2008 Jan-Feb Issue

REGIONAL

Xinjiang revives

CHINA TRUCKS A local affair?

VIETNAM Rising fast...

NEW LABOUR LAWS Take effect

NANJING

Tier 2 cities grow

WORKING FOR...

Coca-Cola Bottlers

MEXICO

Reduces bottleneck?

JANUARY/FEBRUARY 2008 www.chainamagazine.com AUS$7.50 EUR€5 HK$40 RMB40 SG$9 UK£3.50 US$6

THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

Supply Chain Leaders Raise the Bar in China

THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

JANUARY/FEBRUARY 2008

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CONTENTS COVER STORY

China supply chain raises the bar

REGULAR FEATURES INSIDE VIEW

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24

In this story we take a look at supply chain best practices of some of the leading award winning companies in China.

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32

6

The building blocks of global high performance

7

China supply chain fraud: A risk to watch out for

9

A practical guide to labor law compliance in China

12 Industrial property: a draw for second tier cities 14 NEWS ROUNDUP

REGIONAL FOCUS

Silk road revival

QUESTION & ANSWER 29 In conversation with Jack Buffington

Xinjiang has begun to re-emerge as a transport and logistics hub serving both China and central Asia.

36 Second tier city focus - Nanjing questions with Jeff Broaddhurt 39 What its like to work for...

Coca Cola Bottlers SPECIAL FEATURE

SPECIAL FEATURE

Mexican infrastructure

38 Chinese Media Review 40 Event Update

offers hope for Chinese shippers

41 Blog Watch Trucks in China remain a local affair

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37

42 Movers & Shakers 43 Classifieds and Entertainment 45 Event Calendar

SPECIAL FEATURE

Vietnam

45 Company Index

PAGE

46 China Numbers

is rapidly becoming a new manufacturing haven.

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W

hile putting the content together for this edition of the magazine, it became clear that the overriding theme is about how quickly China’s role in the global supply chain puzzle is changing.

Our feature article looks at individuals and companies who are setting the standard for supply chain excellence in China by implementing best practices and driving efficiency. Increasingly, manufacturing operations, such as the new Beijing Benz Daimler Chrysler facility are looking more like western factories, with sophisticated IT systems and state of the art supply chains to move their goods.

As luxury goods grow in China, so there has been an increase in value added end-to-end logistics services to store and distribute these highend products.

Of course, Chinese companies have plenty of room to grow and can still learn from their Western counterparts. Jamie Bolton, a partner at Accenture, discusses the implications of a recent study on how Chinese companies are lagging in profitability or value creation.

Low-cost labour has always been the key draw for companies entering China, but this may change as Corporate Social Responsibility increases. AJ Hu’s article on changing Chinese labour laws examines legal considerations for employing staff in China.

Another sign of China’s shift in the Global economy is evident in our story on the growth of manufacturing in Vietnam. Even Chinese manufacturers are outsourcing some of their operations to Vietnam and we expect this trend to accelerate in 2008 as manufacturers look for cost savings.

It is no secret that the drive for cost savings is taking companies to second tier city cities such as Nanjing, where property is cheaper and labour more available. Our Q&A with a software developer in Nanjing suggests that China’s shift from low cost producer to higher value service provider is happening as we speak. Also on the topic of second tier cities, Bradley Feuling discusses the viability of warehousing outside of Shanghai.

Putting China in the global picture, it’s clear from our interview with author, Jack Buffingon that Americans are concerned about the development of their economy. Trade protectionism has never worked, says Buffington and Americans need to think about how to improve domestic productivity and invest in much needed infrastructure.

One solution to infrastructure problems in the US and port congestion on the west coast due mostly to Chinese imports might lie in Mexico and Canada. Michael Mackey, CHaINA’s roaming correspondent, looks at a new plan that Mexico is implementing mostly to support American trade.

It looks like 2008 will be another exciting year of growth in China’s supply chain and we look forward to providing the latest news, commentary and analysis on China’s role in the global supply chain.

On behalf of the team at CHaINA Magazine, we wish all our readers a happy and successful year.

