economic growth and its severe problems regarding MSW management. As a result, the seven countries of Taiwan, Hong Kong, China, South Korea, Singapore, Malaysia and Indonesia were subsequently researched on their current and future market potential in terms of municipal solid waste (MSW) and their current and future sales potential in terms of recycling machines.

In the past four to five decades, many East Asian countries have experienced a rapid transition from largely agricultural based economies to sophisticated industrial and service based economies and strong economic growth. This remarkable strong economic growth also triggered continuing large- scale urbanisation. Today, already 36% of all East Asian citizens in the 23 countries researched, live in urban areas. This number is expected to increase to 50% by 2025. These developments resulted in the rise of a strong middle class, consisting of an increasing number of East Asians who are participating in economic activities and are confronted with increasing incomes to spend. As a result, paper, plastic or glass wrapped/packed consumer goods have become available to a rapid increasing amount of citizens causing, not only a major shift in traditional consumption patterns, but also in the amount and composition of disposed Municipal Solid Waste (MSW). As a result, many East Asian governments are confronted with huge problems regarding MSW and MSW disposal and they are

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5 determined to deal with these problems both professionally and with responsibility, giving way to the establishment of a strong recycling industry in East Asia.

Due to the factors described above, the composition of the East Asian MSW stream has changed dramatically. The share of compostables decreased and the share of recyclable materials increased substantially. Today, the share of recyclables in the MSW stream in Taiwan, South Korea, Hong Kong and Singapore is comparable to Western levels. But also the quantity of MSW generated continues to grow rapidly. The Chinese MSW stream, for example has increased with a 9.3% compound annual growth rate in the past decade. But also the Taiwanese, South Korean, Hong Kong and Singaporean MSW generation has grown significantly in the last decades of the twentieth century. In 1996, South Korea had one of the highest levels of MSW generation per capita per day! These problems caused by the strong increase in MSW was worsened by the fact that current waste disposal sites were full or rapidly reaching their capacity, and that new ones were extremely hard to find due to the land scarcity in the densely populated urban areas. This seriously increased the costs of MSW collection and disposal even more. This problem was felt in both Taiwan and South Korea as well as in the smaller states of Hong Kong and Singapore and in the large cities in China.

These developments caused a major shift in the way these countries’ governments approached their MSW management and disposal as they were (are) realising that waste minimization and recycling were important and financial attractive means to reduce their MSW management burden. This shift in approach lead to many initiatives to stimulate waste minimization and recycling including many recycling campaigns to increase the overall awareness of the importance of recycling. Also many waste recovery programmes have been set-up in Taiwan, Hong Kong, South Korea and Singapore. In these programmes, communities, schools, office buildings, hospitals, universities, private housing estates and even retails stores, restaurants and other private businesses have started to pre-sort their recyclable waste. In South Korea, Singapore and in some parts of Taiwan, citizens and companies must now pay for every litre of disposed trash whereas pre-sorted recyclables are free of charge and importers or producers of goods, are obliged to pay a recycling fee for every product sold. These funds will then be redistributed to the recycling companies. In China and South Korea, producers now are obliged to recycle the packages of their products when they are listed in the compulsory recycling directory. Together with these recycling programmes, these countries invested (and are still investing) heavily in their MSW management infrastructure. In Hong Kong, Singapore, South Korea, Taiwan and China, many recycling facilities and waste disposal plants have been constructed or are planned in the near future. With regards to the first four countries, their waste disposal figures of the past ten years show a clear trend, from decreased MSW disposal in landfill sites, to increased MSW disposal using incinerators and recycling. In Singapore, Hong Kong and South Korea, the government also constructed ‘recycling parks’ to stimulate recycling companies and to develop new and better recycling technologies, introduced public collection points for MSW and recyclables and installed recycling bins public areas to stimulate recycling. The governmental structure regarding MSW management and recycling has also been improved in recent years, to be able to cope with the existing problems. To improve efficiency, Singapore and Malaysia even privatised their total MSW management infrastructure a few years ago. Taiwan, Hong Kong, South Korea, China and Singapore also support their domestic recycling industry by giving direct financial support to recycling companies, including the allocation of (scarce) land, favourable loans, tax reductions and exemptions on their products and tariff reductions/ exemptions on imported recycling technology. Especially South Korea, Hong Kong and Taiwan heavily support their domestic recycling industry in this way. These policies and programmes and financial incentives are backed by the many laws and regulations that have been, and are still being, promulgated with regards to MSW management, disposal and recycling. Another major incentive for the East Asian recycling industry might come from the ever expanding Chinese

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6 (and to a lesser extent South Korean and Taiwanese) paper industry, which has grown dramatically in the past decades to keep up with the increasing demand from the public and from the growing Chinese packaging industry. This paper industry uses a large share of waste paper as raw material which might provide a serious incentive for the emergence of professional paper recycling industry in these countries.

Based on these trends and developments described above, Bollegraaf Recycling Machinery should focus it’s marketing and sales efforts on Taiwan, China, South Korea, Hong Kong and Singapore.

