CHINA PUBLIC Procurement Ltd (HK: 1094) believes that following recent internal restructuring and corporate reorganization, it is in a very strong position to offer the full range of services needed to bring contractor and government tender representatives together.
More importantly, the Hong Kong-listed firm believes it is the best bet to ensure that both parties leave the negotiating table with a handshake, a smile, and a lucrative contract graced with freshly-inked signatures.
CPP said that market potential is tremendous for governement procurement services.
In 2007, centralized government procurement in China was worth around 400 bln yuan, but accounted for merely 1.4% of GDP, compared to around 15-20% in developed countries.
CPP said it would have been around six trln yuan if all public works, goods and services were taken into account!
Mr. Jack Yeh, consultant to CPP Ltd, recently met with NextInsight and Aries Consulting to discuss the company’s growth strategy.
He said that he has witnessed several changes at the firm during his tenure, and the company is barely recognizable from the form it took when it first listed in Hong Kong as Sunny Global back in 2002.
“Since then we have reorganized and in the second half of last year we began acquiring the operating businesses and capacity to become a leader in the specialty of procurement for large-scale projects,” he said.
CPP Ltd as we know it today was born when Sunny Global agreed to acquire Hero Joy International Ltd in August 2008, which was approved by shareholders in February of this year.
The acquisition was completed in April, whereupon Sunny Global changed its name to China Public Procurement Ltd (CPP).
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CPP Ltd has developed both useful and therefore coveted ties in the government procurement world with a Who’s Who list of influential state-backed entities including the China Federation of Logistics & Purchasing, Tsinghua University’s School of Software and the China Electronic Chamber of Commerce.
At the same time is has a 90% stake in Guocai (Beijing) Technology Ltd, a deal-making website for government tender offers. Its partner in the venture is Guocai Science Technology Co Ltd, a firm majority invested by a variety of government-run logistics and software industry groups as well as investment firms.
With so many fingers in the state-run industry organization pot, CPP Ltd is well-positioned to be one of the first to know when the national government -- as well as the numerous provincial authorities -- are mulling a tender launch for major infrastructure construction projects across the country.
And having one’s ear to the ground is all-important in this industry where capability, capacity and connections all play a role in helping facilitate successful tenders.
“Our aim is to create a public procurement and contract-tendering platform of the highest caliber in mainland China. The planned platform will offer a variety of formats for the full range of tendering functions, from project announcement and request for expressions-of-interest up through competitive bidding and contract award, as its core service,” Mr. Yeh said.
“These have been designed this year, in compliance with the Asia-Pacific Economic Cooperation (APEC) five stages of service for government procurement.”
But it wasn’t just the regional trade promotion body APEC that was prying open China’s sometimes opaque and arcane government project bidding project.
He added that China’s more open government tender regime is also a make-good commitment under the country’s landmark accession to the World Trade Organization (WTO) in late 2001.”
“The accession of China to the WTO has opened an opportunity for a Public-Private Partnership between the central government and CPP Ltd’s electronic public procurement tendering process.”
The two trade promotion behemoths both require provincial and large municipal governments to establish local procurement centers, and CPP works closely with these.
“Over a dozen of these centers have been integrated into CPP’s registration and tendering platform since last year and over 300 are expected to be connected into the company’s network by 2012,” he said.
Virtual beginnings
CPP got off to an early start in virtual tendering, and is reaping the rewards today of its foresight of yesterday.
“Being the only company granted by the government to operate an electronic platform franchise in May 2008, the company has a first-mover advantage in the public procurement arena in China, hence enormous growth potential considering the government’s thrust to continuously develop the nation’s economy through infrastructure building,” Mr. Yeh said.
One need only recall Beijing’s announcement earlier this year that it would spend some 4.5 trln yuan in the near term to boost domestic consumption and economic development at home as the country’s traditional economic savior – the West and its seeming insatiable desire for Chinese exports – began to noticeably tire on the back of the global financial meltdown still gripping most economies.
This rejuvenated demand for builders of highways, byways, railways and runways in China is music to the ears of CPP Ltd, especially given its expanded ability to bring buyers and sellers together, and gave the Hong Kong-listed firm a leg up on would-be competitors.
“With a high entry barrier to the business, investors looking to lock-in a good prospect will find this venture attractive for the long term,” Mr. Yeh said.
CPP believes that the greatest volume of “early demand” for the company in the much-expected infrastructure building bonanza should emanate from business already being run through Chinese public procurement centers, which began forming in 2008 in compliance with new APEC requirements for open and competitive procurement across the region.
“Subsequent demand is likely to come from large private-sector construction work, which will eventually have to run its tendering through these centers or private-procurement facilities like them to achieve clearly documented, transparent bidding for services and cost (assessments) of operators.”
In addition, CCP’s strong background in IT systems as well as mobile phones will give it a boost in the industry.
“A range of information-management services normally required to run large-scale construction and to supply maintenance and operations support to existing facilities should provide a solid second-line of services for the company.
"These range from inventory finance and logistics control to vendor listings, catalogues and certification registry to project management and financial planning software-on-demand services.”
Mr. Yeh's descriptions of the multifarious opportunities available in the sector, each with their own unique technical requirements, made it all the more evident why CPP cherished its tieups with academic research centers and IT industry organizations.
The requisite level of technical knowhow and software capability to operate successfully in such a field appeared rather daunting on the surface, but CPP was well equipped – both in terms of technical and human resources – to meet the challenges of bringing contractor to government tender officials.
And there was rapidly growing demand for a company with CCP’s breadth of experience in the country.
“An unmet need in infrastructure and vendor management that provides great opportunity is performance measurement: tracking contract performance of tender awardees and other service providers to create a technical and integrity performance database to procurers evaluate bidders on quality as well as on price.”