Russel Beron Editor and Publisher CHaINA Magazine

Editor and Publisher Russel Beron russel@chainamagazine.com Contributing Writers A.J. Hu, Andy Mukherjee, Bradley A. Feuling, Chris Horton, Jack Perkowski, Jamie Bolton, Michael Mackey, Peter Humphrey, Pilar Dieter

Art Director Colin Dizengoff colind@imprintasia.com Graphic Designer How Xu

Chaina magazine editorial advisory committee Dittmar Nerger Head of Global Sourcing Bayer Healthcare

Max Henry Founder and Executive Director, Global Supply Chain Council

Dong-Hong Zhu Head of WW Procurement (China), Materials Manager, Agilent Technologies Shanghai

Michiel Hijma Senior Manager, Bertelsmann Directgroup China

Guy Tran Logistics Manager, Auchan China Hypermarkets Jean-Luc Laboucheix Supply Chain Director Asia Pacific, Goodyear

Nis-Peter Iwersen Vice President, Danfoss China Robert Jiang General Manager, Dajin Logistics Tony Li Logistics Manager, Amway China

CHaINA Sponsorship For information on sponsorship opportunities with CHaINA Magazine, please contact: Russel Beron russel@chainamagazine.com ADVERTISING SALES Giselle Yang, Business Development Manager giselle@chainamagazine.com +86 134 7254 2205 DISTRIBUTION We distribute CHaINA free by direct mail to subscribers in China, Hong Kong and Singapore who are involved in all aspects of supply chain management, manufacturing and logistics. Our target subscribers are logistics, warehousing and transportation directors and managers; sourcing, procurement and purchasing directors and managers; and manufacturing executives at foreign and domestic Chinese companies.

For subscription inquiries, please contact: subs@chainamagazine.com, or subscribe online at www.chainamagazine.com.

Starting from the January February edition, we will also be emailing a digital edition of the magazine free upon request.

Also beginning in January 2008, we will distribute CHaINA Magazine through selected locations in Shanghai, including hotels, restaurants, business centers, airport lounges and other key locations.

Chaina magazine’s sponsors:

Comments and Feedback We welcome feedback and comments about our content or any issues relating to supply chain management in China. Our next edition will also feature a Letter to the Editor column.

Please email any comments to the Editor at: russel@chainamagazine.com

CHaINA Magazine (ISSN 1992-9668) is published jointly by Painted Horse Media Limited (Hong Kong) and the China Supply Chain Council Limited (Hong Kong). There is no charge for qualified readers to receive subscriptions. Send subscription requests or address changes to subs@chainamagazine.com. The contents of the magazine may not be reprinted in whole or in part without the permission of the publisher. The publisher is not responsible for product claims and representations. CHaINA is a registered trademark of the China Supply Chain Council.

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INSIDEVIEW

The Building Blocks of Global High Performance

I Jamie Bolton is Executive Patner, Supply Chain Management, North Asia for Accenture, based in Shanghai.

n our November column, we raised a question that China’s supply chain leaders should regularly ask: “How can Chinese businesses be truly competitive on the world stage?” The answer is complicated. To date, few Chinese companies stand toe-to-toe with global high performers. Revenues may be up, but the ability of Chinese businesses to create value (e.g., by returning profits greater than their cost of capital) is only about half that of their global peers (Figure 1).

Accenture recently completed a lengthy study of China’s global competitiveness. Detailed analyses were performed on hundreds of publicly traded Chinese companies (minimum revenue RMB 1 billion). Financial metrics on these organizations were collected, analyzed and ranked.

Performance was compared to key competitors. Detailed communications were then opened with senior executives at over 80 Chinese companies, including those deemed most innovative and successful.

“

For Chinese companies, it will become steadily more critical to expand their views beyond traditional balance sheets and income statements—to look more closely at things like operating metrics.

”

Many insights emerged from the study. But one of the most significant was a wealth of information on three building blocks crucial to global high performance.

These capabilities are Market Focus & Position, Distinctive Capabilities and Performance Anatomy; and over the next three columns we’ll share details on their importance, attainment and supply chain relevance.

Here are some insights on Market Focus & Position.

High performing Chinese companies excel at making good decisions about where and when to compete. Take Midea, maker of low-voltage air conditioners. Local knowledge gives it an edge in distribution and in the marketing of products tailored to regions with special power needs. The Chinese dairy industry is another paragon: Its impressive growth stems from strategic relationships with local farmers, retailers and the stateFigure 9.Five year average profitability comparison (2001-2005): Chinese Vs.global peer sets 2%

5 Year Median (Avg Spread)

4% 2%

0.3%

-5% -9%

High Performers

All Companies

Low Performers China

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Global

owned Railway Container Transport agency. Both Midea and the dairy companies know the importance of integrating strategic and operational priorities, and how those actions strengthen their ability to generate shareholder value.

The latter goal—shareholder value creation—ties directly to excellence in market focus and position. A core responsibility of any exchange-listed company is to create returns for its shareholders. In China, however, the issue of shareholder value creation is complex.

Many companies initially pursued listings to gain access to capital, with not a lot of consideration given to maximizing value for investors. Transparency, corporate governance and continuous improvements in operational effectiveness were seldom priorities. That situation is changing rapidly. The state-owned Assets Supervision and Administration Commission of the State Council of the People’s Republic of China (SASAC) is demanding greater returns to shareholders. Local investors continue to become more sophisticated in examining companies’ operations, rather than speculating on the fluctuations of the market as a whole. Additionally, many Chinese companies hope to attract investments from foreign investors, and thus are eyeing listings overseas.