These countries are considered to be High Market Potential Countries as these countries are very serious about MSW management and recycling and these countries’ governments are actively promoting and supporting waste minimization, reuse and recycling in various ways. Opportunities for Bollegraaf Recycling Machinery in Malaysia remain somewhat difficult to predict. There is an increasing government commitment to promote recycling nationwide and the privatisation of the MSW management sector can surely be seen as an incentive for the establishment of a professional recycling industry. However, insufficient legislation and enforcement, a lack of public cooperation and a lack of financial funds might frustrate this process. Indonesia is the least interesting country in this research. This country lacks a central government approach towards waste management and recycling. There are virtually no government policies, laws and/ or financial support to promote and establish a professional MSW management and recycling sector. In addition, the huge numbers of low-wage scavengers, who collect and sort virtually all the recyclables, combined with the low value of recyclables, the limited financial resources of the waste traders and the overall poorness of the country, should be regarded as the main causes for the absence of a professional recycling sector in the next decade.

With regards to the sale of recycling machines, the same countries (Taiwan, Hong Kong, China, South Korea and Singapore) should also be regarded as High Sales Potential Countries in terms of recycling machines. In absolute terms, the Chinese market for recycling equipment is, by far, the biggest. In the past, the Chinese environmental sector primarily focussed on air and water pollution, but now they are focussing more and more on improving the MSW management infrastructure in their ever expanding cities. As stated in China’s National 10^th Five-year Plan, the country is planning to spend a stunning amount of RMB 700 billion (US$ 85 billion), comprising 1.3% of projected GDP, on the environment between 2001 and 2005, including RMB 90 billion (US$ 10.87 billion) on solid waste treatment and disposal! Among the equipment which is in high demand are urban waste collection and transfer vehicles, waste sorting equipment as well as waste glass, waste plastics and waste paper recycling equipment. South Korea another high potential market. The value of the South Korean environmental market (private and public) was estimated at 9.6 billion in 2001. According to this source, the market for solid waste treatment was US$ 3.31 billion in 2001 and was expected to reach US$ 5.5 billion by 2005. based on the governments policy of reduction, reuse and recycle. This amount is to be spent on new, or expansion/ improvement of all kinds of solid waste treatment and recycling facilities and landfill and incineration sites. Among the equipment that is in high demand in South Korea are exactly those products that Bollegraaf Recycling Machinery produces, which are large capacity balers, large capacity separators, shredders and compactors. Taiwan also represents a very interesting market.

The total environmental market of Taiwan was estimated at US$ 970 million in 2003, including 258 million on recycling machinery. This market is expected to grow with approximately 10% per year.

Recovery, screening and separating equipment as well as shredders and crushers are among the machinery that is in high demand. Hong Kong and Singapore represent the final two markets which are small, but interesting. The market for waste reduction and recycling equipment in Hong Kong was estimated at US$ 5.5 million in 2002, with an estimated annual growth rate of 10% for the next three years. The market for waste pollution and control equipment was estimate at US$ 405 million in 1998

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7 and household waste recovery and recycling equipment is among the technology which is in high demand in Singapore. Domestic producers in these five countries often lack technology to produce the recycling machines they need. Therefore, sophisticated recycling technology is largely imported. The U.S.A. Japan and Germany are the top exporters of recycling machinery to the region, and especially Germany is aggressively promoting business in the region.

These five countries can be serviced in different ways, but the choice of a foreign entry mode is very difficult and complex as it is influenced by many variables such as market size, growth prospects, accepted degree of risk and control, available resources, legal system etc. To provide some insight in this complex issue, four approaches are discussed which can be used to select the ‘best’ foreign entry mode, each with its own perspective and its own merits and drawbacks. These approaches are the economic approach, the stages-of-development approach, the business-strategy approach and the alternative approach. The economic approach is characterised by a very straightforward line of reasoning emphasizing an optimal balance between costs and benefits. The stages of development approach on the other hand, argues that companies gradually move from low risk and low control to higher risk and control entry modes, when they gain experience in foreign markets and when their sales volume increases. Although interesting, the relevance of these first two approaches for Bollegraaf Recycling Machinery’s entry mode decision is disputable. In the economic approach, the entry mode decision totally depends on one single argument, which is (future) ROI. Other, relevant arguments for foreign entry are totally neglected. In addition, the author seriously doubts whether a rational analytical calculation of (future) profits as proposed in this approach, is possible in the first place, since foreign entry is almost always characterised by complexity and uncertainty (ambiguity).

The main drawback of the stage of development approach is it’s backward line of reasoning, making it unsuitable as a basis for future decisions. The author believes that the third (business-strategy) and fourth (alternative) approach are more useful when choosing a means of foreign market servicing.

These latter two approaches are both based on the idea that choosing the ‘best’ entry mode is a complex, uncertain and difficult process characterised by ‘muddling through’ rather than rational- analytical calculation and choice. In the business-strategy approach, a wide range of internal and external factors are summarised which influence foreign entry, each favouring a particular entry mode.

