REORGANIZING STATE OWNED ENTERPRISES

1
REORGANIZING STATE OWNED ENTERPRISES??????

• By Karl Glad
• Former Director General of Confederation of
  Norwegian Business and Industry
• ??????????
• ?????

2
Karl Glads experience reorganising State Owned
Enterprises?????????????????

• Director General of Confederation of Norwegian
  Business and Industry 9 years. ??????????9??
• President and CEO of Aker Group, a privately
  owned shipbuilding and offshore construction
  company 10 years. ?Aker??(??????????????)??10??
• Chairman of the Board of Kongsberg Group, a State
  owned enterprise in high-tech defence industry
  5 years. ?Kongsberg??(??????????????)???5??
• Chairman of the Board of Norwegian Steel, a State
  owned enterprise in the steel industry.
  ????(????????)?????
• Chairman of the Board of Raufoss ASA, a former
  State owned enterprise in the automotive
  industry. Raufoss ???? ??
• (??????????????) ????

3
Why did we have to reorganise?????????

• All 4 companies - Aker, Kongsberg, Norwegian
  Steel and Raufoss - were in financial trouble
  before it was decided to start a major
  turn-around. ????????????????????????????
• Aker a private company had lost money for 4
  years. All reserves built up by many years of
  profitable operation had been lost.
  Aker???????????????????????????????????
• Alternatives Bankruptcy or - Reorganising to
  become profitable. ??????????????????
• The 3 state owned enterprises were not
  profitable, but had received money transfer from
  the Norwegian Government for many years.
  ?????????????,????????????????

4
Conclusion No. 1 ????

• Reorganising or turn-around should be started
  early in order to have money for new investments,
  but very often decisions are delayed utnil last
  minute, when all cash reserves are gone.
  ???????????,??????????????????????????,??????????
  ,??????????????????
• Why are decisions delayed?
• ?????????????

5
Why are companies losing money?????????

• Customers and competitors decide quality and
  price (market decides). ?????????????(????)
• If you cannot sell your product at a profitable
  price, you must analyse your own situation and
  find out what to do. ?????????????????,??,???????,
  ???????
• Bad quality of product? ???????
• Inefficient production? ??????
• Poor marketing? ??????

6
Conclusion No. 2 ????

• Be realistic about your own situation
  difficulties do not disappear by itself.
  ??????????????--?????????
• The market is tough, but there is no alternative
  but to meet the competition. ??????,??????????????
  
• Action must be taken by you as Company Managers.
  ??????????????

7
Quality ??

• Globalisation of economy means that all customers
  will know what quality should be expected.
• ??????????????????????????
• Quality of product????
• Quality of service????
• Meeting individual customer needs. ????????
• Quality is dependent on the competence of the
  total organisation of the company.
• ????????????????????
• Globalisation and information technology increase
  the need for competent/skilled people.
• ???????????????????????

8
Quality (continued) ??(?)

• Future competition will demand heavy investments
  in product development and competence of people.
• ???????????????????????????????
• The best companies specialize on few products
  (niche markets) and global market presence.
• ???????????????(????)????????
• High volumes necessary for high investments in
  product development.
• ????????????????????

9
Quality (continued) ??(?)

• If you cannot invest in product development, if
  you do not have high volumes in the global
  market, if your product lacks in qualityyou
  must choose alternative strategies
• ?????????????,?????????????????,??????????,??????
  ?????
• Cooperation, acquisition, merger, joint venture
  or sell to an international company.
  ??,??,??,?????????????
• License agreements.
• ?????

10
Quality (continued) ?? (?)

• Raufoss ASA example Raufoss ?????????
• 2 years ago producing 3 different products for 3
  different markets???????????????????
• Brass couplings for the break system of
  trucks,?????????????
• Brass couplings for water and gass pipes in
  Europe,????????????????
• Aluminium control arms for car-wheels. ???????
• Traditional strategy having a big factory with
  many skilled fabrication workers.
  ???????????,????????
• Company started to lose money analysed
  situation to decide strategy. ??????--????,????

11
Quality (continued) ?? (?)

• (Raufoss Example continued)(Raufoss?????)
• We decided that each of the 3 products needed a
  higher market share in order to be profitable we
  had to invest heavily in global marketing and
  product development.
• ????????????????????????????????????????????????
  ?????
• We did not have the money to invest. ?????????
• What did we do??????
• We contacted 3 different companies who were
  specialized in each of the 3 markets.
  ???????????????????????????
• Raufoss ASA sold out its activities and could be
  closed down, but all activities are continued
  with new ownership and new investments.
  Raufoss??????????,?????????,??????????????????????
  ?

12
Quality (continued) ??(?)

• For Chinese enterprises I believe that many of
  them need to develop product quality and global
  marketing. ??????????????????,???????????
• Since China is very competitive on fabrication
  costs, I believe that they can improve their
  competitiveness by some kind of cooperation with
  international quality companies.
  ??????????????,????????????????????????????????
• Most relevant ???????
• Probably Joint ventures??
• or Licence agreements? ?????

13
Conclusion No. 3????

• Competitive quality is necessary in all
  marketsquality requires heavy investments in
  competence, technology and product development
• ?????????????????????????????????,????????????
• In order to defend heavy investments in
  quality,the product must have a high market
  share globally, or the quality may be achieved
  through cooperation with global companies.
• ???????????????,??????????????????,??????????????
  ???????????????

