9B12N006 - Sinyi Corporation Expansion Strategy in China - Management Assignment Help

Assignment Task -           

Company Background

SinYi had formed a Taiwanese real estate company in 1981. Under the leadership of the companypresident, Mr. Chun-chi Chou, the business grew into the leading real estate agent company in Taiwan. In1999, the company did an initial public offering (IPO) of its stock in the Taiwan OTC market. Two yearslater, its shares were listed on the Taiwan Stock Exchange. Until 2008, SinYi was the only publicly tradedreal estate agency in Taiwan. By 2007, its profits were NT$1,160 million on sales of NT$6,149 million.The net profit margin had been as high as 18.86 per cent. See Exhibit1 for a summary of SinYi’s financial history and Exhibit 2 for its stock price performance.
Sinyi had four major groups of business: Realty Peripheral Business Group, Assets Management Group,China Business Group, and the Culture Public Good Group. For 2007, the Realty Business Group represented over 86 per cent of SinYi’s total sales, and the China Business Group 11 per cent (see Exhibit3).

Company Background

SinYi had formed a Taiwanese real estate company in 1981. Under the leadership of the company president, Mr. Chun-chi Chou, the business grew into the leading real estate agent company in Taiwan. In 1999, the company did an initial public offering (IPO) of its stock in the Taiwan OTC market. Two years later, its shares were listed on the Taiwan Stock Exchange. Until 2008, SinYi was the only publicly traded real estate agency in Taiwan. By 2007, its profits were NT$1,160 million on sales of NT$6,149 million. The net profit margin had been as high as 18.86 per cent. See Exhibit1 for a summary of SinYi’s financial history and Exhibit 2 for its stock price performance.
Sinyi had four major groups of business: Realty Peripheral Business Group, Assets Management Group, China Business Group, and the Culture Public Good Group. For 2007, the Realty Business Group represented over 86 per cent of SinYi’s total sales, and the China Business Group 11 per cent (see Exhibit 3).

The SinYi Philosophy

At the time the company was founded, the real estate market in Taiwan was characterized by fraud and deceit, and fraudulent deals between buyers and sellers were common. From the beginning, Chou had decided to follow an ethical path, as evidenced by the company name, which, in Chinese, means trustworthiness and fair dealing. To ensure that his new approach would be implemented, Chou followed a unique human resources strategy in which he hired persons without experience in the industry (who therefore had not been influenced by its existing bad practices) and thoroughly trained them in the SinYi, client-oriented approach, which included classes on ethics.

Moreover the compensation system, in which employees received a large part of their compensation in the form of salary, was designed to avoid having the staff members “push” their product on naïve buyers and sellers and to emphasize the importance of teamwork. Finally, the company made a significant effort to ensure that clients were well informed about the real estate market and pushed for home inspections and warrantees by builders. As Chou noted, “The service provided by our people is our product, and therefore our human resources strategies are the key to our success.”

Successes and Challenges

Initially, Chou owned all shares in the company, but gradually, shares were made available to employees. Following the IPO, Chou retained a 60 per cent interest in the company. In subsequent years, the company grew and prospered, and the SinYi brand became well known in Taiwan for its fair-dealing practices. In many ways, the company had taken the lead in transforming the conduct of the participants in Taiwan’s real-estate community, and other companies began to copy its ethical brand of practices. However, SinYi’s growth was not without its challenges. Chou insisted that promotions would be made from among the existing staff and that all new unit managers should be well trained. As a result, the company could not grow as quickly as some of its competitors, which did not have such high human resource standards and could therefore facilitate their own expansion by hiring experienced managers away from competitors.

ENTERING CHINA

The Mainland China Market in 1993

By 1993, the Taiwan market was becoming more mature and competition was fierce. On the other hand, the market in mainland China was expanding at a very rapid pace, due to the combined influences of the economic boom, the government’s preferential policies supporting residential housing, the growing wealth of Chinese consumers, and the development of the transportation infrastructure. In 1993, China’s President Authorized for use only by Omonigho Jatto in International Financial Management at University of Windsor from Sep 07, 2020 to Nov 20, 2020. Use outside these parameters is a copyright violation. Mr. Deng Xiaoping had visited southern China and publicly confirmed a new open-door policy that was expected to further stimulate economic growth.

Initial Entry into China in 1993

In addition to being a rapidly growing market, the Chinese mainland was attractive to SinYi for a variety of reasons. First, the language spoken in China (i.e., Mandarin), was the same as that spoken in Taiwan. Second, China’s culture was quite similar to the culture of Taiwan, and third, mainland China was geographically close to Taiwan, and cultural and business exchanges had increased rapidly in recent years. In 1993, SinYi opened its first company-owned branch in Shanghai in partnership with the Chinese Commercial Bank, which made an investment in the company. Later, however, the government forbade bank investments in real estate companies, and in 1997, this relationship had to be dissolved. By 1999, the number of company-operated real estate branches in Shanghai had gradually increased to 10, and the resale
market for individual home sales was opening up due to the fact that the government had released some of its restrictions on home ownership.

The Coldwell Opportunity

By 1999, SinYi had decided to re-evaluate its Chinese operations. The company could continue to grow its company-owned branches, a strategy that offered the advantage of allowing carefully control over the implementation of SinYi’s philosophy and the establishment of its own brand on the mainland. However, growth in the number of company-operated branches was slow, and employee turnover was much higher than that experienced in Taiwan. This slow growth and the expansion activities of very aggressive competitors meant that SinYi experienced a significant decline in market share.

Renegotiating the Coldwell Deal

By 2007, SinYi had 70 directly owned branches and 90 franchised branches in mainland China in cities such as Shanghai, Beijing, Suzhou, Chongqing, and Hangchow; however, the growth of SinYi in China was still relatively slow compared to that of its competitors, and Chou was considering renegotiating the arrangement with Coldwell Banker.3 On the one hand, management felt that the relatively slow growth of franchised stores and company stores was due to the fact that the same brand was being used for both the 100-per-cent-owned branches and the franchised stores, which made it difficult for customers to distinguish between the two entities. On the other hand, if the Coldwell and SinYi brands were clearly separated, it was felt that customers with different preferences could be attracted to each operation, thus increasing the sales of both.

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