2012 Sep-Oct Issue by Chain Media

http://chainalive.com

Publisher: Global Supply Chain Council Ltd. CHaINA Magazine is a FREE bi-monthly magazine and is now 100% Digital. The magazine is searchable, interactive, printable and also green. Available in ePDF digital format, the magazine is supplemented by a new website, and a mobile and tablet magazine. Readers can subscribe to the digital, web and iPad editions for just US$15.99 a year. Check out the: -Digital edition: subscribe today to the digital edition at www.chainamag.com. Get a sneak preview of the latest issue and view the full content with a 1 or 2 year subscription. -Web edition: new stories added weekly. View exclusive content (in mobile and tablet formats) with a 1 year subscription at www.chainamagazine.com. -iPad App: Click here to log in to iTunes, download the App and purchase single issues or subscribe for 1 or 2 years.

Publisher Max Henry

Chief Editor Peta Heinrich

Graphic Designer Emma Xu

Contributing Writers Peta Heinrich, Jason Inch, Maurits Elen, Adrian Gonzalez, Rachael Shoemaker, Steven Millward, Aline Bass, Barry Chen, Robert Handfield, Paul Matthews, Helen Chen, Michel Brekelmans CHaINA Magazine is the only bilingual supply chain and logistics magazine with a strong focus on Greater China. In every issue, we write about the news, trends and best practices that will help manufacturers, retailers and distributors make better business decisions with their sourcing, production, logistics from, to, or within Asia.

This issue features a unique selection of supply chain stories. Our cover feature explores the continuing e-commerce wars in China which reached flashpoint in August, as well as the current turmoil afflicting players in China’s rapidly growing e - commerce Peta Heinrich world. Chief Editor With China having been taken to CHaINA Magazine the WTO earlier in the year over its rare earth regulations, and the recent establishment of the rare earth trading platform in Baotou, we look at recent developments in the controversy. In addition, amidst constant speculation of sourcing and manufacturing moving from China, we look at one Chinese company which is now sourcing from Bangladesh, as well as exploring the closure of Adidas’ last company owned factory in China. Finally, in our feature section, we flash back to the Garter Supply Chain controversy reported by CHaINA Magazine last year, this time featuring Gartner’s response to the criticisms of the “Supply Chain Top 25” selection process. This issue features interviews from a Beiersdorf executive, an entrepreneurial team and, in keeping with our e-commerce theme, Clarins’ e-commerce manager in China and North Asia. As always we are keen to hear from our readers. Write to us at editor@supplychain.cn to share your thoughts and opinions.

DISCLAIMER Editorial and advertising are independent and do not necessarily reflect the views of the Council, the board, its members or the staff. While every effort has been made to ensure accuracy, the publisher is not responsible for any errors. Views expressed by writers or contributors in this magazine are not necessarily those of the publisher. The publisher is not responsible for product claims and representations.

C ONTENTS

september/ october 2012

frontlines

procurement

MANUFACTuRING

4 5 6 8

10 Procurement News 12 Interview with Felix Pintgen 14 Rare Earth Repercussions 16 Vancl moves Production to Bangladesh

18 Manufacturing News 20 Adidas Closes China Factory 22 A Shanzhai By Any Other Name 26 DPRK Outsources Workers to China 28 Interview: Mark Woodward

10 采购短讯 12 专访：Felix Pintgen 14 稀土反响 16 凡客诚品移至孟加拉国

18 制造短讯 20 阿迪达斯关闭中国工厂 22 山寨还是山寨 26 朝鲜支持工人外包至中国政策 28 专访: Mark Woodward

Dotcom Quotes The Big Shot Invest-O-Mania

4 网站一览 5 引言 6 小浪底大坝 8 建设一览

生产

Logistics

DISTRIBUTION

32 Logistics News 34 China to boost Logistics 36 China’s Fleet disrupts Global Shipping 38 What’s Next in TMS? 40 MYANMAR: Infrastructure Insight 32 物流短讯 34 中国计划促进物流业发展 36 中国沿海船队扰乱全球航运业 38 TMS下一步计划 40 缅甸洞察: 基础设施

66 Interview: Daniel Sugarman/ 42 Distribution News Daniel Sperling- Horowitz 44 Interview: Julien Chiavassa 68 Globalising the Industrial 47 Scalpers take a Bite of Supply Chain Apple 70 China Supply Chain Success 50 India Food Distribution and Misperceptions 41 零售短讯 44 专访：Julien Chiavassa 46 黄牛趁苹果公司缓慢扩展获取利润 48 印度食品流通：物流恶梦

The LINKS

66 专访: Daniel Sugarman/ Daniel Sperling- Horowitz 68 产业供应链的全球化 70 中国地区供应链的成功启示和误解

september/ october

www.chainamagazine.com

FEATUREs

Trouble in E-commerce Paradise

The Supply Chain Top 25 Controversy

Prepare For Landing

电子商务战争

供应链热点争议

经济洞察

3 www.chainamagazine.com

september/october

Dotcom

China Logistics & Warehousing Map is out! Check out the ONLY comprehensive logistics map of China! View the digital map at http://cha1n.com/logmap

Upcoming Events Sep Chemical Logistics

Forum

Shanghai Tue Organizer: GSCC

Sep Sourcing in Asia: Where

CHaINA Mag 2.0 CHaINA Magazine Check out the latest issue of CHaINA Magazine on our new digital edition!

CHaINAMag.com

Seeking a logistics Global Sourcing & IPOs Leadership 2012 provider in Asia? Survey

The 2012 Global Sourcing and IPO Leadership Survey was conducted by the Global Supply Chain Council and sponsored by Gibson Consulting Group.

VendorsDirectory

Check out the results here

VendorsDirectory.com

VendorsDirectory connects you with the best supply chain and logistics vendors across Asia. Check it out today!

is the next China?

Oct

Australia Supply Chain Road Show

Shanghai Organizer: Thu GSCC

Australia Organizer: GSCC

Oct Hotel Procurement

Workgroup

Shanghai Organizer: Thu GSCC

Nov CHaINAâ&#x20AC;&#x2122;12 Live

Shanghai Organizer: GSCC

september/ october

www.chainamagazine.com

FRONTLINES

Quotes

RMB 120 mn the amount invested by 12 rare earth producers in China to establish the Baotou Rare Earth Products Exchange in Baotou City.

“As human beings are also animals, to manage one million animals gives me a headache. ” Foxconn chairman Terry Gou on the company’s planned installment of robots to replace workers.

“Loosening monetary policy now is like watering the plant when it’s raining.”

US$ 28 bn

Xu Xiaonian, economist and finance professor at the China Europe

worth of semiconductors are expected to be purchased by Apple in 2012.

International Business School, on plans to loosen China’s monetary policy.

“I think they should take all the uniforms, put them in a big pile and burn them and start all over again.”

2082 the number of Chinese Group Buy sites which have failed over the last nine months.

600 mn people

US Senate Majority Leader Harry Reid, somewhat perturbed at the USOC allowing US Olympic uniform manufacturing to be outsourced to China.

“The European debt crisis recently has continued to deteriorate, giving rise to serious concerns in the international community. Frankly, I’m also worried.”

in India were affected by two massive power blackouts which caused widespread disruptions to electricity, transportation and infrastructure in the north of the country.

China’s Premier Wen Jiabao expresses concerns over the Eurozone debt crisis.

 

 

1000

the number of Seven Eleven outlets planned for Thailand by 2018.

5 www.chainamagazine.com

september/october

the title THE BIG SHOT

september/ october

www.chainamagazine.com

Jiyuan

Xiaolangdi Dam located in Jiyuan, Henan Province, impounds the Yellow River and has six 306 MW turbines.

154 metres

Height of the dam

1317 metres

Width of the dam

1836 MW

Total installed capacity

5.1 TWh

Amount of energy generated annually

www.chainamagazine.com

september/october

a i n a M O t s ve

t in China.

d investmen nstruction an

ver-ending co

the ne A glimpse at

Euroasia Investment SA- Tax Free Storage Facility

DHL MegaHub

Beijing- $100 MN- 83 000m²

Shanghai- $175 MN

The Swiss logistics group is planning a tax-free storage facility next to Beijing Capital International Airport. Expected to be ready by mid-2014, the facility will be exempt from import duties, value added tax and consumption tax.

DHL Supply Chain has opened its DHL Express North Asia Hub at Shanghai’s Pudong International Airport. The facility is capable of processing 20 000 documents and 20 000 parcels per hour.

Mapletree InvestmentsLogistics Park Zhengzhou- 81 000m²

Mapletree (Zhengzhou) International Logistics Park (MZILP) will be the company’s latest Grade A logistics facility development in China.

Lop Nur

Lop Nur Railway Lop Nur- US$476 MN

Construction of the rail line to Lop Nur is complete. The line links Hami prefecture on the China- Mongolian border with Lop Nur, a dried lake in northwest Xinjiang, known as “the sea of death.”

PepsiCo Food Plant Wuhan - 25 000m²

This will be the company’s sixth food plant in China, capable of producing 15 000 tons of Lays potato chips annually.

Sino-European Trade City Chongqing- 6km²

The distribution centre for European trade cargo will be built in Chongqing’s Liangjiang New Area in late 2012. The facility aims to attract transnational retailers involved with e-commerce and logistics.

september/ october

DHL MegaHub Tsing Yi, HK- EU63 MN

DHL Supply Chain has opened a new MegaHub facility at Interlink in Tsing Yi, Hong Kong. The nearly 900 000ft² facility will serve as the company’s Hong Kong headquarters. www.chainamagazine.com

Zumtobel Group Factory

Tianjin Yuyang Logistics Park

Tianjin- 19 000m²

Tianjin- US$70.6 MN

The Austria based company has opened its Tianjin factory for road and tunnel lighting. The facility includes a production shop, admin block and laboratory and testing facilities.

The first large scale park of its kind in China, the facility will provide distribution services for over 500 types of housing materials, decoration and renovation commodities, bathroom fittings, pottery, porcelain and hardware. Operations are set to begin shortly.

Semir- Logistics Base

Nanjing Yangtze River International Shipping and Logistics Service Centre

Tianjin- RMB250 MN

The Zhejiang-based apparel company will build a new warehousing logistics base to meet demand and improve supply chain efficiency. Semir currently has one major warehousing logistics base in Shanghai and two in Wenzhou.

Nanjing- US$7.84 BN

Construction of the first phase has begun. The centre will be a business cluster for carriers, freight forwarders, trading, personnel training and technological development. Ecolab- Manufacturing and Distribution Centre

Beijing

Taicang- 546 000ft²

Tianjin

Zhengzhou Taicang Suzhou

Nanjing

Shanghai

Huzhou

Wuhan

The facility is the company’s sixth plant in China and its largest property in the Asia Pacific. The centre has the capacity to manufacture 150 000 tons of products annually, and will produce sanitation and food safety products.

Adidas Apparel Factory Suzhou

Hangzhou

Chongqing

Adidas will close its only company owned apparel factory in Suzhou, but will continue sourcing products from Chinese manufacturers.

Dow Chemical Water Treatment Plant Huzhou

Hong Kong

Dow Chemical will open a water treatment plant in Huzhou, Zhejiang Province. Production is set to begin in 2013. The US-based company has not revealed the amount to be invested in the project. www.chainamagazine.com

Logistics

september/october Manufacturing

Content

►

Procurement News/ 10 ► Interview/ 12 ► Rare Earth Repercussions/ 14 ► Vancl/ 16

专访：采购短讯/ 10

专访/ 12

稀土反响/ 14

凡客诚品移至孟加拉国生产 /16

PROCUREMENT Li & Fung to accelerate Acquisitions Af ter enter ing a major outsourcing deal with Target Australia in August, and eight additional licensing deals this year, Li & Fung Ltd will accelerate acquisitions in the second half of 2012. The company also entered six other small roll up deals contributing approximately US$170 million annualised turnover to the company.

Global Food Producers adopt Sustainable Supply Chains Toshiba Medical Systems to establish Shanghai Procurement Centre Toshiba Medical Systems Corporation, a provider of medical diagnostic imaging systems, will establish a procurement centre in Shanghai, with hopes of expanding and improving its global procurement efficiency. The company ’s previous procurement bases were located at its headquarters and in Dalian.

TCL Corp inks Deal with Brazilian Electronics Company TCL Corp, one of China’s largest electronics companies, has signed an economic and trade agreement with a leading Brazilian electronics company at the China Sourcing Fair in Sao Paulo. Worth over US$500 million, the deal is the largest ever trade cooperation agreement for TCL in South America. TCL sells around US$31.52 million worth of products in Brazil each year.

