Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Hangzhou Guodian Dam Safety Engineering – People’s Republic of China (China)
Prepared by Ning Jia and George Foster
Founded in 2007 and based in Hangzhou, China, Hangzhou Guodian Dam Safety Engineering Co. Ltd (Hangzhou Guodian) is a high-tech company that specializes in the research, development and manufacturing of seepage prevention and leakage treatment materials for hydropower dams and other engineering structures. The company has a wide range of product offerings, including L/HW waterborne polyurethane grouting materials, SR plastic sealing materials and oil-soluble polyurethane grouting materials. In addition, the company is a provider of design defect analysis, solution and implementation for various construction projects.
Over the years, Hangzhou Guodian has provided defect solutions for many national construction projects in China, including the Three Gorges Dam, Longtan hydropower station, Xinanjiang hydropower station and Hangzhou Dragen Sports Centre. The company also generates revenues from the South-East Asia region. Hangzhou Guodian has received multiple national and provincial technology awards, is a recipient of the ISO9001:2000 quality management system certification, and is supported by the National Torch Plan Project of China.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable, growing company? How did it change over time?
Q2: What were the major growth accelerators for your company in the early years of high growth?
Zhang: “There are two major growth accelerators. The first one is our strong technological capability and product quality. Our products are highly competitive in the market and have gained an excellent reputation among clients. The second growth accelerator is our close association with a large national hydropower research institute, which granted us superior access to state-of-the-art research and industry information.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Zhang: “According to the China Electricity Council, hydroelectric power is currently the largest source of renewable energy in China. It is estimated that China’s installed capacity has exceeded that of Brazil, the US and Canada combined. More importantly, this sector is expected to be on a continued trajectory of increased growth as investment in hydropower is one of China’s key areas of focus. By 2015, China’s hydropower installations are targeted to reach around 325 GW, creating significant market opportunities for our company.
“Our workforce is composed of many top-tier engineers and experts in the field of seepage prevention and leakage treatment materials. They are the key driving force behind the company’s R&D activities. We truly understand the importance of human capital and talents in shaping the future of our company and in enabling us to compete in the global arena, so we contact the best researchers and engineers in the field and are willing to provide highly competitive compensation packages in order to attract and retain them.”
“We have been able to secure bank loans fairly easily, given strong local government support. Timely capital injection has enabled us to expand our production facilities and quickly scale up our productions.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Zhang: “Lack of venture capital support. Most of the venture capital firms in China tend to prefer start-ups in the IT or biotech sectors. Also, not being based in top-tier cities such as Beijing or Shanghai limits our access to external capital and other resources.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Zhang: “The company started to tap into the global market in early 2009. Our primary focus is the South-East Asia region. Given that strong technological capability and product quality are our competitive advantages, as starters, we want to choose the markets where our technologies and products can have a dominant position in terms of quality and specifications. Building a high-quality product brand is particularly important in the early days of foreign activities where we have not been able to build up a strong local sales force and distribution channel.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Zhang: “Overall, we have been doing quite well in foreign markets, especially in South-East Asia. The top management is fully aware of the challenges in building international growth. Therefore, before tapping into foreign markets, the top management team had come up with a detailed globalization strategy and prepared the company well for international sales and activities. For example, we hired managers who had prior experience in foreign sales in the hydropower business. Even though our workforce is still small compared to some other start-ups, we nevertheless revamped our internal control systems to facilitate increasingly complex cross-border coordination and communication.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Zhang: “The first foreign country that we entered into was Vietnam. The country has a close trade relationship with China and has a relatively strong reliance on imports from China. Furthermore, Vietnam has good potential for hydropower development. The development strategy of the Vietnamese electricity industry in the period of 2006-2015, with orientation toward 2015, also gives priority to the development of hydropower and encourages investment in small-sized hydropower plants. The expanding industry sector has facilitated our sales growth in Vietnam.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Zhang: “A high moment was when we successfully transported our product standards to Vietnam. Currently, most Vietnamese companies are using our product standards as their design standards.
“A low moment was when we encountered regulatory restrictions from the Vietnamese government. For example, in the bidding process for several procurement contracts, we found out that we had to opt for a joint bidding with a Vietnamese company in order to become eligible.”