Supply chain mastery underpins each of the above missions. Via our survey, we observed that the average Chinese company has followed a largely linear development path: rapid growth to establish market share and brand, followed by operational improvements and later a tightening focus on shareholder value. High performers, on the other hand, perceive the task more holistically. For them, profitable growth—enabled by mastery in areas such as forecasting/planning, order management, distribution network optimization, shared services and the mobilization of third party logistics providers—is a lifecycle-long priority.

Another supply chain priority concerns data transparency and communication. Chinese companies that focus first on rapid growth often do so at the expense of profitability. In an exchange-dominated world, this approach will be increasingly unacceptable to shareholders. Quick, insightful operating decisions— drawn and synthesized from key points along the entire supply chain—could be the best way to make rapid growth profitable.

For Chinese companies, it will become steadily more critical to expand their views beyond traditional balance sheets and income statements—to look more closely at things like operating metrics. With such a large portion of their share prices based on expectations of future performance, an end-to-end supply chain perspective is a top-tier best practice.

Next issue, we’ll examine the relationship between supply chain management and the second building block: development of distinctive capabilities. www.chainamagazine.com

INSIDEVIEW

China Supply Chain Fraud A Risk to Watch Out For

C

hina is booming but so is fraud. It is not so much the daily headline news about high level graft in SOEs or government agencies that foreign investors and outsourcers must worry about. It is in the supply chain, in their own midst, among vendors, distributors and staff. Management fraud, distribution and purchasing system fraud, have become rife; and multinationals shifting their core supply chain operations to China are highly vulnerable to fraudsters.

False fronts In one recent case that we investigated a US office products maker with a sales office and factory in eastern China (let’s call it “Office 789 Inc”), received an anonymous email accusing one of its buyers of holding shares in an important supplier (“Supplier Y”).

Office 789 had got hold of an incorporation record on Supplier Y but had not found the buyer listed as a shareholder. But of note, at the same time, Office 789 found out that right after it had amended its own business license to include manufacturing rights in China for a Office Products - Supply Chain Fraud Supplier Z

B C D

Adress 2

Adress 1

Supplier Y

Supplier X

Buyer A

Deputy GM

Office 789 Inc Lovers c

ChinaWhys

new product line, Supplier Y had also changed its license to do exactly the same. This appeared to be a calculated attempt to imitate Office 789’s business.

Close analysis of the corporate registration documents by bilingual forensic investigators showed that Supplier Y had registered two different addresses. An investigator visited both addresses and found that supplier Y was indeed located at one of the two, where it presented itself as a trading firm. At the second address, though, he found a different firm, a manufacturer (“Company Z”).

By examining the buyer’s company email backup, investigators learnt that he had recently diverted orders from company Z to company Y on grounds of quality.

The buyer also confided in an email to one of his contacts that he and friends had recently got a piece of land and were going to build a plant there. In the same email he www.chainamagazine.com

asked that all future email correspondence be sent to his private address rather than his company email box.

An investigator visited company Z under a trading front. There he learned that senior executives of Z had been diverting business from their employers to their own firm. He followed this lead to the location of the new company. There he learned this new firm had recently bought some land where it was building a big factory. After obtaining the name of the new firm, we examined its incorporation records and found the name of the buyer listed as Deputy General Manager.

As a result, Office 789 Inc fired Buyer X was fired for diverting business away and for acting in conflict with the company’s interests.

Peter Humphrey is the founder and Managing Director of ChinaWhys, an advisory firm promoting business ethics and transparency and providing forensic investigation and due diligence services.

Supplier or Distributor -or both?

In another situation, a multinational chemicals firm in Shanghai found that the profits of its JV with a Chinese partner had dropped dramatically from 35% of the previous year to 0%. Under cover of a process review we conducted a forensic audit and found that two suppliers had predominantly contributed to the profit drop, around RMB9 million, and one of them was, oddly, both a supplier and a distributor at the same time. Part of the payments to the suppliers was not booked at all, while part of it was booked as advance to supplier and was not reflected in P&L. From discreet interviews we ascertained that the exGM had used a supplier’s account to launder money, and the name of the supplier from one person spoken to matched the supplier/distributor that we had spotted in the audit. Through external inquiries we also discovered that the chairman and legal representative of the supplier/distributor was an employee of the JV who had received many unusually generous pay rises from the ex-GM. Through further inquiries we learned that goods that appeared on the invoices from the suppliers were not what was actually purchased; product names and quantities recorded in the computer system for these transactions were fictitious. The products bought were finished goods but were recorded as raw materials.

“

A recent survey showed four in 10 firms suffered losses from their China operations due to fraud but only half investigated the malfeasance. It also showed only 25% of firms had a supply chain review program and only 31% had conducted due diligence on suppliers and business partners.