According to a new report, Damone, Heinz, PepsiCo and Unilever have created a “code of conduct” which stipulates their suppliers must demonstrate sustainable environmental prac tices. But the repor t revealed the other eight largest food producers- Associated British Foods, ConAgra Foods, General Mills, Kellogg, Kraft, Mars, Nestle and Sara Lee, had not taken similar steps. The companies may face pressure from green NGOs and competing companies with sustainable supply chains.

september/ october

www.chainamagazine.com

PROCUREMENT

IKEA given Seven Years to meet Indian Sourcing Guidelines IKEA has been given seven years to meet Indian guidelines which stipulate foreign singleb ra n d re t a i l e r s m u s t s e l l products manufactured from

are making progress in eliminating conflict minerals including tantalum, tin and tungsten from their products. But according to The Enough Project, an arm of the Centre for American Progress, companies including HTC, Sharp, Nikon and Canon are falling behind, with Nintendo at the bottom of the list. Companies were scored on efforts to trace Apple leads way in mineral and metal sources, eliminating Conflict implementation of supply chain audits, and efforts Materials Apple, I ntel, M otorola to develop international Solutions and Hewlett Packard conflict-free certification. 30 percent locally made or sourced content. The company had initially been given just one year to comply with local rules aimed at defusing opposition to the entry of large foreign retailers to India, a country dominated by small retailers. Promising to invest US$1.9 billion over the coming years, IKEA requested permission to launch retail operations in India in June.

11 www.chainamagazine.com

september/october

PROCUREMENT

Interview with

Felix Pintgen Could you tell us about your background and function within the company?

Now I’m in charge of demand management in the Asia Pacific plus logistics. Before I joined Beiersdorf I was working for ten years with Roland Berger in Germany. Then I moved to Beiersdorf but spent the first year in Wuhan in C-BONS. The second year I spent half the time in Wuhan and half in Shanghai. For one and a half years now I’ve been in a regional role since Beiersdorf changed recently from a centralised to a regional organisation.

Do you think your previous experience in consultancy is useful in your position? My background definitely helped me, not only because it’s a people’s business, but also in terms of understanding the broad scope. If you want to successfully run S&OP, you quickly need to understand the challenges and bottlenecks along the entire value chain. Also structure is important, and one of the challenges is to realise and prepare, make decisions, prepare decisions well and provide options.

Can you also give us a brief definition of S&OP?

A joint position which is situated between marketing, sales and supply chain. The role of these three parties is always important in

erations p O d n a s le a S f o The Director Demand Planning (S&OP)/ Group in rf o d rs ie e B r fo t Managemen lks S&OP. the Asia Pacific ta controlling finances, because you need to evaluate and oversee the financial impact of all the decision making.

Sales and marketing usually work close together but supply chain communication is often a little different. Do you have similar problems in your company? We implemented S&OP on the regional level and this needs to be clearly separated from S&OP on the local level. If there is no cooperation on the local level between marketing, sales and supply chain, the parties have not realised that S&OP will help everyone achieve their targets.

september/ october

www.chainamagazine.com

PROCUREMENT

Is the structure of local departments similar in all countries in the Asian region? On the local level we try to give more freedom to the individual affiliates. We want to make sure that from the coverage, scope, topic and how they are working, that they follow the basics. But how they execute it and have meeting cycles is up to the local affiliate.

How would you evaluate the importance of IT software in this process?

example if you’re thinking about Guangzhou you’ve got a very different demand pattern for the product than in the north of China where you’ve got very cold winters, very different climate and a corresponding need for products. If you want to deal with China as one country you will fail.

Some companies face volatile demands for different types of products. How do you handle forecast and planning for these products? Th e p ro b l e m i s g o i n g t h ro u g h t h e distributors, from the distributors to the retailer, from the retailer DC to the retailer point of sale and then the consumer. Because we’ve got a lot of beauty advisers, if you get initial feedback from them, we will be more reactive and don’t have to wait until the feedback has come through the entire value chain. The challenge is always to be very close to the market.

The most im p o r t a nt p a r t i s a lways people and their behaviour, in particular the mindset, the way they believe in S&OP, that top management is supporting it and the entire way they are thinking is driven by S&OP. The second thing is having structures and clear processes to follow. They should be very clear and accepted by the individual parties but also leave some flexibility. How do you get that information The last thing is the tools which are nothing more than enablers to help you to from the sales counter? Either they have smart phones where they’re run those processes. But even with the best tools you will never ever compensate for collecting the data and computing it via a system or sometimes we get the data from missing processes. retailers if they have this kind of data at the How would you evaluate the existing checkout. Sometimes it’s also done manually when we don’t have systems support, so we legislation in China? I think China itself cannot really be get that information as fast as possible. regarded as one country. Starting from the Could you summarise the key geographical side it’s more like a continent. From development of how you’re serving aspects needed to drive S&OP? Win the people, ideally also on a personal customers or trade channels, it also varies to a high degree if you compare Shanghai level and provide some structure. Because it’s with Urumqi or Wuhan. You need to think something I always realise in Asia. As soon in different clusters, in different work and as you make things transparent and clear, business models, and also very different and give some guidance- also in terms of ways of how you’re serving the region. For process- and develop it with them, they are very happy to accept and follow it. 13 www.chainamagazine.com

september/october

PROCUREMENT

Rare Earth

Repercussions

Peta Heinrich

fter being taken to t h e W TO t h i s year over its export restrictions, China’s future dominance over rare ear ths remains uncertain, despite the recent establishment of a new rare earth trading platform and new regulations. Long established as the world's primary source of rare earths, China produces over 90 percent, and consumes 65 percent of the materials. The US Geological Survey estimates the nation has around half of the world’s reserves, but China claims the figure is only a quarter.

In the last two years China has imposed export quotas and price controls, claiming the actions are intended to conserve natural resources. But many consider the strategy to be economically motivated, aimed at using reduced supply to drive up prices, and allowing China to become a dominant force in the manufacturing of products requiring rare e a r t h s. T h e r e s t r i c t i o n s have made procurement increasingly difficult. Matters came to a head in March when the US, Japan and Europe took China to the WTO, claiming its regulations violate free trade rules, with

foreign companies paying up to twice as much as Chinese firms for rare earth metals. According to European Union Trade Commissioner Karel De Gucht: “ These measures hurt our producers and consumers in the EU and across the world.” US Trade Representative Ron Kirk said: “China continues to make its export restraints more restrictive, resulting in massive distor tions and harmful disruptions in supply chains for these materials throughout the global marketplace.” But Chinese officials claim the controls are not trade

september/ october

www.chainamagazine.com

PROCUREMENT protectionism and are combined will account necessary to protect the for about a third of global demand. Japan is involved environment. T h e W T O c o m p l a i n t in a rare earth development alleges the export curbs project in Quebec, while p re s s u re c o m p a n i e s t o Canada and India plan to move factories to China. resume rare earth mining. Glassmakers requiring the rare earth metal cerium, “These used in glass colouring and polishing, and producers measures hurt of of neodymium, used in energy-saving our producers and light bulbs, have consumers in the EU increasingly shifted to China. and across the Michael Silver, CEO of advanced materials maker American Elements said: “We were supplying all the glass plants, and they were a huge operation in the US for over 100 years. But those operations have essentially all moved to China.” One result of the restrictions has been to decrease rare ear th demand. But the export curb has also led countries t o s e e k a l t e r n a t i ve s t o dependence on Chinese supply. Colorado mining company Molycorp Minerals is reopening and expanding its rare earth mine Mountain Pass, while Australia's Lynas Corp is opening M ount Weld. These two projects

world.”

European Union Trade Commissioner Karel De Gucht

Meanwhile Inner Mongolia Baotou Steel R a r e E a r t h H i -Te c h Co. , China's largest rare-earth producer, has launched a physical-trading platform for the minerals which m a y i n c r e a s e C h i n a' s control over pricing. China's government almost simultaneously introduced new re g u l at i o n s re q u i r i n g mines and smelting companies to meet minimum output levels for continued operation. This could result in 20

per cent of the country's production capacity being shut down, with many mines and smelting companies unable to meet new standards. This may further inflame tensions at a time when the US and Europe expect to increase sales of products made with rare earths. Never theless, with t h e W TO n o w h a v i n g set up a panel to probe China's rare earth export restrictions, China may have to amend its policies which could open up the rare earth market. But as the world relies less on China for rare earths, the WTO findings may have limited impact on prices.

15 www.chainamagazine.com

september/october

PROCUREMENT

Peta Heinrich

Vancl moves Production to

Bangladesh

o l l o w i n g r a p i d l y i n c re a s i n g domestic production and labour costs, China’s largest online apparel retailer Vancl is shifting some production overseas. Since late last year, the company has been sourcing an undisclosed portion of its production from Bangladesh, with plans of a further increase. According to Vancl, the main incentive behind the move was lower labour costs. Chen Chu, Vancl's public relations director said: “Labour costs have been greatly reduced by moving part of the production to Bangladesh.” With China's minimum labour cost increasing by 23 per cent last year, Chen said wages in China had risen to $400 per person per month compared to $75-$80 in Bangladesh. Even factoring in higher transportation and other costs, outsourcing would save the company five to ten percent of total costs.

Another reason behind the move was worker shortages. Younger Chinese migrant workers are increasingly reluctant to take factory employment, preferring instead service or white collar jobs. But despite lower costs, Bangladesh poses numerous challenges- political unrest, poor infrastructure and longer production times. One company official said the production cycle in Bangladesh could be four to six months, while domestic suppliers deliver in 30 to 45 days. Meeting Vancl's production expectations could also be problematic. Chen said: “overseas production cannot meet such

“

This is far from the end of textile manufacturing in China. - Torsten Stocker, head of Asian consumer goods practice at Monitor Group

4 16

september/ october

www.chainamagazine.com

PROCUREMENT requirements. Despite higher costs in China, domestic factories still enjoy higher production skills and shorter production time.” According to Shaun Rein of China Market Research in Shanghai: “Vancl only sells to the China market. One of the reasons they win is they can introduce new products, tailored specifically for China, very quickly.” He claimed that to source from Bangladesh could jeopardise this. While all Vancl's clothing manufacturing is outsourced, until recently, the majority was produced domestically in the Yangtze and Pearl River deltas. Besides Bangladesh, Vancl is considering oppor tunities in Indonesia, Cambodia, Vietnam and Pakistan. With relatively cheap labour, materials around 30% cheaper than in China, and

a mature textiles industry, Bangladesh is becoming a popular destination for Chinese brands considering overseas production. Shao Ligang, from Beijing-based Jiupai Yixian apparel consultanc y, believes rising domestic labour costs will see more production of Chinese brands outsourced to lower cost countries. While Bangladesh may become a significant player in the manufacturing and production industry in the future, Torsten Stocker, head of Asian consumer goods practice at Monitor Group, believes other factors including labour productivity, training and skill level, degree of automation and speed to market continue to influence sourcing decisions. “This is far from the end of textile manufacturing in China,” he said.

17 www.chainamagazine.com

september/october

Content

►

Manufacturing News/18 ► Adidas/20 ► Shanzhai /22 ► DPRK/26 Interview /28

专访：制造短讯 /18

阿迪达斯关闭中国工厂 /20

山寨还是山寨 /22

朝鲜支持工人外包至中国政策/26

专访/28

MANUFACTURING Mengniu Manager arrested over new Milk Scandal A M engniu Dair y sales manager has been arrested for allegedly altering production dates on 3000 cases of milk. With the milk a p p ro a c h i n g e x p i r y, t h e manager and an accomplice purchased the cases at a reduced price, and removed and altered the production dates. Mengniu Dair y is cooperating with Zhejiang authorities over the matter. The company has recalled the products and promised to strengthen product quality control measures. This comes as the latest in a string of food safety scandals in China.

Apple Foxconn improves Labour Conditions According to a Fair Labor Association (FLA) report, Apple supplier Foxconn h a s i m p rove d wo r k i n g conditions at three of its C h i n e s e f a c t o r i e s. T h e company has reduced employee overtime work and updated maintenance

policies and safety procedures. A February audit showed employees worked beyond 60 hours a week, a lack of compensation for overtime, and inconsistencies in healthy and safety procedures. Despite progress, the FLA said Foxconn needed to further reduce working hours and has additional issues to resolve.

Counterfeit Drug Crackdown In the wake of an increasing number of offences in the production and distribution of traditional Chinese medicines, the SFDA will step up joint actions with other law enforcement agencies and government departments in the latter

4 18

september/ october

www.chainamagazine.com

MANUFACTURING dollar investment plans in an attempt to stimulate slowing economic growth. Yet with the project pending approval by Beijing regulators, some analysts believe not all spending will be carried out.

Construction of DPRK Economic Zone continues

half of the year in an attempt to wipe out the counterfeit drugs. Efforts will be made t o i m p ro ve c o o rd i n a t i o n among drug safety agencies from different regions as well as cooperation between the government and enterprises.

Ford to introduce “One Manufacturing” System in China

In an effort to increase f a c t o r y e f f i c i e n c y, Fo r d plans to introduce its “One Manufacturing” system in China. Under the system, its factories will use the same production techniques worldwide. The move aims to increase annual global

sales by 50 per cent to eight million vehicles by 2015, with one-third of deliveries in Asia by 2020. Ford intends t o i n c re a s e p ro d u c t i o n output in China and is also planning a US$760 million assembly plant in Hangzhou.