The relative importance of these factors for Bollegraaf Recycling Machinery is determined after a consensus seeking, political process between different parties, interests and objectives within the company. Finally, the alternative approach focuses on the objectives which are to be achieved by foreign entry. These objectives can be profit, market, competitive or strategic oriented. Once the objectives are ranked, the most appropriate entry mode, which best fits these objectives, can be chosen. The author suggests to use both the alternative and the business-strategy approach as they are to a large extent complementary.

The main and most relevant entry modes are also discussed and were identified as indirect exporting, direct exporting, contractual agreements and foreign direct investment (FDI). However, the author does believe that some entry modes are more interesting than others. East Asia represents an enormous market for recycling machinery. This is especially true for Taiwan, Hong Kong, China, Singapore and South Korea as shown in this report, but also for other countries such as Japan, Thailand and the Philippines and perhaps India, Malaysia and Indonesia somewhere in the future.

Direct exports using agents or distributors might be a first good step in servicing the High Sales Potential countries. However, after some period of time, when the Bollegraaf brand is established and relatively well known and when market growth prospects remain good, the author believes that some sort of FDI is essential. Setting up a solely or jointly owned manufacturing plant in East Asia, might provide so many extra advantages including, circumvention of import barriers, lower taxes, lower wages, lower material costs, direct market knowledge and anticipation, lower transportation costs,

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8 better service and provision of spare parts, better marketing, better product adaptation according to local preferences, better relationship building/ networking, less sensitivity for currency fluctuations, etc.

Setting up a local manufacturing plant might also prevent local competitors from copying (patented) Bollegraaf Recycling Machinery technology. In the end, this centrally located East Asian plant, might develop into a second ‘headquarter’, servicing and coordinating all Bollegraaf Recycling Machinery’s business in whole East Asia.

However, doing business with East Asian companies also has serious other implications, including cultural ones. It is widely known that West European cultures differ enormously from East Asian cultures, leading to all kinds of miscommunication, embarrassment and even loss of business (opportunities). Therefore, a separate section was included in this report to provide at least some basic insight in this issue. Culture is defined as "collective programming of the mind, which distinguishes the members of one group or category of people from another”. Culture has various levels (national, regional, social, religious, gender, class, organisational/business) as well as various manifestations in which culture comes to the surface, which are respectively: symbols, heroes, rituals and values. The cultural differences between the Netherlands and the five selected countries are analysed using Hofstede's 5-D Model. In this model, all cultural behaviour is believed to be based on five underlying dimensions which are: Power Distance, Individualism, Masculinity, Uncertainty Avoidance and Long-Term Orientation. The outcomes of these dimensions for Hong Kong, Taiwan, China, South Korea and Singapore show significant differences between (but also among) these countries and the Netherlands.

East Asian cultures have a much stronger Power Distance, a much lower score on Individualism and a much stronger Long-Term Orientation. Not surprisingly, East Asian cultures are entrenched with characteristics of these dimensions as they all tend to be strong collectivist cultures, where authority and seniority is valued and ‘relationships’ as well as the concept of ‘losing face’ and ‘building face’ is extremely important. These cultural dimensions are also distinguished and recognised in the practical advice regarding 'appropriate ways to behave' in various kinds of cross-cultural business encounters, as well as in the practical advice given regarding appearance, relationship building, gift giving and the exchange of business cards.

Four out of the six ‘Tigers’ (Hong Kong, Taiwan, South Korea and Singapore) as well as the ‘Dragon economy’ of China definitely represent High Sales Potential Countries for Bollegraaf Recycling Machinery! But servicing (one of) these countries in one of the suggested ways, will have a serious impact on the company, it’s capacity and it’s organisational structure. Before starting the ‘East Asian adventure’, the board of Bollegraaf Recycling Machinery should first determine how to cope with a strong increase in demand and whether it’s current capacity will be able to handle this. Furthermore, it will have to establish clear policies on how these markets will have to be serviced and also how foreign agents and/ or sales locations should be controlled, how much freedom they will get, and how they will be kept in line with headquarters’ policies.