The management claimed that this cooked accounting was intended to distort the cost structure to win a US anti-dumping case. However, the warehouse supervisor was ordered by the ex-GM not to keep any records of

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INSIDEVIEW goods received from the two suppliers; all information related to the anti-dumping case kept by the previous finance manager was nowhere to be found; and the GM’s computer had vanished after he resigned. The evidence showed that the fall in profit was due to accounting and invoice manipulation by the previous GM in collusion with several staff in the company for personal gain.

Stolen Intellectual Property Another recent case involved a Chinese scientist working for a big life sciences multinational in an R&D team that had developed an innovative cost-saving industrial process.

The firm had patents on the technology and expected to make hundreds of millions of dollars in profits by building

MAKING BUSINESS FLOW

plants with this technology. Indeed the first contract had been signed. The scientist suddenly resigned and was later found to have copied all the related files from the IT system to CDs and was working with companies in China to build a business around this stolen technology.

The inquiries referred to above make clear that it is possible to peel the onion and connect the dots on white collar crime mysteries in China supply chain operations -- if the effort is made. A recent survey showed four in 10 firms suffered losses from their China operations due to fraud but only half investigated the malfeasance. It also showed only 25% of firms had a supply chain review program and only 31% had conducted due diligence on suppliers and business partners.

Key measures to prevent Supply Chain fraud : • Background screening distributors, resellers etc

of

staff,

vendors,

• Due diligence beyond the balance sheet – check the people • Strengthen internal controls & monitoring • Check compliance with internal procedures • Educate your staff in local and international laws, ensure compliance • Conduct internal audits, fraud risk assessments, process reviews • Impose a Code of Ethics (COE) and bind it into all contractual relationships • Hold ethics awareness training to drill the COE into staff and partners • Use a whistle-blowing hotline and treat ethics complaints seriously • Introduce checks and balances to prevent crossdepartmental collusion • Show a hands-on management style • Use clear and visible deterrents, punish the violators • Be on guard against alternative loyalties centering on cliques • Cultural differences must be well managed, avoid “them and us” syndrome

CEVA designs, implements and operates complex supply chain solutions on a national, regional or global scale for medium to large enterprises.

With more than 52,000 dedicated professionals CEVA maintains 614 warehouses globally with a combined space of approximately 8,6 million square meters and operates an extensive global network in over 100 countries.

www.cevalogistics.com 8

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INSIDEVIEW

Protect Your Employees, Protect Your Business – A Practical Guide to Labor Law Compliance in China

Companies lacking knowledge of China’s labor regulations face the risk of being entangled by labor disputes. AJ Hu explains the key legal considerations for employing staff in China.

T

he recent series of high-profile labor events has thrown a spotlight on the protection of workers’ rights in China.

Several foreign multinationals, including FoxConn, McDonald’s and Yum! Brands Inc - which owns the KFC brand, had been investigated for providing poor working conditions, underpaying their part-time workers and engaging in other unfair labor practices. The rescue of slave workers from the brick kilns and mines in Henan and Shanxi provinces had also made headlines in many local and international news media.

These events and the recent enactment of the revised China labor law on June 29th, 2007 - after 18 months of heated debates, are reminding foreign investors to be mindful of their legal obligations as an employer in China.

Obligations of Foreign Employers China has its own unique labor system and regulations.

Apart from the usual employment requirements, such as signing contracts with workers, meeting wage standards and issuing salary timely, employers in China are also obliged to: 1.File their staff employment and dismissal with releva nt government bureaus 2.Maintain employees’ personnel file – a unique Chinese document that records all academic and employment history of an employee, and the responsibility of maintaining the file is transferred from one employer to another when the employee changes jobs 3.Withhold and pay individual income tax on behalf of their employees 4.Make monthly contributions to their employees’ social benefits and housing funds Most of the above processes are complicated by the involvement of several government bureaus and tedious paperwork. For the unfamiliar, staffing their China operations may pose a challenge.

period, job responsibilities, labor protection and working conditions, compensation, termination conditions, disciplinary rules and breach of contract provisions.

Depending on individual needs of companies, it is also common to include other contract terms such as noncompete clause, non-disclosure agreements and training bond period.

“

Due to the common abuse of fixed-term contracts by companies to avoid long-term employment commitments, the new labor law includes several provisions to curb such practice and better protect workers’ rights.

”

Term of contracts

Three legal forms of employment terms exist in China: •Fixed Term Employment – contract terminates once the stated time period lapse. Upon expiration, the contract can be renewed with mutual consent from both contracting parties.

•Open-Ended Employment – contract without termination date.

•Project-based Employment – contract terminates upon completion of a stated project.