Chongqing plans US$240 billion in Industrial Investments

An international trade fair in North Korea’s economic zone Rason has given a glimpse of the DPRK’s efforts to transform the remote region into a manufacturing, tourism a n d t ra n s p o r t at i o n h u b. Pavement of the road from China to Rason is complete, construction of power substations and railway lines to Siberia is underway, and piers at the harbour are being expanded. Strategically located between Russia and China, completion of the project will depend largely on China’s provision of electricity, supplies and finances.

Chongqing’s government will invest US$240 billion over three years in seven areas including autos, electronics and petrochemicals. It is the fifth Chinese city to a n n o u n ce m u l t i b i l l i o n 19

www.chainamagazine.com

september/october

MANUFACTURING

Adidas

Closes Doors on China Factory “

s par t of a strategic transition to fully subcontracted production, German sporting goods company Adidas will close its only companyowned apparel factory in China at the end of October. Following the closure of the Suzhou factory which employs 160 workers, Adidas will continue to source from more than 300 supplier factories in China.

Adidas spokesperson Sabrina Cheung, said China will remain a major source of goods and will still be the company's “main global production site.” Chen Qi, a spokesperson with Adidas Greater China, said the closure will allow the company to “realign its global resources” and restructure its business both in China and elsewhere, improving efficiency. The company now has few wholly owned factories anywhere.

Peta Heinrich

The move shows global clothing companies are gradually losing interest in China as a manufacturing base. - Zhu Meng, Adfaith Management Consulting

4 20

september/ october

www.chainamagazine.com

MANUFACTURING Some analysts consider the move a response to increasing costs in China, where rising labour and raw material prices have driven some manufacturers elsewhere in Southeast Asia. Adidas' main rival Nike closed its only fully owned shoe factory in China in 2009. Zhu Meng, from Beijing-based Adfaith Management Consulting said: “Outsourcing manufacturing could help foreign sportswear brands increase efficiency and reduce costs,” and concluded “the move shows global clothing companies are gradually losing interest in China as a manufacturing base.” Workers at the factory suspected rising salaries may be behind the closure, which followed wages rising by RMB400-600 from around RMB1100 (US$175) prior to 2010. Ma Gang, a sportswear market watcher in Chengdu, said average worker salaries at a Cambodian Adidas factory were only $130 per month. Therefore “closing the factory could also help Adidas save operational costs and focus on marketing and sales in China.”

But Chen denied any direct linkage between the closure and salary increases. Some Chinese consumers did not seem bothered by the closure. In Beijing, 28 year old sportswear fan Yang Xiaoqi said: “I care more about the product designs and prices rather than production sites. With similar prices and designs, I prefer those made in China rather than Southeast Asian countries, as I think the former ones have better quality.” Western companies such as Gap and H&M as well as Chinese domestic brands such as Li Ning, 361 Degrees and China Dongxiang have increased competition, and with China's economic slowdown, sportswear brands have encountered a decline in sales. After entering the country in 1997, China is now Adidas' second largest market with over 6000 stores. A source at the Suzhou factory said the company may move some apparel production to Myanmar. This has not been confirmed by Adidas, but would seem to be in line with current trends.

21 www.chainamagazine.com

september/october

MANUFACTURING

Fakes, counterfeits or copies- in China they are often called Shanzhai. But this type of “disruptive innovation” may in fact be helping China’s Shanzhai makers hone their skills and pose a serious challenge to Western companies in the future. This extract from “China’s Economic Supertrends,” written by Jason Inch, examines the Shanzhai phenomenon.

A Shanzhai

By Any Other Name

Jason Inch

h i l e We s t e r n business m o d e l s often utilize extensive branding to a d d p e rc e i ve d v a l u e i n the minds of consumers, many of China’s products compete on a functional or price basis alone. The extreme example of this is a product that essentially copies everything, up to and including the design and packaging, but sells at a much cheaper price. Western people might call them fakes, counterfeits or copies. In China, they are often called shanzhai. The word shanzhai (or sometimes shanzai) o r i g i n a l l y re fe r re d t o a mountain village with a

reputation for harboring thieves or bandits. In its modern colloquial Chinese usage the word refers to a class of brands or products that could include knockoffs or look-alikes, fakes or copies. Examples are everywhere in China, anything from bizarre Potemkin Villages of falsebranded storefronts with logos that look like famous brands, to people resembling famous celebrities, such as the shanzhai President Obama (a

look-alike actor) selling real KFC in Hong Kong or the “real” President Obama (a pasted-in photo) endorsing a shanzhai “Blockberry ” smartphone. Some s h a n z h a i p ro d u c t s a re legitimately competitive, in the way that Coca-Cola led to Pepsi-Cola, China’s Wahaha created its own “Future Cola” (though the latter ’s can once looked somewhat suspiciously like Coke’s red can with the white swooshes). O ther shanzhai are complete rip-offs of the original. For example, Starbucks logos and shop designs have been copied numerous times and,

Photo by ChinaSupertrends.com

4 22

september/ october

www.chainamagazine.com

MANUFACTURING

in 2011, an entire shanzhai Apple Store was found operating in the western Chinese city of Kunming, complete with employees who apparently thought they were working for Apple. While such examples seem humorous, crudely designed, or even offensive to Western brand marketers and consumers, shanzhai do not always have a stigma attached when seen from Chinese eyes. China - with a historical tradition of students duplicating the works of masters to develop skill - is possibly more culturally

tolerant of something that appears to be copied without attribution. Chinese consumers may not even be familiar with the original Western brand that is being shanzhaiâ&#x20AC;&#x2122;d, so the fault is not theirs in overlooking a shanzhai, but more with market regulators for failing to enforce trademarks adequately or the original brand owners themselves, w h o d o n o t a d e q u ate l y pursue the violations. An important implication of the shanzhai phenomenon is that, while the products may begin as pure copies or

poorly functioning knockoffs, more and more often the companies that produce them are maturing and improving, to the point where one day they may introduce actual competitive offerings. This process may be considered a type of disruptive innovation, a term coined by Harvard professor Clayton Christensen, whereby new entrants produce something for the low end of the market, too cheap or under-functional for the original incumbent producer to care about, but then begin to gradually 23

www.chainamagazine.com

september/october

MANUFACTURING

Copying the brand or c l i m b t h e q u a l i t y a n d produce entirely in China c a p a b i l i t y l a d d e r s a n d in the most efficient way the design may seem too eventually challenge the possible and, of course, pay blatant, but unless Western incumbents. Christensen no R&D or licensing fees. manufacturers are more used the example of how This somewhat follows in aggressive and persistent about cheap microcomputers from the tradition of Japanese protecting their intellectual Apple grew to eventually companies such as Sony property inside China, the d i s r u p t t h e m a r k e t f o r a n d M a t s u s h i t a ( b e t t e r shanzhai firms will continue to expensive minicomputers known as Panasonic in the develop their know-how within f ro m Digital Eq ui p ment West) that made “cheaper, China’s huge market by selling smaller and better” into a to China’s unaware, apathetic, Corporation. or price-conscious With much basic technology Western people might call c o n s u m e r s . T h e worry that Western b e c o m i n g them fakes, counterfeits or companies should commoditized copies. In China, they are often have is not about and mired in the short-term lossoverlapping called shanzhai. of-sales effect from patents, Chinese shanzhai products may be manufacturing credo that shanzhai, but rather from the disrupting on the basis of allowed them to become the long-term disruptive effect brand and design, taking on foundations for the Japanese the shanzhai makers are going just enough of the look-and- electronics industry that to have on their industries feel of a successful brand would eventually overtake as they gradually improve or product, but selling it the incumbent American and products through research and development. much cheaper because they European leaders. 4 24

september/ october

www.chainamagazine.com

MANUFACTURING

DPRK Props Up

Regime by Outsourcing Workers to China Peta Heinrich

he Communist regime of North Korea is sending citizens to China as guest workers in an attempt to raise money for the cash-strapped nation. As one of its only remaining trading partners, China has approved industrial training visas for around 40 000 North Korean workers. With UN sanctions limiting DPRK trade a n d p re ve n t i n g e x p o r t o f we a p o n s, the guest workers undertake jobs as seamstresses, mechanics, construction workers and miners, but very likely see less than $50 of their $200 to $300 per month salaries, most of which are directly siphoned into the pockets of the Nor th Korean government. Yet with North Korean monthly wages at less than $10, the workers may still be faring better than their counterparts back home. According to Sohn Kyang-ju, head of the Seoul-based NK Daily Unification Strategy I nstitute and a former South Korean intelligence official: “The North Koreans can’t export weapons anymore because of

[international] sanctions, so they are using their people to raise cash.” Senior research fellow at the Korea Institute for National Unification Park Hyeong-jung said: “the Nor th Korean economy is practically bankrupt. In order to expand employment, they need to reform, but the leadership is unwilling. So they look overseas to earn money.” John Park, an academic who has written extensively on Nor th Korean-Chinese relations said: “It will allow the North Koreans to piggyback on China’s economic success to jump-start the economy under the new leadership.” But with no labour shortages in the northeastern provinces, the move to issue visas for unskilled and semi-skilled workers is unprecedented and controversial. Both Beijing and Pyongyang have remained tight-lipped and have not publicly announced the deal. The first North Korean workers arrived in Tumen a few months ago, with more reported to be arriving in other border cities

september/ october

www.chainamagazine.com

MANUFACTURING and towns including Dandong and Hunchun. NK Daily reporter Kim So-yeol said the North Korean government selects “mostly people who are very loyal, with relatives in the Workers' Party,” who must be married. Kim believes as many as 120 000 workers will arrive this year. North Korea has previously outsourced workers to Russia, Libya, Bulgaria, Saudi Arabia and Angola, but hundreds of young North Korean women working in garment and shoe factories in the Czech Republic had contracts cancelled following European human rights activists concerns of virtual slave labor. According to Park, Chinese employers stand to benefit from the deal: “There are no better employees than North Koreans: They are obedient, efficient and cheap.” However many Chinese are likely to be less enamoured with the arrangement. According to Zhang Lianggui, a North Korea expert at the Central Party School in Beijing, the North Koreans “will be competing

“The North Korean economy is practically bankrupt. In order to expand employment, they need to reform, but the leadership is unwilling. So they look overseas to earn money.“ - Park Hyeong-jung, Senior research fellow, Korea Institute for National Unification

directly with local youths for job opportunities.” According to a UN report last month, two-thirds of the DPRK's population i s f a c i n g c h ro n i c fo o d shortages and the country remains in a tenuous financial situation. With the death last year of the longstanding leader Kim Jong Il, and the succession of his son Kim Jong Un, imminent change is u n l i k e l y. I t re m a i n s to be seen what effect the DPRK's money making strategy will have. 27 www.chainamagazine.com

september/october

SPONSORED FEATURE

How do you deal with these challenges?

What are your plans and priorities Lenovo is a respected company in China for the future?

and has been our customer for a long time. We want to demonstrate that data is safe with us. With Lenovo and Huawei as customers, other companies should also consider our solution. We also try to show companies how the situation looks and behaves before they make a commitment. One of the advantages of a cloud based offering is the software is already installed, configured and running, we just need to train customers and input data.

Have you localised to the Chinese market? We localised the product in both simplified and traditional Chinese. Often software vendors must localise the interfaces as well as the whole back end because local people must work with the products. Since we run it all and the only thing the customer sees is the interface, that’s all we have to localise. We also have been flexible with our business model and that is a big part of doing business in China.

We took the company public about a month ago which was a big milestone. Customers have more confidence in doing business with a public company- there’s much more visibility in our operations and financials. It also provided us with funds to grow the business. We have developed the industry’s only horizontal supply chain cloud based platform. We began in the high tech space but have since moved rapidly in other markets like industrial manufacturing, consumer packaged goods and retail. Rapid expansion to other industries and expanding into other geographies is something we’re focused on. We have great hopes for our opportunities in China. We see continued growth in the Chinese marketplace, and are committed to working with leading Chinese companies to deliver the most innovative, cost-effective and proven trading partner network.

4 30

september/ october

www.chainamagazine.com

CONTENT ► Logistics News /32 ► China boosts Logistics/34 ► China’s coastal Fleet /36 ► TMS/38 ► MYANMAR/40 专访: 物流短讯/32

中国计划促进物流业发展/34 中国沿海船队扰乱全球航运业 /36 TMS下一步计划/38

缅甸洞察/40

LOGISTICS the expansion of large express companies into e-commerce and exhibition logistics.

New Shipping ShortcutFirst Chinese Ship crosses Arctic

Beijing’s Dangerous Goods Campaign I n a move to increase security before the upcoming 18th National Congress of the Communist Par t y of China, Beijing authorities have launched a campaign to inspect and ensure the safety of transported dangerous goods across the city. These include explosives, compressed gas, flammable liquids and toxic substances. Security has also been stepped up in train stations and will be tightened throughout the city prior to the Congress.