14
Cost of production????

• Competitive quality must be delivered at a
  competitive price. ?????????????????????
• In my introduction I mentioned 4 companies which
  came in financial difficulties and had to be
  reorganised. ???????????????????????????
• We analysed and discovered that we operated with
  higher costs than our competitors.
  ????,????,?????????????????
• Inefficient activity had to be closed down, and
  the future activity had to be more efficient.
  ??????????????,???????????????

15
Cost of production (continued)????(?)

• The total picture of costs must be
  analysed?????????????
• People employed in the various activities
• ????????????
• Salary paid and other working conditions
• ???????????
• Efficiency of fabrication equipment ???????
• Logistics and production processes?????????
• Subcontracting at competitive prices ???????????
• Raw material and other procurement at competitive
  prices
• ???????????????????
• Competitive energy prices ??????????
• Infrastructure????

16
Cost of production (continued) ????(?)

• By infrastructure we think of how the state is
  providing support for the operation of
  enterprises ??????????????????????????
• Transportation systems roads, railroads,
  harbours -electricity, gas and water supply
  schools, universities, hospitals
  ????????,??,????,??????????,??,??
• Environmental regulations and labour laws.
  ??????????
• In Norway strict regulations on environment and
  strict labour laws have made many enterprises
  less competitive.
• ????????????????????????????
• In China the problem may be weak transportation
  -and social security systems. ????????????????????
  ?????

17
Cost of production (continued)????(?)

• In western countries we have for several years
  seen increasing use of outsourcing of activities
  and services. ???????????????????????
• The management of the Company must analyse and
  decide what the Company should carry out by its
  own personell, and what it should buy from
  sub-contractors. ??????????????????????????,??????
  ???????

18
Cost of production (continued) ????(?)

• (Outsourcing continued)(???)
• When I started to work for Aker Group (the ship
  builder) in 1970, the company had its own
  carpentry which made the furniture for the
  shipsToday Norwegian shipbuilders sub-contract
  the whole ships hull from shipbuilders in Poland
  who make them much cheaper, the Norwegian
  shipbuilders do the installation of the equipment
  and the outfitting of the ship in Norway.
• 1970????? Aker??(???)???,????????????????????????
  ?????????????????????????,???????????????????????
  ????????????????

19
Cost of production (continued) ????(?)

• Tough global competition has made it necessary
  for enterprises to concentrate more and more to
  core business and core know-how.
  ????????????????????????????,?????????
• The idea is that sub-contractors specialize and
  increase efficiency, and the total production
  system get more efficient. ????????????,????????,
  ????????????
• In todays automobile industry the big companies
  like Ford, Volkswagen and G.M. have become
  assembly plants and one day they will out-source
  also the assembly of the car.
• ???????????????,???????????????????????????????

20
Conclusion No. 4 ????

• Every part of the operation must be analysed in
  order to find the most cost efficient production
  what you do yourself and what you buy from
  others is a question of cost (only).
  ??????????????,??????????????-??????,???????????,?
  ?????(????)????
• No enterprise can allow more people in the
  organisation than what is strictly necessary for
  the operation. ??????????????????????????

21
Marketing ??

• Quality and price must be competitive
• ????????????
• Global competition also requires presence in the
  global market
• ???????????????
• More and more of marketing and customer contracts
  are based on latest information technology
  through Internet.
• ????????????????????????????????????

22
Conclusion No. 5????

• Reorganising of enterprises may include new
  marketing systems and better customer
  communication.
• ??????????????????????????

23
Reorganising of SOEs ??????

• Turn-around of companies????
• Good companies should improve operations
  continuously, keep close to customers and analyse
  the competitors. If carefully managed the
  enterprise should not need major reorganisation
  or turn-arounds. ?????????????,??????,????????????
  ?,???????????????
• However, some decisions are difficult to take,
  and therefore delayed technology may change
  quickly and sometimes management takes wrong
  decisions, causing turn-around situations.
  ??????????,?????????????????????????,???????????
  ???

24
Reorganising of SOEs ??????

• In China the change in political and economic
  system, membership in WTO and introduction of
  free markets have caused many enterprises to have
  difficulties meeting strong international
  competition and make profits.???,??????????,?????
  ?????????????????????????????Many Chinese SOEs
  need major reorganisation.
• ???????????????????
• My advise is?????

25
Conclusion No. 6 ????

• If a turnaround is needed in order to become a
  profitable company??????????????????????
• Start with a careful analysis of the entire
  business you operate?????????????
• Be realistic about the competition in the market
  you are facing ???????????????????
• Concentrate your activites to those in which you
  have a realistic possibility to become
  competitive ??????????????????????????
• Close down or sell activities which are too
  difficult to make competitive ??????????????
• Cut out all unnecessary costs including
  unecessary personell
• ????????????,?????????

26
Conclusion No. 6 (continued)???? (?)

• Concentrate on what you do best yourself and
  outsource other activities to subcontractors
• ?????????????,???????????
• Seek cooperation with the most competent
  international companies ???????????
• Check your marketing capabilities and keep close
  to the customers ????????,??????
• And finally ????
• Take action now, dont wait till tomorrow.
• ???????,??????
• Thank you for listening ????