Xibei Bearing's Painful Cooperation with FAG
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Apr 17,2006
Xibei Bearing's Painful Cooperation with FAG
Recently, FAG again visited Xibei Bearing Stock Co.,Ltd to seek a cooperation with them on the ultra large-size bearings for petroleum equipments. However, Mr.Li shuming, chairman of Xibei Bearing, gave FAG a resolute answer "No! At least we will not cooperate with them by such means that we had employed in the previous railway bearing's joint venture."
The story should be started since the end of 2001 when Xibei Bearing had taken one quarter's market share of railway bearings in China and became the flagship in domestic railway bearing industry. However, an thoughtless cooperation with FAG forced them giving up all their railway bearing segment, including all railway bearings' production qualifications and intellectual property right.
Xibei Bearing, located in Ningxia province, is one of the 6 largest bearing producers in China and the largest bearing producer in northwest China. As a State Railway Ministry authorized enterprise, Xibei Bearing's annual profit were RMB20 million before their cooperation with FAG.
April 1996, they became the first listed bearing enterprise (Shenzhen Exchange: Xibeizhoucheng 000595) in China. In order to realize allotment of shares, Xibei Bearing expanded their production and raised an additional RMB80 million. But products were not sold as fast as they desired, so they met a financial crisis.
Just at that time, Xibei Bearing knew that FAG, the third largest bearing manufacturer in the world, were seeking a Chinese partner to form a joint venture. With a desire to introduce high technologies and investment, Xibei Bearing began their negotiation with FAG in 2000. Two years later, the both parties reached an agreement that FAG provided cash and technology investment (before cooperating with Xibei Bearing, FAG had no experience in railway bearings production); Xibei Bearing provided the railway bearing’s design papers, production qualification from State Railway Ministry, production facilities and plant site.
In 2001, Xibei Bearing signed the contract with FAG to form a joint venture. In the new company, Xibei Bearing will hold 49% of total shares, FAG holds 51%. This laid the hidden crisis for Xibei Bearing.
However, up to March 20 2002, deadline of the execution of both parties obligations, no investment from FAG was available. What's more worse, managers from FAG had made some decisions without asking Chinese counterparts, even against the stipulations in the contract. The FAG managers refused to practice the previously-confirmed staff salary level and regardless of disagreement, they employed managerial staffs and promised so-high salary.
Under such situation, Chinese parties in the joint venture applied to the local government for a cease of the contract, but with no avail. Because that cooperation was the first in northwest China, the government was not willing to give up it halfway.
March 2002, the joint venture "Ningxia Northwest Fuanjie Railway Bearing Co.,Ltd" formally came into being, with registered capital Euro 8.52 million. Since then, capital from FAG was gradually into the joint venture's account. The joint venture mainly deal with railway bearings.
"Increasing administration expense is what caused the joint venture's loss." said Mr.Li shuming. Since it’s forming, the joint venture kept on losing. Higher administration expense is only one aspect. Managers from FAG also laid off staffs against the contract stipulations, made personnel changes in the Chinese management etc. Holding less shares and control, Chinese counterpart can do nothing but regret.
Aug. 2003, Xibei Bearing raised two suggestions to the Germany counterpart. First, Xibei Bearing acquired all joint venture’s equities that FAG held. Second, they sold all their shares to FAG and quit that joint venture. Dec. 2003, Xibei Bearing withdrew all their investment in the joint venture. But they had to leave all their production facilities, technologies and qualification of railway bearing to the joint venture.
Statistically, in forming the joint venture, Xibei Bearing invested in the form of plant site, production facilities etc, altogether worth RMB31 million. However, after withdrawing from the joint venture, they only got RMB28.5 million in return. During the cooperation, Xibei Bearing's share in the joint venture only brought them some additional loss. In 2002, their operating margin of main businesses were RMB339 million, 12% lower than the previous year; profit RMB35.387 million, declined by 57%. The positive annual RMB20 million's profit turned to a loss of RMB12 million.
Today, Xibei Bearing have walked out of the embarrassment that the cooperation left to them and made great achievements in manufacturing ultra large-size bearings for petroleum equipments. FAG for the second time present their interests in cooperating with Xibei Bearing. This time, Xibei Bearing did not commit the same mistake as 5 years ago by saying “No!”
(cbcc-yinx)
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1.The news above mentioned with detailed source are from internet.We are trying our best to assure they are accurate ,timely and safe so as to let bearing users and sellers read more related info.However, it doesn't mean we agree with any point of view referred in above contents and we are not responsible for the authenticity. If you want to publish the news,please note the source and you will be legally responsible for the news published.
2.All news edited and translated by us are specially noted the source"CBCC".
3.For investors,please be cautious for all news.We don't bear any damage brought by late and inaccurate news.
4.If the news we published involves copyright of yours,just let us know.
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