When the US’ Springdale-based Tyson Foods started producing chicken in China in the 1990s, it had only two full production lines and exported its entire output to Japan. By 2001, the company was selling across China. Shandong-based Tyson Dalong Foods Co, Ltd, Tyson’s first Chinese joint venture, now records US$15 million in sales annually.

Tyson is not standing still in China. Two new joint ventures - Shandong-based Tyson Xinchang Foods Company, Ltd. and Jiangsu-based Jiangsu Tyson Foods Company, Ltd. - are scheduled to produce 100 million birds and 50 million birds, respectively, every year, starting in 2010. 

This chart details Tyson's Chinese ventures. 

Tyson China market director Joe Zhu explains: “With the help of new plants, Tyson China is expected to increase its annual revenue from about US$15 million now to US$500 million,”

This expansion will make its Chinese operations Tyson’s largest international project, but the story will not end there.

Zhu details that China will become one of the world’s major meat markets, contributing up to 50% to the growth in global meat consumption over the coming decade.  According to the Beijing-based China Meat Association, the country’s per capita urban meat consumption increased by 87% from 17 kg in 1979 to 31.8 kg in 2007.

Rising poultry market 

Although pork is the favorite protein source of most Chinese, Tyson China is focusing on the less competitive poultry market – a market which also has more room for growth.

“During the last decade, the growth rate of China’s poultry consumption was  faster than that of its pork consumption,”  Zhu says. “We have expanded our poultry production in China in order to take advantage of this trend.”

The two Shandong plants -- Tyson Dalong and Tyson Xinchang -- mainly provide fried chicken and frozen poultry to national food service and wholesale channels. Jiangsu’s Tyson Jiangsu will provide fresh, retail packaged chicken products to eastern China.

“Although our distribution channels cover food services, wholesale and retail sectors, we are trying to sell as much chicken as we can to retailers,” says Zhu.

In China, most local chicken producers distribute directly to food service companies and other business buyers. There are other foreign producers targeting retail, including Hormel, but these companies are focusing on pork.

To serve the needs of this rising market, Tyson Jiangsu will distribute small packaged fresh chickens – usually 0.5-1 kg in weight – to retail outlets in eastern China, especially Shanghai.

The retail sector is undergoing some major behavioral changes, as increasingly wealthy Chinese shoppers abandon the traditional, but unsanitary, outdoor wet markets for modern supermarkets, hypermarkets and convenience stores.

“Our market research shows that China’s middle class prefers buying meat in the retail sector, but there is no major poultry supplier,” explains Zhu.

Furthermore, Tyson China is planning new plants in Guangzhou, Chongqing and Beijing, and will explore the fresh chicken market there, according to Zhu.

Better quality, better returns 

The melamine contamination crisis in 2008 exposed China’s major food safety problems. Foreign companies, such as Tyson, however, have reputations to maintain, and must pay close attention to food safety and environmental issues. This helps the company's image with Chinese consumers, but at a cost.

“As an international company, our biggest advantage is quality control. However, in order to maintain our high standards of quality, we have lost money in China,” continues Zhu.

For example, in order to keep its contract with a key customer last year, Tyson China had to match the prices offered by local producers – despite higher production costs.

“Even though we suffer in the short term, our high quality products can help us build a good reputation and make more money in the future,” added Zhu.

The company is also building a reputation for more advanced technology and processes, allowing it to stay ahead of local competitors who can copy products quickly, and then compete with lower prices.

For example, during processing, most local producers hang chicken by their necks, but Tyson Jiangsu hangs chicken by their feet. In this way more blood is drained and meat stays fresher for longer.

“With the help of the latest U.S. chicken processing equipment, Tyson Jiangsu will be the most modern chicken processing facility in China,” said Tyson’s Zhu. “It is hard for our competitors to come with the same type of product without using this expensive equipment. So we can keep other producers out of this business and benefit from less competition.”

Another advantage that Tyson has over local competitors is the independence of its safety inspectors.

“Tyson China’s quality control managers are not allowed to be involved in sales, and have to report directly to our U.S. company. As a result, all the local plants have to maintain international standards,” said Zhu.

Another independent Tyson team is the Environment, Health and Safety department (EHS) .
 
“We always joke that under EHS’s strict requirements, the waste water we emit is cleaner than the water which we bring in,” he adds.

Like Tyson China’s quality control department, the EHS is not involved in the company’s sales results and has the authority to shut down plant operations.