The Xuelong (Snow Dragon) recently became China’s first ship to cross the Arctic Ocean, arriving in Iceland after sailing t h e n o r t h e r n ro u te a l o n g Russia’s coast. A record thaw has opened possible new trade and commercial shipping routes which may create a shortcut between the North Atlantic Shanghai to boost Parcel Delivery Business and Pacific Oceans. China has a growing interest in the Arctic to International Level region which is rich in oil and Shanghai is aiming to raise gas. its parcel delivery business to an internationally competitive standard. Express ser vice efficiency and quality will be improved by 2015, while the industry’s revenue growth is aimed at over 25 percent per year. Express companies will be encouraged to set up large distribution facilities, while the city will support partnerships between domestic express companies and airlines and airports. It will also support

september/ october

www.chainamagazine.com

LOGISTICS

General Logistics Systems BV partners with ZJS Express Amsterdam based General Logistics Systems BV will partner with China’s domestic express company ZJS Express to provide a B2B parcel delivery service. The express service, named Euro Business Parcel will transport items between China and Europe in three to five days. While current express services in China are one to two days faster, the new service is 10 to 20 percent cheaper. The two companies will be in direct competition with the world’s four largest logistics companies, including DHL Express.

TNT Express signs Deal with Tencent TNT Express will become t h e m a i n ro a d d e l i ve r y service provider in China for Tencent, one of China’s largest internet ser vice companies. Under the agreement, TNT Hoau, TNT’s Shanghai based subsidiary, will provide road delivery for Tencent’s e-commerce customers including sudi.11. c o m a n d s h o p. q q . c o m . Following B2B deals with Alibaba.com and Youshang. com, the current deal is a further step in TNT Hoau’s expansion in the Chinese e-commerce logistics market.

Some Indian Ports to provide 24 Hour Clearance Services From 25 August, Indian government authorities plan to provide 24 hour clearance services for some imports and exports at major sea and air ports. The trade and maritime community has been calling for trade service improvements to speed cargo flow into the country. The plan will initially include four seaports: Jawaharlal Nehru (Nhava Sheva), Chennai, Kolkata and Kandla, as well as four airports: New Delhi, Bangalore, Chennai and Mumbai.

33 www.chainamagazine.com

september/october

LOGISTICS

China unveils plans to boost Logistics Sector Maurits Elen

hina has announced a modern logistics projec t in the hope of reducing logistics costs and boosting domestic consumption. “The project is the key way to modernise China’s commercial logistics services and improve the organisation level,’’ stated a document on the Ministry of Commerce’s website. According to the document, China’s commercial logistics services have dispersed networks, outdated technical equipment and poor organisation. It notes that the last kilometre in the delivery process accounts for a significant portion of supply chain costs. “In recent years, China's logistics sector faced rising labour, land and transportation

costs. High transpor tation costs and frequent toll station fees have become an outstanding problem in China's supply chain because they not only increase the cost of logistics but also affect the quality of the transported commodities,” said He Dengcai, deputy director of the China Federation of Logistics and Purchasing. For the first time in history, China will allow several companies to share logistics services to enhance common deliveries. Major logistics parks, public distribution centres and terminal nodes for common deliveries will be built to create distribution networks in urban areas. China will encourage the modernisation of distribution models and is urging distribution companies to form partnerships to bolster common deliveries.

september/ october

www.chainamagazine.com

“At the end of our 12th Five-Year Plan (2011-15) we expect logistics costs in the commodities supply chain to decrease two percent. We also strive to have network coverage for common deliveries, including uniform distribution, above 40 percent in major cities, in order to reduce the equivalent volume of freight transport by at least 30 percent,’’ the Ministry of Commerce said. “J o b s w i l l b e a d d e d b e c a u s e t h e development of the supply chain needs a lot of labour. All in all, the ministry's move will have a positive effect on the country's economic expansion in the second half of the year,” said Xu Wei, a researcher from the China Centre for International Economic Exchanges. “ The move may lower the prices of consumer goods and thus expand consumption, while boosting production

RMB15

by reducing companies' costs.’’ In a further m o v e t o modernise the logistics sector, in funding will be given to t h e m i n i s t r y nine pilot cities in 2012. will support co m p a n i e s to u p d ate t h e i r l o gi s t i c s information systems and share data and resources with producers and regulators. Companies are also being urged to use modern technologies, such as GPS real-time monitoring systems, and radio frequency identification (RFID) systems. For China’s rapidly growing e-commerce market, logistics has been a key challenge in recent years. As concerns were raised whether logistics companies could keep up with the vast expansion of the market, retailers were forced either to establish their own express deliver y ser vice or form par tnerships. The ministry's announcements will undoubtedly enable o n l i n e re t a i l e r s t o cope better with growing demand.

million

Maurits Elen is a Netherlands based correspondent for CHaINA Magazine

35 www.chainamagazine.com

september/october

LOGISTICS

Maurits Elen

China’s coastal Fleet disrupts

Global Shipping Industry

slowdown in China’s economy has shaped a gloomy business environment for its shipping industry. More and more ships currently lie idle at Chinese ports, forcing the huge coastal sea fleet to seek business in international waters with ripple effects on the already languishing global dry bulk shipping market. China’s coastal trade is deteriorating due to weaker domestic demand from utilities and steel mills. Slower economic growth has lessened China’s hunger for energy, resulting in overcapacity in Chinese coal and iron ore stockpiles and thrusting China’s coastal trade into a deep dive. Global markets, and par ticularly commodities markets, have been worried

about a slowdown of the Chinese economy as these can be significantly impacted by China’s buying or freight use. China is not only the world’s biggest coal producer, but also the biggest single coal and iron ore importer and freight user. In a move to find work in the coal trade, the Chinese coastal fleet has set sail towards Indonesia, the world's biggest thermal coal exporter, which is planning to boost coal exports. “We've seen these Chinese vessels in the market, attacking the Indonesian coal business and undercutting everybody,” said an Asia-based shipbroker with RS Platou. Indonesia pushed through drastic reforms in May to limit exports of raw commodities by imposing a 20 percent tax on 14 kinds of ore. The entry of the Chinese vessels in

4 36

september/ october

www.chainamagazine.com

LOGISTICS

“

We’ve seen these Chinese vessels in the market, attacking the Indonesian coal business and undercutting everybody.

- An Asia-based shipbroker with RS Platou.

the market comes at a highly competitive, unstable time for Indonesia’s shipping market, which is still dealing with a drop in nickel ore volumes and is counting on the coal trade to cover its losses. The international freight market has been plagued by low freight rates and o ve rc a p a c i t y i n re c e n t ye a r s, s o t h e emergence of the Chinese vessels will be an even bigger impediment in an already sluggish industry. The Chinese fleet has expanded and become relatively modern, e s p e c i a l l y a f te r a cq u i r i n g n e w s h i p s which were unwanted elsewhere due to overcapacity in the international markets. According to estimates, China’s coastal trade totals 1500-2000 vessels with a deadweight ranging between 10 000 and 50 000 tonnes.

Smaller ships of 20 000 tonnes or less, are unregistered and are not released into the spot market. ‘’They’re often very old and only fit to hug the coast,’’ claimed one shipping source. Two thirds of the fleet is considered old - up to 20 years - but the remaining one third, which is a newer, larger, and more fuel-efficient type of vessel can greatly affect the international shipping industry. These vessels, Supramax and Handymax, are in a deadweight range of 50 000-60 000 and 40 000-50 000 tonnes and are largely owned by Chinese firms such as China Shipping, COSCO, DeQin Group Corporation, Fujian Guohang Ocean Group and Sinotrans Ltd. Maurits Elen is a Netherlands based correspondent for CHaINA Magazine 37

www.chainamagazine.com

september/october

LOGISTICS

What’s Next in Transportation Management Systems (TMS)?

n a recent blog posting, Jordan Kass at C H R o b i n s o n h i g h l i g h t s a k e y finding from ARC’s Transpor tation Management Systems (TMS) market study: the growing adoption of managed transportation services. In a nutshell, managed transportation services couples a software-as-a-service (SaaS) TMS with a team of transportation experts who manage daily planning and execution activities (among other things) on behalf of a shipper. Now that managed transpor tation services is more broadly adopted, Kass asks a basic question: What’s next in TMS?

Adrian Gonzalez

www.logisticsviewpoints.com

Here are some of my ideas and predictions, some of them already evident, others perhaps a bit more “pie in the sky” in nature.

TMS will continue to expand beyond trucking and domestic transportation. The ability to plan and execute inbound and outbound shipments across all modes (truckload, LTL, private fleet, parcel, ocean, air, and rail) and across borders using a single solution is still not fully possible. But software vendors continue to pursue this goal, and they are getting closer every year. Not all companies need or want a “holistic TMS” but that’s a separate discussion.

september/ october

www.chainamagazine.com

LOGISTICS

TMS goes global. This trend is widget for financial settlement), buy them online using a credit card, download them, related to the one above.

As the TMS market continues to expand beyond North America and Western Europe, software vendors will have to configure their solutions to meet the local requirements of different countries. While there will be some common threads between them, a TMS in Africa, for example, will look and operate differently than one in Russia.

TMS-as-a-(Self)-Service. The basic idea here is a transportation app that small shippers can buy and deploy very quickly and easily. Imagine an app store where a transportation manager could browse through various applications (e.g., an appointment scheduling app, a

run some quick installation wizards, and off they go.

TMS add social media capabilities. Transportation involves “communities” of carriers, shippers, 3PLs, and other parties. It also involves the communication of status messages and the sharing of documents. The opportunity exists to transform the user interface and experience of a TMS by adding capabilities similar to Facebook and Google + (think of creating “Circles” of your carriers, suppliers, customers, and even other shippers), Twitter (to send short status messages), and Dropbox (for sharing invoices and carrier credential documents).

... software vendors will have to configure their solutions to meet the local requirements of different countries.

Siri for TMS. Voice recognition is already used in the warehouse, why not in transportation management? Instead of manually conducting searches and executing tasks, why not speak them? “Show me all uncovered loads” and up come the results on the screen. “Will any of my private fleet trucks be near an inbound pickup location on Thursday?”, “How am I doing on my carrier commitments this week?” You get the idea.

39 www.chainamagazine.com

september/october

LOGISTICS

Myanmar:

Infrastructure Insight

Rachael Shoemaker

Regional Manager, Asia Pacific

With the reform process currently underway in Myanmar, the nation currently lacks reliable, basic communication and transport infrastructure and power. This extract from “Myanmar: Investment Opportunities and Risks to Business Operations,” examines opportunities, challenges and risks for infrastructure projects in the nation.

iven Myanmar’s lack of almost every kind of infrastructure, opportunities in this sector are significant. Japan’s write-off of $3.7 billion of debt was in part an effort to increase its access to infrastructure projects - the write off was accompanied by an increase in Japanese companies bidding for contracts with ‘favoured’ status. More basic infrastructure projects with shorter timeframes are likely to face lower regulatory and contract risks than more complex projects with longer timelines, as they will have less exposure to changing regulations, generally have less environmental impact and are typically perceived as benefiting local communities. Such projects include road construction, river dredging and the building of river shipping facilities. Rail, port and dam projects are likely to face more significant regulatory and contract risks due to their longer exposure to the shifting regulatory environment, greater likelihood of attracting environmental protests and the fact that most such projects to date have not

4 40

september/ october

www.chainamagazine.com

LOGISTICS been seen as in the interests of Myanmar. Thialwa deep water port, which has local backing from President Thein Sein is the exception. Other projects have been more problematic. The Dawei Special Economic Zone (SEZ) and port project led by Ital-Thai was set up under opaque terms and would likely bring greater benefit to Thailand than Myanmar. As a result, it has little local buy in, suffered under new SEZ laws of 2011 and is effectively stalled. A pledge by the leaders of both countries to support the project made on 23 July 2012 offers no details that suggest the project's situation is likely to improve. The Kyaukpyu project to build oil and gas pipelines through Rakhine state to Yunnan is largely perceived to benefit China, but as the Chinese are largely funding and building it the project is progressing. It has, however, attracted local community and NGO protests, leading to fears of a contract review. On 30 September 2011, the government cancelled the $3.6 billion Myitsone dam projec t by Chinese investors due to protests by the local Kachin ethnic group. (Our sources report that the project has now quietly resumed). On 9 January 2012, the government decided to suspend the construction Ital-Thai's 4000MW coalfired power plant in Dawei SEZ over environmental concerns. There had been small-scale peaceful protests against the projects by environmental groups. One impact of the government's political reforms is almost certain to be the increasing activism of local NGOs, leading to heightened risks of contract review and cancellation for projects expected to have significant environmental impacts. Local environmental knowledge in much of

Myanmar is significant, and Buddhist culture means that there is widespread popular support for environmental concerns that the government cannot ignore. Local NGOs are increasingly effective as pressure groups, and are key local stakeholders that incoming investors will need to engage. NGO activism is also likely to drive reform of environmental regulations. New regulations are likely to introduce environmental impact assessment requirements for infrastructure and industrial projects, as well as stricter provisions for communal project approval.