Due to the common abuse of fixed-term contracts by companies to avoid long-term employment commitments, the new labor law includes several provisions to curb such practice and better protect workers’ rights. Now, companies can sign at most two fixed-term contracts with an employee and are obliged to pay severance compensation if they do not renew the contract.

A bookstore displays pamphlets explaining China’s new labour laws.

What follows is a useful list of “must-knows” for employers in China.

Employment contract Official employment contracts written in Chinese must be provided to all employees. While there is no standard contract format, the agreement should bear critical information including term of contract, probation www.chainamagazine.com

AJ Hu is the Partner of The JLJ Group (www.jljgroup.com), a Shanghai-based firm assisting foreign companies to enter or grow in the China market.

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INSIDEVIEW Wages

Working hours

The wage standards vary across different regions of China, depending upon economic conditions and job requirements. For Shanghai, the current minimum required wage stands at RMB 840.

The China labor law stipulates an eight-hour workday, with no more than 40 working hours per week for fulltime employees. If there is a specific need for overtime, companies would need to discuss the arrangements with relevant unions and provide overtime compensation, set at 150% of normal wages for overtime on normal workdays, 200% for rest days, and 300% for national holidays.

Social Welfare Benefits Employers are obliged to contribute to the employees’ social welfare benefits on a monthly basis. The Domicile City Insurance is the most common benefit scheme adopted for employees of Shanghai residency. The contribution by both employer and employee is detailed in the table below:

Leave and vacations Similar to other international labor practices, China’s leave and vacation policy includes annual leave, wedding leave, funeral leave, maternity leave and sick leave. In addition, employees working out of their registered province or city are eligible for family visitation leave.

Termination Generally, workers can terminate their employment contracts by providing a 30 days’ written notice to the employer. However, the prior notice can be exempted if the worker is still under probation or if the company fails to fulfill its legal obligations as an employer.

Termination by employers is much more complicated and often involves severance compensation. An employer can dismiss staff without prior notice or severance pay only if the worker fails to perform during the probation period or if the worker commits a serious breach of conduct, dereliction of duty or crime in accordance with the law. In other situations, the employer will be required to give 30 days’ notice to the employee and/or pay compensations stipulated by the provincial governments.

The new labor law also states that companies planning to reduce their workforce must consult the labor unions 30 days prior to the dismissal.

The contributions are calculated based upon the gross salary paid to the employee, but a varying minimum base and maximum cap applies for Shanghai, Beijing and Guangzhou.

It is undeniable that China offers vast opportunities to foreign investors, but at the same time, the risks of labor disputes can significantly impact business operations. It is therefore critical for employers to develop responsible HR strategies that ensure stable business operations in China.

Factory workers in China will be better protected under the new labour laws.

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INSIDEVIEW

Are Second Tier Cities a Solution to Shanghai’s Industrial Property Shortage?

W Bradley A. Feuling is the CEO of Kong and Allan, LLC, based in Shanghai, China. Kong and Allan is a unique consulting firm specializing in supply chain operations and corporate expansion.

ith the rapid expansion of Shanghai as the central port city for shipping and an accompanying frenzy of commercial real estate development, the Shanghai government has identified a saturation point in the city’s growth. Currently, new permits for warehousing and similar facility land use are on hold leaving developers and manufacturing companies to look elsewhere for new storage and inventory management construction opportunities.

With close proximity to Shanghai, lower investment costs, and increasing local port traffic, second-tier cities such as Kunshan, Wenzhou and Ningbo offer an alternative. As a lower cost option, these cities bring other considerations.

On the surface, per unit storage costs are the initial consideration for potentially routing product through one of these cities. Lead time and inventory management however play an important role in determining other cost influences. Using alternative cities as a solution to Shanghai offers both advantage and disadvantages.

Considering Ningbo What was once regarded as an overflow port for Shanghai’s sea transport, Ningbo now offers an increasingly competitive logistics local. Think of Abu Dhabi in relation to Dubai or Long

Warehouse developer Gazeley is building an impressive new facility in Kunshan.

Lead Times and Site Selection When considering lead time in selecting a warehousing location, the first question to consider is always the location of both the customer and the manufacturer. For our purposes, we will mainly consider inventory prepared for export, however first we will briefly consider local demand.

Take Kunshan for example. The location provides greater flexibility than Shanghai for cities such as Suzhou, Wuxi and Changshu, meaning shorter lead times. Lower lead times generally create lower inventory levels, and as holding costs will be lower, the savings are quite apparent. SSAB Swedish Steel (China) Co., Ltd is one example which has benefited from locating its processing warehouse in Kunshan, meaning reduced lead times and inventory stock for local customers.

In terms of export, a key consideration is total in-transit lead time from the manufacturer to the warehouse, inventory storage as well as shipment preparation and consolidation.

