BCG - The Boston Consulting Group

Situation

As a leading producer of aluminum flat rolled products (FRP), our client was facing increasing challenges from low-cost Chinese exports to its European and North American markets. At the same time, the rapid growth in demand for high-end aluminum FRP in the Chinese market presented an opportunity, as our client wanted to enhance its overall competitiveness in China. Our task was to conduct a thorough analysis of the leading Chinese players’ cost competitiveness and technical capabilities and to help our client decide whether to use China as a low-cost manufacturing base to serve global and local markets.

Approach

Through extensive data collection and analysis, we were able to thoroughly deconstruct the leading Chinese producers’ cost structures in several key product segments. We discovered that the primary drivers of their cost advantage was a government tax rebate on exports of aluminum FRP and the unique behavior of the Chinese commodity market that resulted in Chinese companies paying significantly lower aluminum metal prices. Local players were also realizing cost advantages as they gained further experience in FRP manufacturing. In light of all these factors, our team’s opinion was that our client should enter China, and that a partnership was the best entry strategy. We therefore designed criteria to identify suitable partners and organized site visits for our client’s senior management team.

Impact and value created

BCG’s detailed study of the Chinese producers’ cost advantages and technical capabilities gave our client a clear view of the magnitude of the Chinese threat, and the pace at which that threat would likely unfold in key global markets. The client adopted our recommended counterattack strategy of setting up a low-cost manufacturing base in China, and our team helped initiate that process.

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