Exclusive Analysis is a specialist intelligence company that forecasts commercially relevant political and violent risks worldwide: www.exclusive-analysis.com 41

www.chainamagazine.com

september/october

CONTENT ► Distribution News/ 42 ► Interview/ 44 ► Apple/ 47 ► India Food Distribution/ 50 专访: 零售短讯/ 42

专访：Julien Chiavassa/ 44

黄牛趁苹果公司缓慢扩展/ 47

印度食品流通：物流恶梦/ 50

Distribution Mamas & Papas plots China Move

Gap to increase China Expansion

Walmart expands in China’s E-commerce After recently opening its Sector

third store in Hong Kong, Gap plans to open almost one new store a week in Hong Kong and mainland China over the next six months. Plans for a further 20 stores across Hong Kong and mainland China will bring the total number of shops in the region to 45. Gap’s total Asian sales came to US$966 million during the fiscal year of 2011, representing 8% of the company’s group revenue.

UK retailer Mamas & Papas will enter the Chinese market, with a plan to open over 90 stores in the next five years. The China expansion will be carried out in conjunction with franchisee Zero to Seven, and marks the largest concentrated programme of store openings in the company’s 30 year history. The company will commence its China operations with a store in Baodaxiang, one of Shanghai’s largest department stores. It will also launch a Chinese website next year.

Tesco closes Four China

Chinese regulators Stores have approved Walmart’s Tesco, the world ’s third purchase of a majority stake in Chinese e - commerce largest retailer, will close four c o m p a n y Y i h a o d i a n , stores in China- in Bengbu, enabling Walmar t to increase its stake from 18% to 51%. Aiming to gain a bigger share of the Chinese e -commerce market, the deal positions the company a t t h e c e n t re o f o n e o f C h i n a’s f aste st- grow i n g sectors.

4 42

september/ october

www.chainamagazine.com

DISTRIBUTION T i e l i n g , Ta i z h o u a n d Changshu. The company claims it plans to concentrate on key business regions in the country and open stores in strategic locations. According to Tesco, the company intends to open 16 new stores in China before February 2013. Tesco currently has 132 stores in China, with the majority in coastal cities.

Paul Smith plans China Return Despite fears the Chinese market for luxury goods may be on the decline, UK fashion designer Paul Smith is making a return to the country. With more Chinese now aware of the brand, the designer believes there may be a better chance for success this time around. Having left the country five years ago, the company aims to open 20 stores in China over the next five years. A store will open in Tianjin before Christmas, and another in Shanghai next June.

three stores annually as well as expand to second tier cities. The company plans to have 17 stores across the China by the end of 2014, with new stores in Ningbo, Shanghai and Beijing. Construction of stores in Chongqing and Wuhan will begin later this year. IKEA first entered the Chinese market 14 years ago, and has opened 11 stores across the nation.

Moutai Retests E-commerce Waters With its new online shop due to be up and running in August, Moutai is retesting Chinese e-commerce waters. The company’s initial foray into the Chinese e-commerce market in 2010 resulted in failure after logistical problems led to poor sales. While the Chinese liquor e-commerce market

is in its very early stages, some believe that with the traditional liquor market almost saturated, the time may be right for the company to make its move.

Auchan signs Agreement with Max Hypermarket French retailer Auchan will enter the Indian market after signing a franchise agreement with Max Hypermarket. The t wo plan to open 12-15 new stores annually across India. Max is run by the Dubai based Landmark Group, and operates 13 hypermarkets in India which will be rebranded “Auchan.” Currently foreign ownership regulations prevent global hypermarket and supermarket chains f ro m e nte r i n g t h e l o c a l market.

IKEA steps up China Expansion IKEA will embark on an aggressive expansion plan in China, recently announcing intentions to open at least 43 www.chainamagazine.com

september/october

DISTRIBUTION

Julien Chiavassa

talks E-commerce Julien Chiavassa worked as the supply chain manager for L’Oreal, before beginning his current position as e-commerce manager of Clarins, for China, Japan and Korea in December 2011. Having lived in China for seven years, he also runs his own e-commerce website. Could you give an overview of the How important is an e-commerce e-commerce operations of Clarins in platform in expanding the company’s China and Asia? operations? Clarins has decided to take its digital presence worldwide and optimise its online visibility. It works with a worldwide partner for the e-commerce framework. We began in Europe, then opened the US website. The next step is e-commerce for Asia, with China as the top priority. Our big launch is on 17 September, which is a milestone as we will be really visible on the e-commerce base. Japan already has an e-commerce website on a different technical platform, so we are working on the migration of that platform. We hope to work on Korea by early next year.

It’s mandatory for a brand to be present online, especially in China, and it’s important to have access to places where there is an offline presence, and to offer the products’ brand value nationally. Digitalisation is necessary to be innovative and match customer demands and habits. Secondly, it is important in order to expand more rapidly in market presence and share. Opening department stores and counters takes much more time than having an online store, so clearly this is one way of accessing all customers.

4 44

september/ october

www.chainamagazine.com

DISTRIBUTION

What are the keys to establishing a the other hand logistics costs are really low compared to other countries, which must successful online presence? China is a specific market and the brand must be flexible enough to fit local requirements, such as China specific payment systems, and logistics services. Cash on delivery is highly developed in China but does not exist in Europe or the US. Consumer internet usage is also different in China, where people are really active online, posting comments and researching for advice. This is something we are trying to adapt to. Communication must be localised to match characters and local media events. The second thing is to be really patient and invest at the beginning. The e-commerce market is currently dominated by Taobao and 360Buy which realise 85% of online transactions in China. We are fighting for a really small part of the cake and it will take some time to position ourselves and show we are providing an alternative and can satisfy consumer needs. The last thing is the team. From a foreigner’s point of view, it’s still very challenging to assess and understand this market. Being able to rely on a strong team with e-commerce experience is key. It’s still difficult to find good SEO practitioners and SEM analysts.

What are the main challenges faced in e-commerce and logistics in China?

be taken into account because customers tend to be really demanding for something which is clearly inexpensive. Being able to deliver everywhere in China, and provide a customer return system is a big challenge. Secondly with so many big players and big investments it will be challenging to be visible, and attract lot of qualified traffic.

What strategies do you employ to overcome these problems? In terms of logistics we partner with a service provider which is already working with different cosmetic companies, knows the industry and is delivering everywhere in China, with good relationships with the courier company. We rely on them to ensure we can live up to these logistics challenges. They will also help us with another challenge, the grey market, where a lot of products can be found. These are not coming from us because they are not official channels, and can come from Hong Kong and local distributors. In some cases we don’t even know how they are coming here. The percentage of fake products is not that high, it’s usually illegal imports which are hard to track, and it’s

Logistics is one of the big issues. It is really advanced in some ways but needs improvement in others. Some websites do same day delivery in many places in China, which is not usual in Europe, and we need to offer these kind of services. On

45 www.chainamagazine.com

september/october

DISTRIBUTION difficult to know the size of this market, What differences are there in selling but it is clearly harming the brand. It’s a to the Chinese market as compared to bad experience when customers buy a fake Europe? product. We are working with this service Chinese consumers tend to be really provider to clean up this grey channel. demanding and hard to keep in terms of loyalty. The internet is really driven Have you needed to localise or adapt by discounts, deals and promotions. It’s your e-commerce presence or products to changing really fast, but we still need to let the Chinese market? the market segment itself and have more We will not do 100% pure Chinese people focused not only on discounts but e -commerce. We rely a lot on a global other values which can be offered with strategy, but we are trying to find the e-commerce. b e st balance b et ween t he t wo. A l o t o f be st p rac t ices in e - com me rce c a n What are your plans and expectations be implemented in most countries. We for the future? are working on localising the offers, on For me personally it would be a huge communication and commercial plans and achievement in the coming five years to features on the website. We will implement have the online channel representing live chat which is really specific for China, and ten percent of the global market share of we have a specific localised loyalty program. the retail business for Clarins. If we could We are trying to evaluate Chinese demands drive that much business through the and needs and ensure we lay our visibility on online channel I would be very happy. So communication channels which are relevant far it’s still very challenging, but that’s my to the market. personal target.

4 46

september/ october

www.chainamagazine.com

DISTRIBUTION

Scalpers take a Bite out of

Apple D

espite increasing local demand, Apple has failed to expand its retail presence in China, now its second largest market. This lack of stores and authorised resellers in the country may cause the firm to lose more than just sales. I n 2010 Ron Johnson, fo r m e r h e a d o f A p p l e ' s retail division, predicted Apple would soon have 25 retail stores in the country. However Pennsylvania, a US state with a population of 12.7 million, currently has more stores than the whole

Peta Heinrich

of China, where six Apple outlets cater to a population of 1.3 billion. One fifth of Apple's revenue is derived from China, yet according to a Reuters estimate, there is only one store for every 215 million Chinese citizens. The huge demand in China has resulted in an overflow of customers in the small number of stores. Apple’s chief financial officer Peter Oppenheimer, last year said the company’s China branches were its highest trafficked stores, and among those providing the most revenue for the

company. Torsten Stocker, a partner at business strategy firm Monitor Group said: “There’s certainly more demand than Apple can serve with their store footprint currently.” The lack of stores and authorised resellers has al l owe d an o p e n i n g for a booming grey mar ket to emerge. Unauthorised resellers have jumped at the opportunity and are moving in, selling smuggled Apple products, or passing cheap Chinese imitations off as genuine. Scalpers are often first in line for new products 47

www.chainamagazine.com

september/october

DISTRIBUTION which are then resold for profit. Earlier in the year scalpers even pelted a Beijing store with eggs after Apple decided against selling the latest iPhone there due to security concerns. Copycat Apple stores have also emerged in smaller mainland cities. Poor quality products and grey market sellers offering no customer support may tarnish Apple's reputation. Bad consumer experiences at unauthorised shops are by no means the exception and may erode confidence in Apple's products. David Wolf, chief executive of the Beijingbased consulting firm Wolf Group Asia warned that if Apple failed to e x p a n d i t s n e t wo r k o f stores and authorised re s e l l e r s, i t wo u l d n o t only lose near-term sales: “i t a l s o e n d a n g e r s t h e sustainability of its success in China,” he said. While Apple products can be bought online in China, many consumers prefer to test the product in the store before buying. Apple's growth in China may therefore be stifled. T h e c o m p a ny a l s o h a s to compete with rival

Samsung and domestic players Huawei and ZTE in the fast growing smartphone sector. While Apple claims to be taking time to ensure the r ight locations are secured in China, the slow expansion may also be caused by other factors such as the red tape which o f ten ham p e r s fo re i gn companies dealing in China. According to Andrew M i l r o y, v i c e p r e s i d e n t of Information and Communications Technology Research for the Asia-Pacific region at Frost & Sullivan in Singapore, “there are complications around opening stores in China t h a t y o u d o n’ t g e t i n Western countries.” H owe ve r t h e l a c k o f stores also br ings into question whether Apple has the right management in place to drive expansion in China. Ye t w i t h A p p l e recently paying Proview Technology $60 million to settle a lawsuit over the iPad trademark, and the company now able to sell its latest tablet computer in mainland China, demand is only likely to increase.