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Table of Contents

PREFACE... 2

PREFACE... 3

EXECUTIVE SUMMARY... 4

TABLE OF CONTENTS... 9

LIST OF TABLES AND FIGURES... 12

TABLES... 12

F^IGURES... 12

INTRODUCTION... 13

CHAPTER 1: BOLLEGRAAF RECYCLING MACHINERY... 15

1.1 HISTORY... 15

1.2 PRODUCTS... 15

1.3 ORGANISATIONAL STRUCTURE... 16

1.4 SUBSIDIARIES AND AGENTS... 16

1.5 FINANCIAL FIGURES... 16

CHAPTER 2: RESEARCH DESIGN... 18

2.1 INTRODUCTION... 18

2.2 RESEARCH OBJECTIVE... 18

2.3 RESEARCH QUESTION... 18

2.4 SUB QUESTIONS... 18

2.5 RESEARCH MODEL... 19

2.5.1 Diagnose... 20

2.5.2 Design... 20

2.5.3 Change/ Implementation... 21

2.6 R^ESEARCHT^YPE... 21

2.7 DATA COLLECTION METHOD... 21

2.8 LIMITATIONS... 22

2.9 DEFINITIONS... 22

CHAPTER 3: ANALYSIS BOLLEGRAAF RECYCLING MACHINERY... 25

3.2 THE RECYCLING MACHINERY INDUSTRY... 26

3.3 ANALYSIS OF THE ENVIRONMENT... 28

3.4 I^NTERNALA^NALYSIS... 32

3.5 CONCLUSION... 33

CHAPTER 4: PRELIMINARY SCREENING... 35

4.2 EXISTING AGENTS... 35

4.3 AVAILABILITY OF DATA... 35

4.4 NET URBANISATION... 35

4.5 COMPOSITION OF THE MSW STREAM: PERCENTAGE COMPOSTABLES... 36

4.6 COMPOSITION OF THE MSW STREAM: PERCENTAGE PAPER... 37

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4.7 EXCEPTIONS... 37

CHAPTER 5: RECYCLING BUSINESS OPPORTUNITIES IN EAST ASIA... 39

5.2 FACTORS DRIVING THE MARKET FOR RECYCLING EQUIPMENT IN EAST ASIA... 39

5.3 RECYCLING BUSINESS OPPORTUNITIES IN TAIWAN... 41

5.4 RECYCLING BUSINESS OPPORTUNITIES IN HONG KONG... 42

5.5 RECYCLING BUSINESS OPPORTUNITIES IN CHINA... 43

5.6 RECYCLING BUSINESS OPPORTUNITIES IN SOUTH KOREA... 45

5.7 RECYCLING BUSINESS OPPORTUNITIES IN SINGAPORE... 46

5.8 RECYCLING BUSINESS OPPORTUNITIES IN MALAYSIA... 47

5.9 R^ECYCLINGB^USINESSOPPORTUNITIES IN I^NDONESIA... 48

CHAPTER 6: ENTERING THE EAST ASIAN MARKET... 51

6.2 APPROACHES TOWARDS MARKET ENTRY AND DEVELOPMENT... 51

6.2.1 The Economic Approach... 51

6.2.2 The Stages-of-Development Approach... 53

6.2.3 The Business-Strategy Approach... 53

6.2.4 An Alternative Approach... 56

6.3 THE DIFFERENT MODES OF ENTRY... 57

6.3.1 Indirect Exporting... 57

6.3.2 Direct Exporting... 57

6.3.3 Contractual Agreements... 59

6.3.4 Foreign Direct Investment (FDI)... 60

6.4 C^ONCLUSION... 63

CHAPTER 7: EAST ASIAN CULTURES... 65

7.2 WHAT IS CULTURE?... 65

7.3 CULTURAL DIFFERENCES IN THE SELECTED COUNTRIES... 67

7.4 CULTURAL RELATED BUSINESS PRACTICES IN EAST ASIA... 72

7.4.1 Greetings... 72

7.4.2 General Behaviour... 73

7.4.3 Conversation... 73

7.4.4 Building Relations... 74

7.4.5 Appearance... 74

7.4.6 Business Cards... 75

7.4.7 Business Meetings & Negotiations... 75

7.4.8 Gifts... 76

7.4.9 Eating & Drinking... 77

CONCLUSIONS AND RECOMMENDATIONS... 80

REFERENCES... 86

ARTICLES & BOOKS... 86

WEBSITES... 92

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APPENDICES... 95

APPENDIX 1: JURIDICAL STRUCTURE OF THE H.S. BOLLEGRAAF HOLDING B.V... 96

APPENDIX 2: ORGANISATION CHART... 97

APPENDIX 3: BALANCE SHEET FOR THE YEAR 2002/ 2001... 98

A^PPENDIX4: P^{ROFIT AND}L^OSSACCOUNT FOR THE YEAR 2002/ 2001... 99

APPENDIX 5: CONTACT INFORMATION WASTE TRADERS AND RECYCLERS... 100

APPENDIX 6: IMPORTANT PUBLIC AND PRIVATE ORGANISATIONS... 111

APPENDIX 7: PLANNING FOR TIERED IMPLEMENTATION OF THE SECOND NATIONAL COMPREHENSIVE WASTE MANAGEMENT PLAN, REPUBLIC OF KOREA... 116

APPENDIX 8: CLEANER PRODUCTION PROMOTION LAW (PEOPLES REPUBLIC OF CHINA)... 118

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List of Tables and Figures

Tables

Table 1: Sales North America... 30

Table 2: Relation Income, Urbanisation and MSW Generation... 36

Table 3: External and internal factors influencing the entry mode decision ... 55

