International Construction Materials Ltd.
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International Construction Materials Ltd. (ICM) specializes in the trade of wood lumber between China and Canada. The company aims to participate in a construction materials trading with China, taking the vast amount of timber available in British Columbia and selling it to China.
ICM aims to be the most reliable Canadian lumber company that distributes to China. The established transportation methods (which will be detailed later) coupled with good business relations and precise market timing, allows ICM to have minimum costs and accurate delivery. As Chinese companies look for the lowest costs and the most reliable service, ICM will be there to deliver both.
With several members of the management staff being recruited from the Chinese construction industry, ICM believes it has the best knowledge of both countries and knows what Chinese construction companies are looking for in a construction materials provider.
The company has already tested the Chinese market and sees it as having great potential for further growth: As the standard of living in China improves, the number of people looking to open businesses and buy new homes will increase and this is where ICM will find its market. The combination of growing Chinese demand and the slow recovery of the U.S. market make Asian trade an option that speaks for the times. It should be noted that ICM sees potential in other Asian markets, such as India and parts of Southeast Asia. ICM forecasts building relations with these markets in the next three to seven years, after the purchase and delivery of lumber in China approaches its full potential. The chart below depicts the shipping export market dip in lumber exports, prior to a recent recovery.
Marketing and Sales Activities
Wood production in Canada is recovering, yet the price for wood is relatively cheap. Already, ICM has secured a purchase agreement with West Fraser Timber. With many mills coiling because of massive financial losses — West Fraser Timber (WFT) lost $16.7 million in the first quarter of 2012, while Canfor Corp. has lost nearly $11 million — the opportunity to distribute their lumber on mass is ever appealing to lumber company management, and ICM has already secured a purchase agreement with WFT for 5,000 cubic metres of timber per month for $175,000. This includes 2,500 cubic metres of pine and 2,500 cubic metres of cedar. The agreement is delayed until ICM can establish its other business relationships, such as that with ports and governments.
The major concern with this business venture is recovering lumber mills. Because the wood that ICM has the best access to is in British Columbia — due to the close proximity of ports with access to China — the recovering pine-beetle ravaged mills could increase the price of their product as these companies become less desperate for buyers. For that reason, ICM has secured a two-year contract – contingent on other agreements – that guarantees a minimum of 5,000 cubic metres of wood per month for the duration of the contract at the current rate. The current price for a cubic metre of lumber is currently close to the 2006 level (see chart below).
Product or Service Research and Development
ICM is in a unique position compared to other start-up companies. Because the staff already has connections on both sides of the Pacific Ocean, ICM has the connections needed to make this a profitable venture for everyone involved. As already mentioned, several members of the management team have connections with China, and two of our members have worked for the companies ICM has been in talks with — China State Construction Engineering Corp. (CSCE) and Shanghai Construction Group (SCG). These are two of the largest construction companies in China. CSCE is the third-largest construction company in the world, while SCG has constructed structures such as the East China Sea Bridge, the world’s first commercial maglev line, China’s first trans-ocean bridge, the Oriental Pearl TV Tower and the Jin Mao Tower, for example.
Organization and Personnel
The company’s CEO, Mr. Robbin Luo is a key visionary in the industry. He was key in bringing the organization overseas from national distribution. As the key visionary, he is vital in the logistics of delivering ICM products to China via ports, rail and truck.
The rest of the company’s staff has been structured to meet the needs of each aspect of product delivery. For example, the two directors of trade with China (Mr. Dong Zhongshu and Mr. Wang Fu) have already worked as directors of trade with the two primary companies with which ICM is in distribution discussions. As mentioned, these companies are China State Engineering Corp. and Shanghai Construction Group.
With current cash flow at approximately $8 million ($6 million gained through private investors and $2 million from bank loans) ICM is well positioned to cover operating expenses for the next two years. The company’s annual payroll of its nine employees will be $948,487. A two-year lumber agreement costs $4.2 million. Taxes are estimated at 30 per cent of gross profit, or $1.7 million per year. Distribution costs are estimated at approximately $1.1 million per year — It should be noted that the $1.1 million assumes a steady buyout of all 5,000 cubic metres of lumber each month. Additional lumber can be purchased at a premium if the demand requires. Gross revenue is estimated at $5.8 million per year.
ICM anticipates a $2.9-million net profit in the first year of business and a $3.7-million profit in year two. This takes into consideration office purchase, taxes, distribution costs, payroll, lumber purchase and other start-up expenses. The estimate also assumes a steady purchase of all inventory and doesn’t take into account any increase in sales year-over-year. Management considers this a conservative estimate.
ICM is a company that was on the tip of everyone’s tong, at least to those with the company who grew to know each other and they’re expertise. In March 2011, Mr. Luo was introduced to Mr. Zhongshu and Mr. Fu, at which time the men discussed Canada and China’s materials supply and demand. At this point it was discovered that the price at which Mr. Luo could purchase lumber is consistent with what Chinese construction companies are willing to pay for the business to be profitable, which is the assumption of buying the lumber at $30 per cubic metre and selling it for $90 per cubic metre.