With alternative warehousing locations such as Kunshan, Wenzhou and Ningbo these considerations must be included. LCR Electronic, Inc. moved their operations from Shenzhen to Kunshan to realize lower fixed costs and

Beach compared to Los Angeles.

Considering export, Ningbo is now the sixth largest Asian trading port with the US West Coast based on TEU’s, with an increase in volume of 76.3% from April 2006 to March 2007. Based on estimated warehousing, terminal and in-transit charges, costs are lower than those of Shanghai. Lead times to the US West Coast for example are roughly 3.7 days shorter than Shanghai, with lower berthing times as well.

As an increasingly important shipping port, the demand for warehousing facilities in Ningbo has also risen. Additional investment in commercial infrastructure,

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has given rise to advanced facilities that rival those in first-tier cities. Ningbo also offers a strategic location for product manufactured in East Zhejiang province, where many manufacturers are located. Land transport can move product to Ningbo without the congested traffic and intra-provincial requirements needed for transit through Shanghai to the Waigaoqiao port. These operational efficiencies, matched with lower inventory holding costs strengthen Ningbo’s potential as a strategic supply chain location.

JANUARY/FEBRUARY 2008

improved lead times, both in preparation and in-transit. A day saved on in-transit inventory can create cash flow faster.

Companies are increasingly searching for low cost manufacturing as knowledge and technology spread to remote cities in surrounding provinces near Shanghai. If product is manufactured in Taizhou for example, Wenzhou offers a strong solution for overseas shipping when looking at total in-transit time. www.chainamagazine.com

INSIDEVIEW Lengthened in-transit time to port and increased docking time prior to consolidation for Shanghai will increase the cost per unit. As costs in general are comparatively low in China, few companies analyze these downstream supply chain processes.

Second-tier cities offer a reduction in per unit cost on inventory holding while product is awaiting inspection, document processing and shipment preparation. The reduced lead time also means product can arrive sooner and in fact is closer.

There are disadvantages however, which can also impact the lead time. As second-tier cities are increasingly becoming a focal point, many facilities are still under construction, so a company must assure the quality of handling both to and from the warehouse and in storage. If 20% of the product is damaged due to poor material handling, the lead time for full delivery will be lengthened. Likewise, newly constructed warehousing must be seamlessly connected to export processing to reduce the occurrence of delays. Each of these operational procedures should be clearly outlined prior to selecting an inventory storage location.

One strategy some companies are using is to hold minimal levels of inventory in Shanghai for expedited orders or during periods of increased demand variability, and higher volumes of inventory in lower cost cities that fulfil consistent demand. In doing so, per unit holding cost are reduced and inventory is maintained to strengthen OTIF deliveries.

Inventory Management and Site Selection In Kunshan, Wenzhou and Ningbo the cost savings of holding inventory due to lower fixed asset overhead may seem immediate. Again, the question should be asked, where is the customer, where is the manufacturer?

With overseas customers, common theory suggests placing product close to the customer. This is to ensure delivery when orders are placed. The reality in China however, is Shanghai has become one of the busiest ports in the region. Traffic and customs delays are often longer.

www.chainamagazine.com

Capacity is a concern especially if greater volumes of inventory are maintained. With overflow inventory costs rise when offsite locations are utilized. This increase is related to logistics and commonly redundant processes.

With new construction in second-tier cities, these concerns are real. AMB Property Corp. hopes to alleviate some of the capacity constraints with its construction of two new warehouses in Ningbo and Kunshan.

“

A company must assure the quality of handling both to and from the warehouse and in storage.

Another disadvantage may be inventory management.

Seamless integration to existing production, inventory and material monitoring systems will be key to guarantee optimization at an alternative storage location. Without complete transparency, companies increase the risk of stock-out or unnecessary high inventory levels.

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NEWSROUNDUP

Air Cargo China, HK to further liberalize aviation markets HONG KONG, Dec. 28, 2007 -- Hong Kong said Thursday it and China will further liberalize their aviation markets by allowing increased frequencies between both sides and easing restrictions on passenger and cargo flights. The General Administration of Civil Aviation of China and Hong Kong’s Transport and Housing bureau will sign a new pact after their latest round of discussions on their air services arrangement, said the Hong Kong authorities. (AFP)

investment environment in Tianjin, facilitating infrastructure construction, bringing in more global players and management know-how, enriching the city’s service functions and cultivating a quality labor force,” said Zhang Ju the president of Rohm Semiconductor (China) Co Ltd. The Binhai New Area, which covers nearly 2,300 sq km, was designed to provide a gateway to North China, as well as being a modern manufacturing and research base, and an international shipping and logistics center.