Table 4: Motivations underlying foreign market entry and development... 56

Table 5: Five-fold classification of wholly owned subsidiaries... 62

Table 6: Power Distance in selected East Asian Countries ... 68

Table 7: Individualism in selected East Asian Countries... 69

Table 8: Masculinity/ Femininity in selected East Asian Countries... 69

Table 9: Uncertainty Avoidance in selected East Asian Countries ... 70

Table 10: Long-Term Orientation in selected East Asian Countries... 71

Table 11: Results on Hofstede’s 5-D model for the 5 selected countries ... 72

Figures Figure 1: Bollegraaf Baler... 15

Figure 2: Bollegraaf Shredder... 15

Figure 3: Bollegraaf Sorting System for Single Stream Waste... 15

Figure 4: Research Model ... 19

Figure 5: Five forces determine the industry's profitability ... 26

Figure 6: Sales per Country, 2000 - 2003 ... 30

Figure 7: Value of the euro in U.S. dollars... 31

Figure 8: Relation per capita Income and Paper & Board Consumption ... 37

Figure 9: The Choice between Exporting, Licensing and FDI ... 52

Figure 10: Evolution of International Supply Methods... 53

Figure 11: Three levels of uniqueness of human mental programming... 65

Figure 12: The 'onion diagram': manifestations of culture at different levels... 66

Figure 13: Hofstede's 5-D Model ... 67

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Introduction

In the past three decades, many countries and regions in East Asia have experienced a major transition. In a very short time span, they developed from low income, rural, agricultural based countries to urban, middle- and high income societies with highly developed industries in manufacturing and services. Increasing incomes and urbanisation has also caused a major shift in East Asian consumption patterns. An urbanised population does not only generate twice as much waste as their rural counterparts (Hoornweg, 1999), they also consume an increasing amount of consumer goods which is wrapped or packed and will eventually be disposed. As a result, many East Asian cities are surrounded by refuse heaps and waste management and recycling has become one of the top priorities of a number of East Asian governments.

It is exactly for these reasons, that the board of Bollegraaf Recycling Machinery saw the necessity of a proper market research to investigate the business opportunities for the company in East Asia, as a basis for future strategy and policy of the company. A decision which is very much congruent with the company’s history and track record of international orientation and sales, which started as early as the 1970s. Today, the company is represented by a continuously growing number of agents and sales subsidiaries all over the world (see Chapter 1: Bollegraaf Recycling Machinery).

The report you’re reading now, is the final result of that market research. It comprises two parts. Part II is the empirical part of the research containing the market data. It consists of seven chapters in which each of the seven countries researched, are described. These countries are respectively Taiwan, Hong Kong, China (PRC), South Korea, Singapore, Malaysia and Indonesia. This description comprises all aspects of municipal solid waste (MSW) and MSW management, such as generation rates, composition, means of disposal, recycling rates, government policies and legislation with relation to MSW and recycling, etc. It further contains a description of the market for recycling machinery in terms of market size, market demand, entry issues, competition, tariffs and duty’s, etc.

Part I, the part you’re reading now, is the academic part of this research, containing all aspects of a proper thesis. In chapter one, a description of the company is given to provide a brief but relevant overview of the Bollegraaf Recycling Machinery and its activities. In this chapter, the company’s products are discussed as well as its history, organisational structure and some financial figures.

Chapter two comprises the research design. In this chapter, the problem statement is given, containing a research objective, a research question and its subsequent sub questions. Then, a research model is presented to provide a graphical overview of the research which is explained in the subsequent paragraphs. Various other relevant methodological issues and questions such as research type, data collection method and definitions are discussed as well as the limitations to this research. In chapter three, the actual research starts with an analysis of Bollegraaf Recycling Machinery and to determine its motivations for this research. This is done, using Michael Porter’s 5- forces model and a SW/OT analysis to analyse the internal company, the company’s environment and the industry for recycling machinery. This chapter gives a good insight in the problems this company has to cope with, which clarifies the motives for this research making it fully understandable and acceptable. In chapter four the preliminary screening process is described. Based on five variables, the total of 23 East Asian countries are decreased to seven countries, which are subsequently labelled as Prospective Target Countries. In chapter five, the main conclusions, similarities and differences between the seven Prospective Target Countries are discussed, in seven different paragraphs.

Chapter five is in essence a summary of Part II, in which the seven Prospective Target Countries are more extensively discussed in seven different chapters. Chapter five ends with a conclusion in which

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14 the High(est) Market and Sales Potential Countries are identified. However, servicing these countries is a whole different story. The decision to determine the ‘best’ entry mode is very complex and is influenced by many variables, such as accepted degree of risk and control, speed of market penetration, available resources, language and legal systems and various other parameters. To give insight in these issues, chapter six provides a serious discussion on how to determine the most suitable entry mode, based on widely-accepted theories and research. Another important element when doing business in South East Asia are the cultural differences between, as well as among the countries in the South East region. A brief theoretical introduction of culture is therefore given in chapter seven as well as a description of the different business management systems and an introduction in common business practises in the High Sales Potential Countries. At the end of this report, a conclusion is given containing a summary of the most interesting findings of this research. In this part, the implications of these conclusions for Bollegraaf Recycling Machinery are also briefly discussed and recommendations are given for future policy and strategy.

