The China perspective

by Teresa Acklin
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Satake expanding core business, starting new enterprises in this major market.

   The Satake Corporation is in the process of expanding on several fronts in China in a series of separate entrepreneurial moves that will make the group among the major expatriate participants in the vast China market. While Satake's core business is in the engineering and manufacture of equipment for rice and wheat milling, and it has tentatively stepped beyond this business in its home country of Japan, it is in China that Satake has elected to spread its wings.

   “When we look at China and see that country's annual consumption of 180 million tonnes of rice and more than 100 million tonnes of wheat, we recognize this is the most important emerging market in the world in areas where we have knowledge and expertise,” said Robert S. Satake, chairman and chief executive officer. “As we came to understand that flour millers in China have been interested for many years in research on a flour milling process that first removes the bran layer from the wheat kernel, we felt that we had to be part of this market in light of our own commitment to such a milling system.

   “In view of the changes under way in China's economy and attitudes toward business, we have concluded that this is definitely going to be the most important market for us in the next 10 years, if not for the foreseeable future. It already is a major market for us. Its future potential is unlimited.”

   Nothing signifies that perspective more strongly than the disclosure during an interview at the group's headquarters in Hiroshima, Japan, with Mr. Satake that the group will be a leading partner in a new flour mill to be built in the Beijing area and that other mill building projects will in all likelihood follow in the wake of this move. To be named “Beijing Satake Peritec Flour Milling Co., Ltd.,” the new mill in Beijing, with 240 tonnes of daily wheat milling capacity, is a joint venture of Satake, the Beijing Grain Bureau and the Marubeni trading group.

   Actually, the machinery for the new mill was sent to China at the end of 1996 ahead of the threatened imposition of a confiscatory duty on imports of food manufacturing equipment, which never materialized.

   “We see this mill as a showplace for the PeriTec system in China and in all of Asia,” Mr. Satake said. He said that his participation in this project was encouraged by having a Chinese partner in the form of the local grain bureau and also by the availability of an expatriate Chinese manager who had experience in milling and was interested in joining the project.

   He noted that China first began experimenting with debranning of wheat kernels ahead of milling more than half a century ago, primarily as a way of increasing the yield of flour. Rice debranning equipment was installed in more than 200 flour mills in China, but the results were not entirely satisfactory. He said these experiments with debranning had increased the flour yields in the test mills, from an average of 68% to near 74%. But the Chinese had encountered all sorts of problems, such as excessive power use, too high moisture content in bran and too many instances of broken endosperm, which interferes with the milling process.

   Mr. Satake said he was confident that the new PeriTec mill in Beijing, which might be followed by as many as five additional mills of the same size and in the same region, would resolve China's problems with debranning, while further increasing yield. “We are getting flour yields of 79 to 80%,” he declared, pointing out that a yield of 78% has been guaranteed in the unit Satake is building for Harvest States Milling Co., in Houston, Texas, U.S. The China mill project also has a guaranteed limit on power use per tonne of production, in a range of 89 kilowatt hours or less per tonne of output. He contrasted this performance with conventional flour milling that uses more than 98 kilowatt hours per tonne of output.

   Another out-of-the-ordinary move by Satake in China involves educating Chinese farmers on how to grow and harvest short-grain rice to a quality level that will be in line with Japan's rice import requirements. This project is under way in the northeastern part of the country where experts are working with Chinese teachers to show them how to improve rice growing and handling to produce grain that will be able to capture a significant share of Japan's import commitment under the Uruguay Round trade agreement. This joint project includes Satake as a 33% owner, Mitsui & Co. at 22% and a Chinese partner at the 45% level. In addition to educating farmers, this project involves the building of new rice mills to be equipped by Satake.

   “We already are importing small amounts of short-grain rice from China and we believe that volume will rise,” Mr. Satake said.

   A second rice-related project in China is along the same lines, and it is being conducted in the Beijing area with C. Itoh, another trading company, as partner. Here the emphasis is on improving the quality of rice for the domestic Chinese market, rather than for export sale to Japan. New rice mills are also being built as part of this undertaking.

   Satake has a fourth major project under way in China that is more in line with what might be expected of a global equipment company. It is building in an industrial area of Suchow a plant of 60,000 square meters for the manufacture of rice and wheat milling equipment primarily for sale in the China market. To be completed in September at a cost of U.S.$4.5 million, with manufacturing equipment to cost about the same, the new plant will be built by a Chinese and Japanese contractor working together.

   The Suchow plant will be Satake's largest equipment manufacturing operation outside of Japan where it recently centered that part of its business.

   In line with the Suchow plant manufacturing milling equipment, Satake also will establish a wheat milling parts service center in Beijing that will offer help to flour millers throughout China.

   In acknowledging that Satake Corporation is taking on a considerable country risk in entering the China market in such a major way, Mr. Satake said he felt that this was essential to the growth of the business. “It's our money to make our machines,” he noted.

   And even as the China projects were rapidly moving through the start-up phases, Mr. Satake said he was exploring opportunities in India through technical collaboration with local companies involved in rice and wheat milling equipment.