20 September 2007 | Paul Snell
German construction firm Hochtief is to set up a joint venture in China to source and buy materials.
The new company, Hochtief Procurement Asia, is a collaboration between the German company and Chinese supply chain management firm BSC Industries. Each company has a 50 per cent stake in the new organisation, and operations will be based in Hong Kong.
BSC currently employs about 1,500 staff in China and already provides services for a number of construction clients, such as Johnson Tiles and kitchen supplier PWS. Hochtief's annual procurement spend is about ?12.7 billion (£8.7 billion).
Hochtief said the aim of the venture is to give the firm's worldwide subsidiaries better deals on building materials and supplies from Chinese manufacturers.
The rising cost of materials has hit Hochtief hard, despite a procurement restructure and attempts to work more closely with suppliers. In second-quarter results published last month, the firm said major price increases of raw materials had led to contracts costing more than anticipated. The Hochtief Europe division is expected to make a loss of ?120 million (£81.7 million) in 2007 because of this.
The firm has also signed an agreement with product tester TÜV for it to assess products. "The quality of construction materials will be assured by continuous production monitoring, material tests and certifications," Hochtief said.
The firm also said that the joint venture would offer purchasing services and identify cost savings for other firms.