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Chapter 1: Bollegraaf Recycling Machinery

1.1 History

Bollegraaf Recycling Machinery, or officially called “Machinefabriek Bollegraaf Appingedam B.V.” was founded in 1961 by H. Bollegraaf, the father of the current owner under the name “Machinefabriek en Plaatsnijbedrijf Bollegraaf” (Engineering Works and Plate Cutting Company) in Tjamsweer, a village near Appingedam in the upper north of the Netherlands. Because of the founder’s history of a scrap- metal trader, the company soon specialized in recycling machinery and started producing conveyor belts for waste paper in 1964. In 1968 the first automated baler was produced followed by a new generation of automated balers in 1969. Sales started to increase rapidly and the company’s production facility had to expand in 1970 and again in 1980. In the mean time, the company had also gained access on the British and German market and

started exporting to those countries. In 1983 the production capacity once again faced its limits and the production facility at the “Tweede Industrieweg” in Appingedam was acquired. Today, this is still the main production facility as all Bollegraaf machines are produced here.

In 1985, the company begins targeting the U.S. market, with the establishment of sales office Van Dyk Baler Corporation. This company has the exclusive rights for selling Bollegraaf machines on the U.S. and Canadian soil. In 1989 Heiman S. Bollegraaf, the son of the founder takes over the company. He soon realizes that local presence in other countries is required, not only for a thorough understanding of local markets and increasing sales and market share, but also for providing optimal service and maintenance for customers’ machines.

Therefore sales offices are opened in Germany (1992), the United Kingdom (1993), France (1995) and Spain (1998). Because the company’s sales figures continue to increase, the production facility at the “Tweede Industrieweg” is expanded in 2000. One year later, the company celebrates the milestone of its 40^th anniversary.

1.2 Products

In it’s 42 years of existence, Bollegraaf Recycling Machinery has become an important player in the recycling industry. Bollegraaf products are world-wide recognized for good quality, long-life and low service and maintenance cost which comes at a higher price, compared to it’s competitors. The Bollegraaf brand is well

established in Western Europe and North America and the company is continuously seeking to develop and penetrate new markets and increase it’s market share.

Figure 1: Bollegraaf Baler

Figure 2: Bollegraaf Shredder

Figure 3: Bollegraaf Sorting System for Single Stream Waste

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16 Bollegraaf Recycling Machinery produces balers, sorting systems, (confidential) shredders and conveyor belts for processing wastepaper, domestic and industrial waste. The company’s focus on continuous improvement of its products has lead to development of numerous patents on technologies and production parts. It is believed that patents will not only discourage competitors, but will also provide an extra incentive to buy Bollegraaf machines. In 2001, the company decided to introduce a modular structure for it’s sorting systems where different modules are interchangeable. This has lead to a serious reduction in costs and throughput and delivery times. Buyers of Bollegraaf machines include wastepaper dealers, city sanitation services (private as well as government), and companies that produce large quantities of waste.

1.3 Organisational Structure

Bollegraaf Recycling Machinery is a typically centrally lead production organisation. Decisions are made and implemented top down by the board of directors and especially the president/owner, maintains a strong grip on all decisions and processes in the company. The company is organised by functions and has six main departments, which are: Sales, Service, Engineering, Material Management and Planning, Finance and Automation. Appendix 2: Organisation Chart gives an overview of the organisational structure and responsibilities. The two production facilities are designed in a so-called functional or process layout where the same kind of processes are grouped together.

Bollegraaf employs 95 people on a permanent basis and approximately 12 persons on a flexible basis.

The number of flex workers may increase to 40 at peak periods and may drop to less then 10 workers when demand is low.

The company “Machinefabriek Bollegraaf Appingedam B.V.” as well as Lubo Screening and Recycling Systems B.V. and other limited companies are part of the H.S. Bollegraaf Holding B.V. Appingedam.

Appendix 1: Juridical Structure of the H.S. Bollegraaf Holding B.V. provides an overview of the ownership and position of the different companies under the umbrella of the H.S. Bollegraaf Holding B.V.

1.4 Subsidiaries and Agents

Bollegraaf is represented worldwide by it’s subsidiaries and agents. In Europe the company sells its equipment in co-operation with its subsidiaries in Germany, France, the United Kingdom and Spain and its agents in Denmark, Finland, Sweden, Switzerland, Austria, Italy, the Czech Republic and Poland. The four subsidiaries are also responsible for service and maintenance of the company’s products. In Canada, the United States and Mexico, Bollegraaf Recycling Machinery is represented by Van Dyk Baler Corporation. This distributor is responsible for a large share in the company’s annual sales. Other agents are located in Japan, Brazil, Australia, Egypt, Iceland¹.

1.5 Financial Figures

Bollegraaf Recycling Machinery is financially in good health. In 2002, the company reported a gross result of 2.13 million euro and a net result of 1.27 million euro based on a 16.89 million euro turnover.