黄牛趁苹果公司缓慢扩展获取利润尽管本地需求在不断增长，苹果公司一直没有扩大其在中国的零售业务。中国目前是苹果公司的第二大市场，但由于缺乏商店和授权分销商，苹果公司在中国失去的可能远远不止销售机会。在2010年，苹果公司零售部的前负责人罗恩·约翰逊，预测苹果将很快在中国开出25个零售商店。然而，美国的宾夕法尼亚州人口为1270万，目前的零售商店却比中国要多。中国的人口目前为13亿，而全国只有6个零售商店。其实苹果收入的五分之一

4 48

september/ october

www.chainamagazine.com

DISTRIBUTION 来自中国，但据路透社统计，每2.15亿的中国公民才拥有一家苹果商店。中国苹果产品的需求量巨大，因此中国苹果商店数量之少无法满足客户需求。苹果公司首席财务官彼得·奥本海默说，去年，苹果的中国分公司是人流量最大的商店，并在给公司带来最多收入的商店其中。托施-托克尔——经营策略公司摩立特集团的合作伙伴说：“目前苹果的商店肯定不能满足这么大的需求。” 由于缺乏零售商店和授权经销商，一个繁荣的灰色市场出现了。未经授权的分销商抓住了机会，销售走私的苹果产品，或假冒伪劣产品。黄牛经常排在队伍的最前列，买到最新的产品，然后把他们倒卖。今年年初苹果因安全方面的考虑，决定在北京某分店不售卖其最新版本的iPhone。黄牛便向那家商店投掷鸡蛋。另外，伪苹果店也出现了在较小的内地城市。

的商店发生不愉快的经验并不是例外，可能会损害消费者信心。北京的咨询公司沃尔夫亚洲集团的首席执行官大卫·沃尔夫警告说，如果苹果未能把其商店和授权经销商的网络扩大，不仅会失去短期的销售，可能还会威胁到苹果在中国的持续成功。虽然中国消费者能在网上买到苹果产品，许多消费者更喜欢在商店试用后再购买。

国获得一个稳定的地位，还是有其他因素导致了苹果的缓慢扩张。比如繁文缛节往往是阻碍外国公司在中国经营的一个因素。据Frost＆Sullivan公司新加坡的亚太地区信息和通信技术研究的副总裁安德鲁·米尔罗伊，“在中国开商店会遇到一些在西方国家不存在的问题。”

然而看着中国少数量的苹果商店，可能要问苹果是否有正确的管理推动该公司在中国的扩张。苹果最近给唯冠科技支付因此这可能会抑制苹果公了6000万美元解决iPad商司在中国的经济发展。该标的官司，但是苹果目前公司还要在快速增长的智能够在中国大陆出售最新能手机市场与对手三星和国内对手华为和中兴竞争。的平板电脑，需求量将有增无减。尽管苹果声称要确保在中

质量差的产品和灰色市场卖方不会提供客户支持，可能会损害苹果的名誉。另外，消费者在未经授权

49 www.chainamagazine.com

september/october

DISTRIBUTION

India Food

Distribution:

Peta Heinrich

A Logistical Nightmare

hile 3000 Indian children die of malnutrition related illnesses e a c h d a y, s u r p l u s w h e a t and rice rots in fields in the north of the country, highlighting major deficiencies in the nation’s distribution system. Rigid subsidies for grain farmers, complex regulations, lack of storage facilities and an inefficient distribution system mean a record stockpile of wheat is wasted rather than distributed to the 40% of India’s 1.2 billion population living in poverty. Under India’s food policy the government buys food grains from farmers at a high guaranteed price, and sells them to the poor at lower prices than private stores.

The grain price has been raised by over 70 percent since 2007, encouraging production which has resulted in stocks reaching an all-time high of about 50 million tonnes, a larger grain stockpile than any country except China and 12 times the official target. One of the biggest problems is a lack of storage facilities which have not been upgraded in 25 years. Although official reports indicate that 82.4 million tonnes of grain are stored in government warehouses, this exceeds actual capacity by over 19 million tonnes. According to officials, about 6 million tonnes of grain worth at least $1.5 billion may be wasted, but with the huge excess now in the open, analysts say losses could be far higher. In the Punjab village of Saddomajra, thousands of sacks of decomposing wheat lie exposed to the elements. Watchman Hakkam Singh said: “The wheat has been lying there for the past five years. It smells very bad. Nobody steals it, but people use it to feed fish and poultry farms.” Biraj Patnaik, principal adviser on food issues to India’s Supreme Court stated: “The problem of rotting grains and the poor going hungry lies in the system itself.” He said the problem was due to Government’s refusal to distribute the grain it buys to the people who need it.

4 50

september/ october

www.chainamagazine.com

DISTRIBUTION

In 2010 the Supreme Court urged the government to distribute grain free to the hungry rather than waste it, but it has not done so, and is reluctant to sell wheat for less than the purchase price. According to journalist P. Sainath: “The government of India could distribute that excess grain, or release it at low prices through the public distribution system. But it would hate either option. That would go against the grain of its ideology and economics. Letting the hungry eat it would, for the government, increase the ‘subsidy burden’.” Exporting is also not an alternative as freight, storage and transport costs would mean it would be sold at a loss. Corruption at all levels of the distribution chain is a huge problem. 18 months ago a

scam involving hundreds of government officials saw millions of dollars worth of grain meant for the poor siphoned and sold. A recent World Bank study revealed just 41.4% of the grain picked up by the states from federal warehouses reaches its intended recipients. Critics are also doubtful the government’s planned food security scheme to guarantee cheap grain to 63.5 percent of the population will reduce corruption or increase efficiency. The plan may cost as much as $12 billion in additional subsidies a year, which critics suspect the government will not be able to afford. Meanwhile in the Punjab the grain seems destined to rot. Gurdeep Singh, a farmer from near Ranwan simply said: “It’s painful to watch.” 51

www.chainamagazine.com

september/october

FEATURE

Trouble in : e s i d a r a P e E-commerc otton

ishes, Vc n a v n ia d o a Y , p u Point h VIP shakes things s la F h c a re rs a Price W d n a t s u D line e th s e it b orld with many on w ce er m m co et ting turbulen

la in China’s in vicious and esca ng gi ga rouble is brewing en e ar s te g an d trouble. Major si h eavy d is co un ti n ile h W e. B2C sites in serious iv it et p m ns are to re m ai n co umers, profit margi ns co r p ri ce w ar s in a b id fo s w ne od perks are go businesses. These e m so r fo d en generous customer e ling th g havoc and signal in ak re w , bles. ng ri ea p disap ’s e- commerce trou na hi C in st te la e th ar ticles feature

Despite Over $50 Million in Funding, E-Tailer Yaodian100 Vanishes Offline That was quite a vanishing act. The Chinese e-commerce site Yaodian100 – which has, over the years, received over $50 million in funding – has gone offline, leaving users and even industry insiders wondering what’s going on. The Yaodian100.com site now redirects to its official Sina Weibo account – but that hasn’t been updated since July 17th. Before going offline on July 28th, Yaodian100 posted a short notice saying that it would be down for an unspecified duration due to its “relocation.” Concerns are growing that rumours earlier this year that the company was near the point of bankruptcy were actually true. QQ Tech and several other Chinese tech blogs have tried to contact several senior executives at the company, but with no luck so far. Shanghai-based Yaodian100 started up in 2009, and was one of the earliest specialist B2C e-commerce sites in China, selling mostly cheap clothing. It wrapped up a major first-round of funding of $40 million in August 2009, led by Qiming Venture Partners. That was followed by a round in May 2010 which was worth 60 million RMB ($9.5 million at today’s rates), courtesy of Chinese search

september/ october

www.chainamagazine.com

FEATURE

engine Baidu and local shoe brand Daphne. Intel Capital later led a smaller series C investment. Yaodian100 was taking 30 000 orders per day in late 2010, it had boasted at the time, with monthly sales worth 30 million RMB ($4.75 million). But things quietened thereafter, and rumours of massive layoffs, and even possible bankruptcy, were all that was being said of the website by the start of 2012. When we looked at the most recent market share stats for the B2C e-commerce scene in China, we noted that the top five sites had consolidated their lead upfront, and now accounted for about two-thirds of the entire nation’s e-tailing business.

Steven Millward

VIPStore to Cut Nearly Half of Workforce in Major Shake-Up In China’s crowded luxury e-commerce market, it would appear that VIPStore (aka: Jiapin.com) is having to be, somewhat paradoxically, very frugal. Chinese tech media are today reporting that nearly half of VIPStore’s workforce is being laid off. The exact number of workers involved hasn’t been revealed. VIPStore’s CEO, Yang Peifeng, says that the move is strategic and does not indicate any crisis. In May of this year the website received $15 million in investment from Intel Capital and US retailer Macy’s. The deal also involves Macy’s setting up shop in conjunction with VIPStore, though that won’t be ready until Spring 2013. Yang Peifeng explained (in translation): “In order to improve efficiency while enhancing our overseas team, and improving our team of Europe product buyers, VIPStore has had to make a strategic adjustment and optimisation.” He added that the company was in talks with employees about this, suggesting that voluntary redundancies were being sought in as many cases as possible. VIPStore sells genuine and high-end fashion items, as well as some jewellery, watches, and some more common sportswear. It’s up against stiff competition in this area from the likes of 360Buy’s 360Top, the similarly-named VIPShop, and a whole host of other luxury-oriented sites.

Steven Millward 53 www.chainamagazine.com

september/october

FEATURE

Another Chinese E-Commerce Site Bites the Dust as VCotton Gets its Socks Seized Ba-da-boom-boom-boom, another one bites the dust. Yes, the big-spending, low-margins world of B2C Chinese e-commerce has claimed another victim. This time it’s the specialist e-tailer VCotton, which sold only socks and underwear. A notice on the homepage alerts users to the “suspension” of sales, which went into effect on August 17th, due to a claimed technical error in logistics. But some fine snooping by Marbridge Daily reveals that VCotton’s Beijing warehouse has been seized by authorities. A former VCotton employee then explained that the notice on the site is nonsense, and that, to quote Marbridge, the warehouse and all its stock has been “seized by government authorities after the company’s suppliers sued VCotton for failure to pay outstanding debts.” That’s quite a logistics failure. Apparently out of funds, it seems sadly impossible for the company to recover. The writing was on the wall earlier this year when VCotton’s CEO, Lin Wei spoke of how he was struggling to raise some series A funding. In two prior seed rounds, VCotton had pulled in 10 million RMB (US$1.59 million) shortly after launching and then 30 million RMB (US$4.77 million) a short while later. Though some very specialist online retailers do well in China – such as the Uniqlo-like Vancl for cheap clothing, or the Walmart-controlled Yihaodian for food and domestic supplies – it would appear that going down to the undergarments was a bit too focused or VCs. Yes, socks and underwear need to be replaced very often, but the site was in a sector where there’s zero reason for store or brand loyalty. These articles are reprinted with permission from Techinasia.com, which gives a global perspective on e-commerce, startups, apps, and general tech from across the region.

Steven Millward

september/ october

www.chainamagazine.com

FEATURE

E-commerce Etailers engage in

Weibo War A

fierce price war between Chinese e-commerce retailers 360Buy. com (Jingdong) and Suning has begun, and the fiery exchange, played out on Weibo, is being taken to the extreme. But are the Weibo postings simply a promotional tactic or do they signal a real price war? Such extreme price competition is almost certainly unsustainable, and the winner of this unprecedented online exchange is yet to be decided. Peta Heinrich A Weibo War of Words Tr i g g e re d p e r h a p s by t h e e n t r y o f increasing numbers of bricks and mortar home appliance retailers into the Chinese e-commerce market, and the rapid online expansion of Suning and Gome, 360Buy founder and CEO, Liu Qiangdong, ignited a price war on 14 August, taking to Weibo and announcing: “Today I decided that Jingdong will sell all household appliances with zero profit in the next three years.” He added: “360Buy promises to sell big home appliance at prices at least 10 percent lower than that of Gome or Suning.” Liu’s post sparked almost instantaneous reactions, with Gome saying it would beat 360Buy prices by 5 percent, and Suning announcing all products on Suning Ease Buy would be lower than 360Buy.

Liu then announced: “If Suning sells one item for one yuan, we will sell it for zero yuan.” O ther Chinese online retailers have entered the fight against 360Buy, including DangDang and 51buy.

The Winner takes it all? With a lack of a fully developed retail infrastructure, much is at stake in the fast growing Chinese e-commerce market. This unusual price war highlights the unique nature of the market, with the three major players reacting seemingly spontaneously to each other’s business announcements. Ding Jiaqi, analyst with iResearch said: “Price wars in the e-commerce sector are unavoidable, since online e-commerce platforms not only face competition from 55

www.chainamagazine.com

september/october

FEATURE rival firms, but also from offline retailers seeking online expansion.” Li Yong, Deputy Secretary of the China Association of International Trade, believes the strategy is unsustainable, with profit margins squeezed to extreme levels. 360Buy is under heavy financial pressure, with declining profits. The second largest online retailer after Alibaba, 360Buy is already operating with slender margins. A zero margin on home appliances for three years will mean huge losses in that sector. The outlook for Suning and Gome, however, could be even less optimistic. Bricks and mortar businesses, combined with online services, mean higher costs and thus greater difficulty competing with 360Buy. Mr Ding said: “ The new move by 360Buy could mean further losses for its appliance business, but it may also gain more consumers for the company and put pressure on its competitors.”