By Wang Yu (China Daily)

Automotive Technology theft slows innovation SHANGHAI -- China’s auto industry, some experts say, lacks innovation. At a recent conference at Jiaotong University, Professor Guo Kong-Hui of Jilin University blamed in part China’s sudden change from a planned to a market economy. He also blamed the education system, which he says doesn’t foster innovation. Innovation is

Around China Tianjin Binhai to attract foreign investment TIANJIN -- The growth of the Binhai New Area is boosting Japanese firms’ confidence in Tianjin, and a growing number are gearing up to cement economic ties with local partners in the coastal city.

“From a broad perspective, the development of the Binhai New Area will improve the overall

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NEWSROUNDUP news@chainamagazine.com

also stifled by another problem: intellectual property theft.

Merger forges SAIC as Chinese auto giant BEIJING -- China’s two largest car manufacturers, Nanjing Automotive Corporation (NAC) and Shanghai Automotive (SAIC) merged at a conference held recently in Beijing.

There was fierce rivalry between the two automakers, with both companies owning parts of what was the MG Rover Corporation – NAC has rights to the MG TF, ZR and ZT, and SAIC owns the Rover 25, 75 and the K-series engine. It took five months to come to an agreement regarding the merger, but SAIC finally bought out NAC for £144m.

The two companies have agreed to merge all their combined resources, including research and design, sales and marketing, manufacturing and supply chain management, though the company will continue to trade under both names.

The aim is to make SAIC into a large global manufacturer by giving it access to the MG brand and NAC’s more modern, larger production facilities. Such restructuring of the Chinese automotive industry is something the Chinese authorities are keen to see happen in order to make the country’s car industry more competitive.

Environment China promises public hearings on environmental issues BEIJING, December, 2007 -- China’s environmental regulator promised that public hearings will become part of the approval process for major projects. The decision was reached after residents’ protests forced the suspension of the controversial Xiamen city PX plant project.

“Major projects in the public interest will undergo hearing procedures, with timely responses to public feedback and media coverage,”said Zhou Shengxian, head of the State Environmental Protection Administration, on Thursday.

“The right to know is given to every citizen,” said Zhou, who added that environmental agencies should release information on environmental quality and management and industrial activity that affects the environment.

China’s new regulations on the release of environmental information take effect in May 2008. The rules mandate a reply from the government within 15 days after the public inquiry is submitted. (Xinhua) www.chainamagazine.com

General Economy Economy, inflation to grow in slower pace in 2008 BEIJING, December 28, 2007 -- China’s economy is likely to expand at a slower rate in 2008 than it did this year, or by less than 11 percent, as the government tries to avoid overheating, said Yao Jingyuan, the chief economist of the National Bureau of Statistics (NBS).

Gross domestic product (GDP) in the world’s fastest-growing major economy is forecast to grow by 11.5 percent this year, Shanghai Securities News quoted Yao as saying. GDP rose 11.5 percent year-on-year in the first three quarters of 2007 despite a series of tightening measures.

The consumer price index (CPI) a major gauge of inflation, is likely to climb 4.7 percent in 2007, Yao told a forum in Beijing on Thursday. He added that inflationary pressure is expected to ease next year. The CPI jumped by an 11-year-high of 6.9 percent in November and 4.6 percent in the first 11 months, primarily driven by surging food prices.

The chief economist also forecast that the trade surplus would reach US$260 billion in 2007. The surplus hit US$238.1 billion from January to November, higher than the US$177.5 billion recorded in 2006. (Xinhua)

China’s market quickly recovered and the Shanghai Composite index went on to soar 97 percent this year, making it the world’s bestperforming major benchmark index. But the year ahead isn’t going to be as rewarding, analysts say, and the volatility will likely continue. “It was a nice rally,” UBS economist Jonathan Anderson wrote in a recent report. The market in 2008 “may not be nearly as exciting.”

While many Chinese believe that authorities will try to keep the markets on an even keel ahead of the Beijing Olympics in August, other risks loom. Beijing is struggling to keep inflation in check and could continue to raise interest rates. Also, the mortgage crisis in the US has raised the risk of a recession that might sap demand for Chinese exports. (Source: China Daily/Agencies)

Industrial Property Mapletree breaks ground on Wuxi logistics park Mapletree’s Wuxi Logistics Park held a ground-breaking ceremony on Dec 5, 2007.

The project is located in Wuxi New District, near Wuxi Shuofang Airport and is scheduled to build 3 blocks of single storey steel-framed warehouses with mezzanine offices for a total of 45,000 sqm.

Stock market ends stunning year, uncertainties abound BEIJING, Dec. 31 -- This year, the world discovered the Chinese stock market. Investors in China poured their money into shares like never before, sending the market on a turbulent, record-breaking ride.

In February, for the first time ever, a plunge in Chinese stocks helped trigger a global market sell-off, suggesting the potential sway this heretofore ignored market will have in years to come.