This is significant decrease on the previous year when the company reported a turnover of 20.96

1 For more information on the company and its products, please visit the company’s website: http://www.bollegraaf.com.

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17 million euro, a gross result of 2.40 million euro and a net result of 1.44 million euro. However the gross profit margin (gross profit/turnover) shows an increase from 11.43% in 2001 to 12.61% in 2002. This increase is due to successful efforts in obtaining lower prices and discounts from raw material and parts suppliers and the introduction of the modular product structure in 2002. Other ratio’s such as return on investment, or return on equity will not provide more information because the company has very low equity since the company’s annual net profits are transferred to Bollegraaf Beheer Appingedam B.V. and the H.S. Bollegraaf Holding B.V. For the year 2001, the H.S. Bollegraaf Holding B.V. reported a net profit of 1.94 million euro and total equity of 8.52 million Euro. With regards to the company’s liquidity: the current ratio (current assets/current liabilities) of 1.13 indicates that the Bollegraaf Recycling Machinery is also able to pay its short-term debts and the debt ratio (total assets/liabilities) of 1.19 indicates that the company is able to pay it’s long term liabilities as well. For more financial information, see Appendix 3: Balance Sheet for the year 2002/ 2001 and Appendix 4:

Profit and Loss Account for the year 2002/ 2001.

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18

Chapter 2: Research Design

2.1 Introduction

According to Verschuren (1996: 23) a research plan can be divided in two parts which are a problem statement and a research design. The problem statement describes what the researcher is trying to achieve. The research design describes with what means, this goal is to be achieved. A problem statement can also be divided in two parts: a research objective and a research question. First, the research objective is about the ‘WHY’ question of the planned research. A research objective should provide a thorough understanding of the actual problem, the importance of the research and the goal to be achieved. Second, the research question is about the ‘WHAT’ question. What knowledge is to be gathered to reach this goal, or put differently: what question should be answered to reach the objective set. Verschuren (1996) further identifies a WHERE and HOW question as part of the research design which is discussed in paragraph 2.7 Data Collection Method, and finally a HOW MUCH and WHEN question, which is discussed in paragraph 2.8 Limitations .

According to De Leeuw (1996: 90) A proper problem statement should be relevant, appropriate and

‘researchable’. Relevance means that the research should have actual value for the final customer which is the board of Bollegraaf Recycling Machinery. Appropriateness refers to the condition that the research should be in balance in terms of research costs and revenue. Finally, ‘researchable’ refers to the condition that it should be possible to produce a good research report within the boundaries of the defined limitations.

2.2 Research Objective

This research has the following objective:

Advise the board of Bollegraaf Recycling Machinery if, and in what way to expand its business to East Asia, in order to spread market dependence, to cope with declining sales in the home market and Western Europe, to cope with a stagnating global economy and to fulfil the company’s general wish to expand.

2.3 Research Question

Based on this objective, the following research question was formulated:

In which East Asian countries does a (potential) market exist for the recycling machines that Bollegraaf Recycling Machinery produces, and how do these foreign markets need to be serviced?

2.4 Sub Questions

The following sub questions are identified:

1. What are the underlying motives of Bollegraaf Recycling Machinery for this market research?

2. What are the variables that must exists in every (potential) target country and in which countries do these variables exist?

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19 3. What is the current and future market potential for the Prospective Target Countries in terms

of Municipal Solid Waste (MSW) and which countries have the highest market potential?

4. What is the current and future sales potential for the High Market Potential Countries in terms of recycling machines, and which countries have the highest sales potential?

5. What is the best entry mode for Bollegraaf Recycling Machinery to service the High Sales Potential Countries?

6. What are the implications of this foreign entry mode for the company?

2.5 Research Model

To provide a better insight in the research process the following research model was designed.

Figure 4: Research Model

Diagnose

Determine Sales Potentials in terms of Recycling Machinery

Determine the Best Mode of Entry

Determine the Effects of this Entry Mode and Prepare the Company

Rejected Countries

Design

Implementation and Change

Analyse Internal Company and Environment in Order to Determe Motives for Market Research.

Preliminary Screening

• Existing agents

• Availability of data

• Nett urbanization > 3 mln.

• Composition of the MSW stream:

• Paper > 10% and

• Compostables < 50%.

Determine Market Potentials in terms of MSW

& Recyclables

• Quantity

• Composition

• Collection

• Disposal

• Government policies

• Rules and regulations

• Market demand

• Competition

• Culture

• Tariffs/ duties

• Payment and finances Prospective Target Countries

High Market Potential Countries

High Sales Potential Countries

Diagnose

Determine Sales Potentials in terms of Recycling Machinery

Determine the Best Mode of Entry

Determine the Effects of this Entry Mode and Prepare the Company

Rejected Countries

Design

Implementation and Change

Analyse Internal Company and Environment in Order to Determe Motives for Market Research.

