vendredi 17 juin 2011

China on the edge of failure in Poland

In 2009, when Poland assigned two of the main parts of its A2 highway to China overseas Engineering group Company (COVEC), the industry went into shock. The A2 will link Warsaw and Berlin before the EURO 2012, for which the COVEC obtained 50km of construction to make. But, China’s first step on the European construction market is not such a piece of cake after all.

With a 25 million dollars turnover, the Chinese company is the world 3rd biggest construction company with most of its activities in Asia and Africa. When they placed their bid at 267 million dollars (AFP), half the price offered by its competitor, China gained its first opportunity to challenge the market leaders on their own pitch. COVEC knew it was not an easy task, but with a slight economical advantage, savings on the raw materials, equipments and low wages of Chinese worker, they could make it. 

Therefore, one would ask, how could they possibly mess it up? 

In order to meet the requirements on time, COVEC’s established a strategy based on the support of local subcontractor. At the same time, local competitors’ complained to the office of competition and consumer protection for price dumping without success. But, the Chinese company quickly ran into financial problem, when raw materials prices start to increase. When COVEC finally signs its subcontractors, they hit cash flow delays and can’t pay them anymore. The subcontractors go into strike and COVEC is forced to stop work.

With eyes bigger than their stomach, COVEC rushed into closing the deal and neglected a few risks. Today, Poland’s new highway might be on the edge of failure, but Chinese companies have shown us in the past that they learn from their mistakes. However, it is still unclear whether the tender will be reopened or not.