E-commerce Conspiracy? There may be more to the price war than meets the eye. Chen Shousong, an industry analyst at Analysys International, said the price war was a mainly promotional strategy: “Home appliance products offer a very low profit margin anyway, so even a zero profit margin will not make a significant difference to their revenue.” Wi t h m a s s i v e d i s c o u n t s o n o f f e r, consumers are reaping the benefits. But according to some, the discounts were preceded a day earlier by significant price hikes. Xiamen 360Buy customer Yan Chengyue was suspicious: “Most of the products’ prices

on Jingdong were increased before they brought them down. Although some of the prices were lower than when the war started, the price cuts were definitely not as dramatic as the retailers claimed.” Online retail search engine eTao showed discounts for around 5000 items on China’s top six online shopping websites on the first day of the price war, representing just 4.2 percent of the products the site monitors. Only six percent of 360Buy’s large household appliances were discounted. While price reductions may have failed to meet expectations, an increase of online traffic and sales would still be beneficial: “It will be a win-win situation for all major e-commerce providers,” claimed Chen. Yet Suning’s executive vice president Li Bin criticised the price war: “Any company should first consider whether they can survive before they launch such practices.” But Liu summarised: “All companies that lack competitive ability will die off sooner or later! If you choose to do a startup, you must constantly exercise your own competitive abilities!” Regardless of the true motive behind the price war, this comment highlights the cutthroat nature of the market.

september/ october

www.chainamagazine.com

FEATURE

The Supply Chain Top 25 Controversy:

Peta Heinrich

Gartner’s Take

he Gartner Supply Chain Top 25: Asia Pacific 2012 has been published, ranking the top companies headquartered in the Asia Pacific region. But, with continued speculation on the accuracy and objectivity of the list, we spoke with Gartner analyst Debashis Tarafdar to get his take on the criticism and to discuss the findings.

Criticisms Last year CHaINA Magazine published criticisms which largely revolved around the methodology used by Gartner. As with last year, the methodology uses the following proportions: - 50%: Publicly available financial data (return on assets (25%), inventory turns (15%) and revenue growth (10%)). - 25%: Gartner AMR Analyst Opinion (a voting panel of industry and functional analysts). - 25%: Peer Opinion Panel (comprising supply chain professionals). Key criticisms included high emphasis on financial rather than supply chain metrics, and the objectivity and accuracy of the Gartner AMR Analyst Opinion and the Peer Opinion Panel.

Financial Components Due to the significant weighting (50%) placed on financial metrics, some critics have described the list as more of a Financial Top 25 than a Supply Chain Top 25. But Mr Tarafdar defended the findings, saying he believed the results showed “a fair enough approximation of their supply chain capability.” “ We believe that the current methodology is a good balance of publicly available figures and the peer opinion. Because as much as we want to use a certain specific supply chain metric that will bring out the specific capabilities of the supply chain, most of the time these metrics are not publicly available, so they are not reliable when we want to compare across various companies,” he said. He added: “We make an assumption here that the companies delivering well in terms of return on asset or in metric terms for revenue are doing well in their supply chain activities as well.”

How objective are the Experts? With 50% of the methodology derived from opinions (25% analyst opinion and 25% peer votes), a key criticism has been the extent to which Gartner can remain objective, with many companies in the list

september/ october

www.chainamagazine.com

FEATURE

2012 Peer Opinion Panel Composition: Function

2012 Peer Opinion Panel Composition: Role

amongst its clients. According to the Global Supply Chain Top 25 report, the Gartner analysts comprised 37 voters across industry and functional specialties. But Mr Tarafdar responded: “Only 25% is Gartner analysts opinion. The remaining 75% is beyond our control, either it is publicly available information or the peers in the industry. There are 300 companies and many of them are not our clients.” Yet with Gartner being relatively new to Asia, it may not be entirely surprising that many companies in the Asia Pacific list are not clients. Mr Tarafdar was unable to provide the exact number of Gartner's clients which appear in the list or how many were prospective clients: “But definitely I can tell you that a lot of companies in the list there are not clients. With Gartner being a global brand we expect a lot of leading companies will be our clients anyway,” he said.

A Western Bias from the Peers?

2012 Peer Opinion Panel Composition: Region

Source: Gartner (May 2012)

According to the Global Supply Chain Top 25 report, 246 applicants were included on the peer panel, with 173 completing the voting process. The peers were at senior levels in supply chain organisations from a broad range of industries: “A n y s u p p l y c h a i n p r o f e s s i o n a l w o r k i n g f o r a manufacturer or retailer is eligible to be on the panel and only one panelist per company is accepted. Excluded from the panel are consultants, technology vendors, and people who don't work in supply chain roles.” Mr Tarafdar said the peers were invited by email and voted online, selecting the top 25 according to their opinion and best understanding. He described it as “an objective online process.” Yet with a large number of the peers coming from outside the Asia Pacific region, their familiarity with companies in the region is questionable. In Gartner's defence, Mr Tarafdar said the global assessment had been improved over the last three years. In 2010 just 4% of peer votes came from APAC, with 80% from the US and 15% from Europe. But this year APAC had 24% 59

www.chainamagazine.com

september/october

FEATURE Change in Peer Panel Regional Composition, 2010-2012

of the peer votes: “We are trying to increase or evenly distribute the peer voting across the globe and that will definitely create better results and a better assessment.” He said: “We try to be objective and as close to striking a balance between all the industries, so we have a spread of peer voters across many industries. That's how we mitigate that risk of not knowing a brand or knowing only the leading brands.”

The Verdict While Gartner may be correct in saying that the application of exact supply chain metrics is difficult, many would still argue that the use of financial metrics does not provide an accurate reflection of a company's supply chain capabilities. Secondly, Mr Tarafdar deflects attention from the presence of many of Gartner's clients in the list, and diminishes the significance of the 25% weighting given to Gartner analyst opinion, factors likely to continue to draw controversy. On the positive side, Gar tner has acknowledged some shortcomings of the methodology, and taken steps to include a

greater proportion of peer analysts from the Asia Pacific. Mr Tarafdar said: “I don't think there is a per fect way of assessing this. But personally if you ask me it is quite a robust methodology now. We are constantly looking for improvements and if we think there are things that we have to do to improve the results or assessment, we'll definitely do that in future.” He added: “ We have been tr ying to refine this process, to mitigate some of the limitations in this model, but in my opinion given the realities and limitations of information that we have about many companies, this is probably the best that we can get to.”

The Key Findings for 2012 The findings showed significant growth for Asian companies in the domestic market despite challenges, such as demand variability, both domestically and internationally. The vast majority of supply chain leaders demonstrated capabilities in demand and risk management, as well as excellence in operational capabilities and innovation. Samsung retained its position as leader of the Top 15, with the list being dominated by high technology, automotive, and industrial products companies. Top Chinese companies in the list were Lenovo (No.4) and Huawei (No.5). Lenovo improved its market share from the past year to become the second largest in the world. Huawei was a first time entrant to the list with strong financial performance, good product innovation, a customer centric business strategy and heavy investment in R&D.

september/ october

www.chainamagazine.com

FEATURE

http://chainalive.com

FEATURE

Barry Chen and Aline Bass InterChina Consulting

Prepare for Landing Comprehending Context in China’s Current Business Environment

n July, business leaders in China, and the wider global business community anxiously awaited Friday the 13th—when the Chinese g ove r n m e n t w a s s e t t o release China’s 2nd quarter GDP figures. This showed a decline in China’s GDP from 8.1% in Q1 2012 to 7.6% in Q2 2012. Other investment indicators highlight that the last six months were worse than expected. Although the momentum of China’s growth appears to have stalled, empirical evidence and systematic review indicate that fundamentals will still ensure steady growth for years, if not decades to come.

After a worse than expected first half, is the worst over? Although many experts and the broader community anticipated the continuation of an economic slowdown in China, the extent of the decline has been felt harder than expected. By the end of 2011, China’s expected GDP growth was 8-9% for 2012, but worries are increasing as China’s GDP growth slowed to 7.8% for the 1st half of 2012. Investment indicators also support a downward trend. Globally, the number of new stock offerings fell to 376 and the proceeds shrunk by 45%, to $59.6 billion. The number of Initial

Public Offerings (IPO) in China continued to diminish with only 104 new share listings YTD, a 40% decrease y-o-y. P/E ratios have been decreasing since 2010. In addition, the volume of M&A deals for 1H 2012, both globally and regionally, has declined. According to Reuters, M&A activity in the United States was down by 60%, Europe by 33%, and the Asia Pacific region by 42% in the first three months of 2012, as compared with 2011. This realit y is (perhaps) perpetuated by the increasingly dire global economic environment, creating a general wariness among management

september/ october

www.chainamagazine.com

FEATURE teams about committing to trading. In the face of this global s l u m p i n M & A a c t i v i t y, China has experienced a smaller decline by volume than global and AsiaPacific averages. Value of M & A i nvo l v i n g C h i n e s e firms, increased 2.6% over the same period last y e a r, a n d t h e v a l u e o f China-involved M&A was 8 .7 % of wor ld to t a l, up from 6.2% a year earlier. Furthermore, the Chinese government considers M&A activity as driving foreign investment, improving underper forming assets, inducing continued growth, and reducing unemployment. A t h i rd re l e v a n t investment statistic, Foreign Direct Investment (FDI), is less encouraging. While JanuaryMay 2011 saw increased FDI as a p e r c e n t a g e y - o - y, the same period of 2012 experienced a decline. FDI into China fell each month from November 2011 to February 2012. This trend continued to June with a 2.4% fall, over the same period last year.

A Closer Look—Some Promising Figures While things appear g l o o my fo r i nve s to r s, a closer look at individual sectors shows some growth. Naturally, with a reduction in the infrastructure and proper ty development sec tors, sec tors such as manufac turing or input materials (i.e. Metals, Chemicals, Electronics) have weakened. But other sectors like Oil & Gas, Agriculture/ F&B, and Automotive indicate a positive percent change in profits. The severe ongoing drought in the United States (the world’s largest grain exporter) is expected to

impact China’s food prices and will drive growth in the F&B industry. Auto sales growth, near zero several months ago, experienced an 8% y- o -y increase in May. A decline in steel and petrochemical prices will

further aid recovery of the auto sector. Although the lag time of falling input costs is difficult to pin-point, and the extent of their impact on the Chinese economy remains uncertain, the government is taking numerous policy a c t i o n s to m i t i g ate t h e slowdown. To spur capital flow through lending, C h i n a c u t b a n k re s e r ve requirements on May 12.

Adding Context—There is a Silver Lining One positive consequence of rising labour costs, which have risen by 20% a year for the past four years, is an increase in automation. China’s machine tool consumption has been increasing steadily for the past decade as well as China’s machine tool consumption vs. global consumption. As a result, the machinery and automotive industry could profit if adaptive steps are taken. Weakened investment indicators along with increasing labour costs and decreasing profit margins have prompted some multinational companies to

63 www.chainamagazine.com

september/october

FEATURE re -strategise, and even reconsider their presence in China. Overcapacity in specific sectors has contributed to fierce competition from domestic challengers, prompting some MNCs to relocate to their respective home countries or other Asian-Pacific countries with cheaper labour costs. But such scenarios illustrate the exception rather than the rule; the few exiting firms are characterised by relatively export-oriented or low value-added products. Most firms are staying: some for logistical reasons such as supply-chains or industry cluster, some are a g g re s s i ve l y e x p a n d i n g since China remains a strategic market, and some domestic companies are even performing better. Lack of domestic consumption relative to government investment has been a common critique of China’s economic system.

Although the level of gover nment investment has consistently surpassed the domestic consumption rate, domestic consumption is catching up; with a 15% growth predicted this year. The Chinese Academy of I n te r n a t i o n a l Tr a d e a n d Economic Cooperation (CAITEC) believes this year’s domestic consumption will surpass government investment for the first time in a decade. Consolidation driven by policy and market forces is another emerging trend of the current slowdown. The “push” factor includes limiting blind expansion through approval mechanisms and other restrictive measures. The “pull” factor is led by new incentives for M&A activity to foster national and international leading enterprises. Decreased liquidity and higher entry barriers along with capital market indicators fosters

diminished confidence among some participants.

Looking ahead--The Cup is Half Full What can be expected for China’s economic landing and what can companies do to prepare themselves? Some economic indicators reflect a declining business environment, but the holistic picture shows an upward slope belonging to a maturing economy. Long-term macro trends reinforce that growth will continue despite an economic slowdown. Some important long-term macro figures remain strong and unchanged, including ongoing urbanisation, increasing innovation, and an expanding middle class. Such factors are cornerstones for China’s economic development. Consequently, as long as they continue on their r e s p e c t i v e t r a j e c t o r i e s, economic growth will follow. While we cannot expect a return of the boom years of 10% growth in the immediate future, there is reason to expect that the rest of 2012 will make up for some of the momentum lost during the first half of the year.

september/ october

www.chainamagazine.com

Join the Supply Chain Social Network

www.cha1n.com

THE links

Perfecting Procurement In November 2011, HD Trade Services was founded by entrepreneurs Daniel Sugarman and Daniel Sperling-Horowitz. Here they discuss the process and challenges involved with establishing their company.

Can you describe the process of he dropped out of Stony Brook University’s Computer Science PhD program. Sugarman creating HD Trade Services?