• Existing agents

• Paper > 10% and

• Existing agents

• Paper > 10% and

& Recyclables

• Quantity

• Composition

• Collection

• Disposal

& Recyclables

• Quantity

• Composition

• Collection

• Disposal

• Market demand

• Competition

• Culture

• Tariffs/ duties

• Payment and finances Prospective Target Countries

High Market Potential Countries

High Sales Potential Countries

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20 This research model is based on organisational problem solving theory of De Leeuw (1997). This author distinguishes three phases in problem solving research (1997: 219). These phases are:

Phase 1: Diagnose Phase 2: Design

Phase 3: Change/ Implementation

De Leeuw (1997) remarks that it is not necessary to have finished the first phase, before starting the next. Often, different phases such as design and implementation occur as parallel processes. This market research is very suitable for this design-based approach as explained in the next paragraphs.

2.5.1 Diagnose

Research Motives (sub question 1)

In the first phase two main factors have to be diagnosed. First it is important to question why this research is important, or in other words: one should determine what the motives are for this research.

The author believes that this part is very important because the research outcome is often (considered to be) the answer to a bigger problem. However, it might be possible that the research will not contribute to solve this bigger problem, and that there are other solutions which are (more easily) available. In the end, the researcher might conclude that the outcomes, although interesting, are not helping to solve the bigger problem. This should be avoided in all research.

Preliminary Screening (sub question 2)

The second factor in the diagnose phase is the factual collection and analysis of market data starting with a process of preliminary screening to identify the Prospective Target Countries. This process is necessary because not all East Asian² countries can be researched. Only the most promising countries have to be selected. This process will be described in Chapter 4: Preliminary Screening.

Market Potentials in terms of Municipal Solid Waste (sub question 3)

After the process of identifying the Prospective Target Countries, these countries will have to be researched and described on their market potentials in terms of MSW. This description should include a description of waste generation rates, MSW composition, amounts of recycled material, policies towards recycling etc.

Sales Potentials in terms of Recycling Machinery (sub question 4)

After identifying the High Market Potential countries in terms of MSW, these countries will then have to be researched on their (estimated) market size and potential for recycling machinery. This description Includes various related issues such as (preferred) entry modes, tariffs and duties, financing and payment. Ways of doing business with the various East Asian governments is also briefly discussed.

2.5.2 Design

Entry Modes (sub question 5)

After a proper diagnose of the internal company of Bollegraaf Recycling Machinery, its environment and the market and sales potentials of the Prospective Target Countries, it is necessary to combine this information in a proper design. This design comprises a ‘new’ situation, which is an appropriate entry mode (or entry modes) combining the information of the internal analysis and the market data.

2 East Asia is broadly defined as all countries between India and Japan (West-East) and between Japan and Indonesia (North- South). A more precise definition is given in paragraph 2.9 Definitions.

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21 The approaches and pros and cons of the various entry modes will have to be compared, in order to select and recommend the ‘best’ or most appropriate one(s) based on widely-accepted theories and literature. This should enable Bollegraaf Recycling Machinery to formulate its entry strategy.

2.5.3 Change/ Implementation

Effects of this Mode of Entry (sub question 6)

The third phase, change and implementation comprises two parts. First it is necessary to (emotionally) prepare the company for the changes proposed. This is done throughout the research period giving the board regular updates of my research activities and findings, with the aim to mentally prepare the company. The second part is to make recommendations of how this change will affect the company on various levels.

2.6 Research Type

Research can be classified in different types based on different criteria. De Leeuw (1996; 1997) distinguishes three main types of research based on the research outcomes, which is the ‘product of knowledge’. These types are:

1. Scientific research 2. Policy supporting research 3. Problem solving research.

In pure scientific research, there are no concrete customers. This type of research is just trying to satisfy general scientific curiosity. On the other hand, policy supporting research is conducted at the request of a specific (group of) customer(s). This type of research tries to satisfy some part of the total knowledge gap. Another characteristic of this type of research is the “...greater distance from the practical problem: policy supporting research does not aim to give recommendations but provides merely information” (De Leeuw, 1997: 375). Finally, in problem solving research there is also a specific (group of) customer(s) who request information. The main difference with policy supporting research is however, that this type of research tries to satisfy the whole knowledge gap, not just some part of it.

So this type of research comprises and tries to solve the customer’s ‘whole problem’ (De Leeuw, 1996:

76).

The research, as described in this thesis can be typified as problem solving research as it specifies a concrete customer (the board of Bollegraaf Recycling Machinery) and it provides information as well as specific recommendations, as formulated in the research question.

2.7 Data Collection Method

As discussed in the first paragraph, Verschuren (1996) argues that a research plan can be divided in a problem statement and a research design. According to this author, this research design is about two main questions, which are WHERE and HOW. First, the WHERE question deals with the ‘object’ of the research, or the location of the research material that is to be gathered in order to answer the research question.

Employees of Bollegraaf Recycling Machinery in Appingedam provided the necessary information in written or oral form which gave good insight in the different aspects of the company. This information was necessary to develop a clear picture of the organisation and to answer the first sub question.

Relevant information on different aspects and characteristics of MSW in the Asian countries was