The men then pitched a similar business plan as this to parties that could be interested in investing. With quick response from connections, the bank also came on board with investment. After the initial $1-milliion commitment, Mr. Luo offered Mr. Zhongshu and Mr. Fu jobs with the company.
Six other staff members, including an accountant, marketers, directors of foreign relations, among others, were hired and the company’s staff were gathered to develop a business plan in February 2012.
1. Meet a 20 per cent increase in year-over-year profits.
2. Establish ICM as the destination for prompt and affordable lumber.
3. Continue to recruit qualified employees.
4. Develop a benefit analysis of becoming a publicly traded company.
5. Establish relations with India and determine which countries in Southeast Asia could increase ICM profits.
International Construction Materials Ltd. strives to bridge the gap between Canada and China, creating a seamless gateway to Canadian lumber and metals while meeting the demand of its Asian conglomerates.
Keys to Success
1. Developing an efficient way to transport materials from the manufacturer to the Chinese construction companies.
2. Securing a coastal port that can accommodate the volume of materials to be shipped.
3. Training staff to perform their tasks to company standards.
4. Securing a long-term product pricing agreement.
5. Striking contract agreements with purchasers, rather than just verbal agreements.
6. Becoming sanctioned for trade by the Chinese government.
7. Selling at least 5,000 cubic metres of lumber per month.
8. Becoming the sole Canadian distributer for CSCE SCG.
CEO Mr. Robbin Luo owns a 73 per cent stake in ICM, with the other 27 per cent owned by investors. ICM is a limited company, whereby investors are limited to the amount they have invested. The company is broken into 100 shares, with each share making up one per cent of total company ownership. A total seven investors other than Mr. Spencer have stake in the company.
ICM offers all the services a Chinese construction company needs for the purchase of Canadian lumber and metal materials.
1. Price quote.
2. Assessment of amount needed.
4. Delivery insurance coverage (handled by an outside agency).
5. Client support staff.
Market Analysis Summary
Pat Bell, B.C.’s Jobs, Tourism and Innovation minister and MLA for the forestry-dependent Prince George-Mackenzie riding, said China is demanding B.C. lumber: “China picked up the slack where the U.S. left off, and that means there are people working in our forest industry all over B.C. that would otherwise not be working today” (BC Business). This is welcome relief in an industry that has depended on U.S. housing starts as its main draw. However, as that economy recovers, ICM could find itself satisfying the lumber needs of both those across the border and across the Pacific Ocean.
While it is tempting for ICM to look too far ahead and into other countries as possible consumers, it is prudent that the company master its operations in China, the most logical option given its economy and management’s experience in this market. As mentioned, India and other parts of Asia will be explored, as well as the U.S. However, this should be considered a medium-term vision (3 to 7 years into the future).
Target Market Strategy
ICM is in a unique position in that two of the directors have worked in the market that the company hopes to operate. But in order to get the product to the consumer in a timely fashion, the company needs to establish close relations with port authorities and government officials. This will provide for a more seamless transfer of goods to China.
Looking ahead, ICM should build ties with officials from other countries so that discussions can begin about exporting there. However, the focus should be on China and making the trade efficient there for the next several years.
While several companies have established a grip on much of the Chinese market, ICM has managed to come to verbal agreements with two of the country’s largest construction companies. By already having relationships with these two businesses, ICM is well-positioned to overcome the competition and take a stranglehold in this important sector of both the Canadian and Chinese economies. The capital that ICM has already secured will allow the company to explore the best shipping options and it could position the business in front of the competition when it comes to bidding for port times, for example. This could improve distribution times.
With the secured lumber agreement, ICM will load timber from the mill onto a train. The train will then deliver the timber from West Fraser in Williams Lake to the Prince Rupert Port. The lumber is then shipped to the Port of Suzhou for quick delivery to the China State Construction Engineering Corp. and Shanghai Construction Group , both located relatively close to the port in Jiangsu province. The wood is then railed and/or trucked to the respective companies for placement in their warehouses. The company then transports the wood to their desired locations.
Management and Personnel
Mr. Robbin Luo is the man who put this company together. He is the CEO and founder. He works closely with two directors of international relations with China, Mr. Dong Zhongshu and Mr. Wang Fu. These men comprise the company’s management and they are key in meeting with Chinese managers and coming to terms over trade agreements. They must also ensure legal practices are met and governments on both sides of the ocean are satisfied. Management also consults a lawyer, Ms. Alice Ambrose.
The company consists of upper management, a lawyer, accountant, marketing manager, sales, human resources and a secretary, as well as outside consultants. As the company continues to grow, it will look to take on staff with strong relationships to other markets. It currently has nine staff members.
1111 Barclay St., Vancouver B.C.
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