Nova-Tech Engineering – Improving Poultry Output One Chick at a Time

The Assignment

Nova-Tech’s unique Machinery-as-a-Service (MaaS) model required creative ways to structure its business in Asia’s highly regulated markets

  • Nova-Tech Engineering is a leading agricultural technology company based in the United States.
  • Its main products are machines that automate beak treatments, de-clawing, vaccination and head counting in poultry hatcheries.
  • The firm’s business model is based on leasing its machines to its customers, billing them on a remote, per-processed bird basis in a unique Machinery-as-a Service (MaaS) model.
  • When Nova-Tech hired Tractus, they had successfully entered 40 countries, but found its MaaS model was cost-prohibitive in China. Taxes, including local and national VAT accounted for 30% of the service fee.
  • Nova-Tech needed to find a way to structure its business to more cost-effectively service the market while maintaining its MaaS model so that it could effectively enter China, the world’s largest market.

 

Tractus’ Solution

Finding creative solutions to structuring new business models requires thorough research and understanding of regulations and a commercial can-do approach

  • Tractus conducted a detailed analysis of their problem and found 3 business options with tax efficient methods to lease their products in China and collect payment in US dollars, effectively positioning the company for significant organic growth in China.
  • Through Tractus’ business Inc.ubator, we hired employees for Nova-Tech’s China operations along with providing office facilities, back office support and senior-level management oversight and guidance from Tractus’ Directors and Senior Managers with decades of experience in China.ubatorprovided Nova-Tech with a low-cost way to enter the Chinese market, while minimizing their exposure to risk.
  • In addition, Tractus provided advice on establishing its permanent Chinese presence. Nova-Tech was originally considering using a FICE (Foreign Invested Commercial Enterprise) or Manufacturing WFOE (Wholly Foreign Owned Enterprise) for its permanent Chinese entity.
  • Instead of establishing a WFOE or FICE, Tractus located an existing entity based in Hong Kong with a Shanghai affiliate that could be acquired.
  • Tractus not only identified the suitable entity, but also provided M&A advisory to the client during the acquisition. Upon acquiring this Special Purpose Vehicle (SPV), the client was able to quickly establish itself in China saving them almost a year of time and additional costs compared to establishing a WFOE.
  • Subsequently, Nova-Tech Engineering engaged Tractus to provide similar market entry services in Thailand, Myanmar, Vietnam, Indonesia and India.

 

Result

Nova-Tech has been able to utilize its unique MaaS leasing model in all of its markets in Asia, with its chick count in China alone surpassing 300 million birds in 2016 and new business developed in Thailand, Myanmar, Indonesia and India.

  • Since engaging Tractus to assist it with its market entry in Asia, the company has successfully entered China, Thailand, Myanmar, Indonesia and India utilizing its MaaS leasing model.
  • Since 2014 it went from having no significant presence in China, the world’s largest poultry market, to having 87 machines installed at the end of 2016.
  • Its growth has surpassed management’s expectations with now 23 machines serving 8 leading poultry manufacturing customers in Thailand; 2 machines in Myanmar; 4 machines in Indonesia and India; and significant prospects in other countries throughout Southeast and South Asia and the Middle East.

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