Daniel Sperling-Horowitz: It was 3 years ago, I was sitting in my college dorm room attempting to import electronics from a supplier on Alibaba.com. Fortunately, I did some extra research and realised that I was dealing with a scammer. I remember thinking to myself, “this can’t be just an isolated incident.” So I pitched a preliminary business plan at the China MBA Business Plan Competition at Peking University. We ended up finalists. More importantly, it was validating enough to spend the summer of 2010 in Guangdong province studying areas of the supply chain from sourcing, manufacturing and third party quality control to third party logistics. When I returned to the US, I connected with Dan Sugarman, a fraternity brother and well-respected computer scientist. We wanted to figure out the best way to apply emerging technologies to create a fundamentally transparent [and safe] supply chain. Over the course of the next 12 months Sugarman served as a technical advisor, until formally joining in September 2011 when

immediately assembled a remark able technical team and began building the HDTS Platform. Matthew Thomas, a close friend [and equally well-respected computed scientist] of Sugarman, joined the company at the start of 2012. Matthew now serves as Chief Technology Officer. HD Trade Services, Inc. was founded in November 2011. By April 2012, our technology was featured at the prestigious DEMO conference in Silicon Valley. In June of this year, we were accepted into Y Combinator, a world renowned technology accelerator program in Mountain View, California. It’s been an incredible entrepreneurial journey so far, and we’re just getting started.

What challenges have you faced?

Daniel Sperling-Horowitz: It’s safe to say we’ve experienced our fair share of challenges. From growing pains, to funding constraints, to general industry mindset. The greatest challenge is the technology gap that exists in the logistics industry. It’s

4 66

september/ october

www.chainamagazine.com

THE links remarkable just how many companies are running warehouse systems that are decades old and rely heavily on pen and paper. We’ve addressed this problem by educating our clients about the tremendous benefits of mobile and on-demand solutions.

How have you managed to build up a customer base and marketed the business?

Daniel Sperling-Horowitz: We have focused on solving the problems of our earliest clients, problems that are quite ubiquitous in the industry. This includes inefficiencies arising from manual data entry and an abundance of paperwork. Our customers are very excited about our technology, so they’re telling their agents about us. This has kept us quite busy.

Can you give an overview of the company operations and services?

Daniel Sugarman: Currently there is a tablet based inventory management system which handles many of the same things as WMS. When goods are checked in, product information, dimensions and weights of the incoming and outgoing shipments can be included. Clients are automatically notified and emailed pictures. Inspection technology, streaming video and customisable checklists are also available and can be saved for future use.

In what ways is the company innovative?

Daniel Sugarman: Right now inspection software from third par ty inspection agencies doesn’t provide a good level of interaction. Interaction is important in the inspection process or serious issues can arise. This provides an extra level of security and also ensures deal turnover can be increased. With the inventory side, there are plenty of systems which handle pictures but none that are really instantaneous in the warehouse. It’s important for clients to know exactly when goods come in and out. Other available systems tend to be bulky and expensive. Unless you have a seven figure IT budget you may not be able to have a great system. Where we are different is we can provide for those who may not have that large budget or who are interested in handling some of the things which are not really being done. Even with expensive WMS systems, there is a lot of paper pushing in the warehouse. While tracking exists now, it’s nice to be able to see the pallets, dimensions and weights, and cross check, reference and look at the history. That’s not really being done right now.

What are your plans for the future?

Daniel Sugarman: We’re trying to stay

What challenges are there in entering nimble and move quickly. We’ve produced the Chinese market?

Daniel Sugarman: I see plenty of challenges. A lot of American companies are really looking for help in the procurement process. China’s such a big market right now. Certain things are difficult about moving quickly into China, language barriers for example.

new functionality very quickly. We’re looking at ways to keep innovating in transparency and efficiency and move to a more global market. China could be the best market for the product because a lot of countries are looking for procurement and good supply chain visibility in China. 67

www.chainamagazine.com

september/october

THE links

Robert Handfield, PhD

Five

“Not so Easy” Pieces: Globalising the Industrial Supply Chain

his summer we kicked off a new research project being sponsored by BVL International entitled “Trends and Strategies in SCM/Logistics”. The research is being completed by Supply Chain Resource Cooperative at Nor th Carolina State University, with the Technical University of Berlin, FDC of Brazil, Chartered Institute of Supply Professionals, and Shanxi University as research partners. Part of this research involves interviews with global supply chain executives to learn more about key issues and trends they are facing in the next five years. Today I inter viewed the most senior procurement and supply chain executive at one of the largest global Tier 1 automotive suppliers. This individual shared with me five key challenges their organisation is experiencing in the global supply chain, based on the ever- expanding global footprint present in this industry and many others today. One of the trends is a growing shift to Asian markets – no big surprise here. There is a growing middle class in Asia, and for this

company (like others), they are also seeing their largest growth in China, but recently their footprint in North America is starting to grow. “We are seeing double digit growth in North America, but after currency effects in China, it is only single digit growth.” But with increased globalisation, “we are seeing increasing competition from emerging markets, and the emerging markets are getting another type of value from us. Our strategy is to produce in the region of the customer FOR the customer. The big surprise here is Brazil, where we are seeing minus 7 percent growth.” What’s happening there? “In Brazil – there was a recession at the end of last year – and people thought it would be over now –

“We are seeing double digit growth in North America, but after currency effects in China, it is only single digit growth.”

4 68

september/ october

www.chainamagazine.com

THE links but it is NOT the case. The government was dependent on direct investment based on oil and energy – but now there is a big change and the industrialisation has stopped. The government is intervening to drive companies to internal sources through imposition of high import taxes – and it is now very artificial to try to maintain the current level of growth.” “Utilisation is the second important trend – the increased volatility of demand is an increased coping point, with increased risk emerging from incidents such as terrorism and Fukashima and Thailand. We are faster to understand the role of global supply chain disruptions, and those value streams in detail for Tier 1, 2, 3, 4 suppliers. We did this before financially – but now we are going through other issues to ensure that we have this type of risk management on a worldwide basis and understand upfront and have an agile supply chain.” “A third one is logistics to differentiate the value proposition. This is the only way to reduce non-necessary stocks in the supply chain and internally, and to differentiate the value proposition. Increased utilisation of products can be handled by improved logistics and is becoming a differentiating factor. We need to apply our logistics experience i n e m e rgi n g co m p a n i e s to meet increasing, higher service expectations for availability and ease of use. There is increasingly a higher expectation of security of supply from our customers and customs.” “A four th trend is higher frequency of bottlenecks in raw materials and warehouses. Many

are also driven by governments who create barriers in ensuring entrance and delivery and security of our supplies in different places in the world. Another bottleneck is standardisation – and especially with merger activities, to get the same level and same systems, and managing transportation with increasing volume.” “A fifth key trend is transparency in cooperation with partners outside our company borders. Customers require information availability of order delivery and transport, and disruptive events across the entire supply chain. We are challenged to increase connections to meet customer requirements for product and logistics services, and there is more of a trend to drive logistics processes by Web 2.0.” As we proceed with this research, we are pulling in content analytic tools, on-going interviews, and literature reviews to better understand and consolidate these insights into a research report later this year. I expect that initial results will be shared at the upcoming Supply Chain Resource Cooperative meeting on December 3-4, 2012. Rob is the Director of the Supply Chain Resource Cooperative.

69 www.chainamagazine.com

september/october

THE links

China Supply Chain

Success and Misperceptions Paul Matthews, Helen Chen, Michel Brekelmans

he roaring Chinese economy has many Western executives focused on how to use this region to improve their global manufacturing operations and expand their footprint in the dynamic Asian market. L.E.K. Consulting has outlined six important insights to help corporate leaders gain a better understanding of this market – and in some cases, dispel misperceptions about business in China.

Despite Rising Wages, Manufacturing is Still a Good Bet 1

Chinese provinces can vary greatly by culture, dialect and economics. Coastal regions and metropolitan centers such as Shanghai may observe higher wages but there are certainly many areas where wages remain much lower, particularly inland. 2

Despite Weak Links, the Supply Chain is Effective 3

Chinese supply chains are required to “do more with less”. Chinese supply chains are surprisingly effective at doing so much with so little compared to other countries.

Optimize Production at Home, Replicate Abroad 4

MNCs tend to increase specification standards by as much as 20-30% for o u t s o u rce d s u p p l i e r s vs. i n - h o u s e suppliers in Asia. It is not reasonable to expect new levels of manufacturing per for mance without a significant commitment from MNC executives to work very closely with their manufacturing partners at all levels to achieve new benchmarks.

China’s Workforce is Increasingly Skilled

Rethink How You Forge Strategic Partnerships

China is expanding its base of skilled workers to bring new innovations to market. The capabilities of a highly skilled workforce must be considered when calculating the true value of transferring labor costs to another region. But the value of these important skills are not always quantified with the same rigorous cost-benefit analysis of other direct costs.

MNCs often make the mistake of managing Chinese supply chains at arms-length from abroad. In reality, MNCs require multiple local relationships to be effective, and these local relationships are critical to success. Forging collaborative relationships throughout the supply chain takes effort and a true commitment by all parties.

4 70

september/ october

www.chainamagazine.com

THE links 6

Understand the Real Currency of Business

Distributors’ margins can be very significant in China which is difficult for most headquarters to understand. Distributors become, in effect, the face of the brand for the manufacturer. But without a clear business model that incentivizes distributors to be good shepherds of the brand, this may create issues for the manufacturer. This is a strategic and practical problem that most MNCs have only partially addressed so far.

Capitalizing on Market Opportunities in China China offers tremendous potential for those who know where to look and how to serve specific market segments. Supply chain operations in China may enable MNCs to reach a rapidly growing middle class with disposable income in this country, serve as a regional hub for expansion throughout Asia or to address added demand in other markets.

Please click here for full article. L.E.K. Consulting advises and supports global companies consistently make better decisions, deliver improved business performance and create greater shareholder returns. For more information, please go to www.lek.com or contact us at lekchina@lek.com. L.E.K.（艾意凯）咨询是全球领先的管理咨询公司之一，专注于帮助客户制定增长战略、评估投资和收购机会，以及解决组织和运营绩效等商业问题。欲了解详情，请访问www.lek.com 或联系lekchina@lek.com。

71 www.chainamagazine.com

september/october

THE links

中国

地区供应链的

高

速发展的中国经济吸引了愈来愈多跨国公司管理层的关注，使得他们更加积极地思考如何借助中国市场来提升企业的生产制造运营，并以此为基础将其业务版图扩张到日新月异的亚洲市场。 L.E.K.咨询总结了六个启示以帮助企业高层更好地理解中国市场，同时消除一些企业对于中国市场的误解。

1、尽管工资上涨，中国制造仍然是一个不错的选择中国幅员辽阔，各个省和自治区在文化、方言和经济上都有着巨大的差异。沿海地区和大城市，例如上海，目前工资水平确实处于较高水平，但还是有许多地区工资仍然处于较低水平，尤其是内陆地区。

2、中国的劳动力的技术水平熟练水平正在不断提高中国正在扩大熟练劳动力的数量，以不断地将这些创新进行市场化。评估生产基地搬迁时，劳动力的总体技能和熟练水平也需列入考虑范围。但这些重要技能水平往往不能像分析其他直接成本一样，使用明确的成本效益方法来量化。

成功启示和误解

3、尽管存在薄弱环节，供应链仍然有效的

6、深入理解中国的实际商业环境

中国的供应链往往被要求“少花钱多办事”。相比于其他国家而言，中国的供应链能够在相对有限的资源条件下取得令人称赞的实际运营效率。

L.E.K.咨询发现跨国企业合作运营中出现的许多问题都源于对中国商业流程和商业环境的深度误解。以医疗器械分销为例，中国的医疗器械经销商有非常大的利润空间，这让大部分跨国企业总部都难以理解。国内的医疗器械经销商往往实际上成为了医疗器械生产企业的品牌形象代言。如果没有适当的商业模型来正确地引导并激励经销商成为品牌形象的“守护者”，医疗器械生产企业可能会面临极高的风险。这是一个战略层面和操作层面都很重要的问题，许多跨国公司到目前为止也只是解决了部分问题。

4、优化本土生产，再将标准推广至“中国制造” 跨国企业对中国生产外包供应商的要求标准实际上要比企业本土内部生产高2030%，但是这些标准要求过高而往往矫枉过正。如果跨国公司高管本身没有花时间和精力与外包生产合作伙伴在新标准涉及到的各个环节密切合作，那么简单地期望这些合作伙伴能够直接地达到这些更严苛标准是不切实际的。跨国公司往往从海外对于国内供应链进行过于简单的管理。在现实中，跨国企业在中国需要多方位的合作关系，并且这些当地合作是成功的关键。建造出贯彻整个供应链的合作关系是需要多方的努力和用心承诺。

抓住中国的市场机遇对于那些知道如何寻找细分市场机遇以及如何抓住这些机遇的企业而言，中国提供了巨大的市场潜力。中国广泛的市场提供了多样化的市场机遇来针对不同的消费者。在中国布局供应链能使企业接触到快速成长的中产阶级，同时以此作为向亚洲或者其它市场扩张的区域性枢纽。

4 72

september/ october

www.chainamagazine.com

THE links

View the digital map at

cha1n.com/logmap