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Construction is expected to be completed in June 2008 it will be available for lease in Q3 2008. The project is strategically located in proximity to Shanghai, Jiangsu & Nanjing, as well as the Huning Expressways & the 312 State Highway, which connects Eastern China to key logistics nodes.

IT Unipac Shipping Selects GT Nexus to power Global Logistics Data Hub ALAMEDA, CA -- GT Nexus announced recently that its industry trade and logistics portal will serve as the ocean shipment visibility data hub for Unipac Shipping, Inc. Unipac Shipping Inc. is a full-service logistics management company providing integrated transportation, customs brokerage, warehousing and distribution services to a worldwide shipping community that spans North America, Europe, Asia-Pacific, and China.

“In our industry, technology is a strategic differentiator,” said Paul Tsuei, IT Manager at Unipac Shipping. “Through a single integration between our system and the GT Nexus portal, we get standardized shipment

status information from all of our carrier partners. This industry data utility approach will make our systems perform better and help us improve the value we offer our customers.”

IBM Stands Firmly behind Kingdee The ever-growing SaaS (software as service) market in China is really a big magnetic field to IBM that is in full sail shifting its exposure to software and IT services.

It lately gave its full support to Chinese ERP software developer Kingdee in building up Youshang.com, an online accounting and business management platform. It also helped Kingdee to complete the purchase of a Hong Kong-based accounting website.

Xu Shaochun, chairman of Kingdee, says that Youshang.com is a result of joint efforts between Kingdee and IBM. Executives from IBM China also say that IBM will provide Kingdee with the most advanced technologies.

TradelinkOne opens Shenzhen office and expands in Hong Kong HONG KONG, December 30, 2007 -Tradelink Technologies has opened a new

IT RFID poised for the big time in 2008 24 Dec 2007 -- Next year will witness the spread of RFID applications into familiar, everyday settings, while consumer electronics, wireless technologies and security requirements will continue to benefit from the integration of RFID, predicts AIM Global, the worldwide industry trade association.

Practical RFID applications will find their way into familiar settings, including sporting events, the latest toys and food safety, says the trade association. This year’s highly publicized recalls of contaminated foods and unsafe toys will push firms to use RFID to immediately track the origins of compromised items, halting the production of potentially harmful goods.

From transportation worker ID cards and border cards, to RFID-based electronic seals on cargo containers, RFID will increasingly be deployed in a bid to improve security without hampering international trade.

Elsewhere in the supply chain, RFID will bring improvements to retail environments, allowing retailers to benefit from the cross-selling of related items and the ability to guarantee availability.

office in Shenzhen and expanded its office in Hong Kong to support growing demand for its supply chain solutions products, as large retail companies move to ship direct from China to stores in the US and Europe.

“Our clients are making significant savings by shipping direct from China and other manufacturing centres to retail outlets around the world, eliminating the need for using distribution centres predominantly in the US and Europe. Through our portal TradelinkOne, Ship One and Pack One products we provide an integrated solution for brand name retailers and logistics service providers,” said Dan Entac, CEO of Tradelink Technologies.

Mergers and Acquisitions Australia’s Toll to buy HK freight firm Baltrans Australian logistics firm Toll Holdings Ltd (TOL.AX: Quote, Profile, Research) said it wants to buy Hong Kong freight company Baltrans Holdings for about A$365 million (US$313 million) as part of an expansion in Asia.

Toll, the largest listed air freight and logistics firm in Asia Pacific by market value, is offering HK$7.60 a share, rising to HK$7.75 a share if it gets 90 percent acceptance. Baltrans’ founding shareholders controlling about 44 percent of the issued equity have accepted the offer, Toll said.

Construction begins on Tibet logistics center Construction has started on Tibet’s biggest logistics center as a result as a direct result of the Qinghai-Tibet Railway that opened a year ago. The logistics center, covering 533 hectares, is next to a railway station in Nagqu Township of Nagqu County in northern Tibet.

According to Hao Peng, executive vice chairman of the Tibet Autonomous Region,

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it was announced. The stock gave up all the gains in early trading a few days later.

The message was clear. It’s going to take more than another change in executive leadership to turn Motorola around. Fundamentally, Motorola suffers from a dysfunctional design and supply chain system that is prone to churning out one-time hit products in the wireless handset industry, a fast-growing market that analysts say requires quicker updates, a wider range of products and a deeper understanding of consumer preferences.

or later,” a China Post Logistics spokesman said. He declined further comment.

The state-owned logistics firm -- established in 2003 with a 370 million yuan ($50 million) capital base -- is set to balloon in size. Its parent has embarked on a plan to merge the firm with its own nationwide express mail service.

Logistics

it should be up and running with 15 months and will cost RMB1.5 billion ($200 million). The center is expected to handle 2.23 million tons of cargo by 2015 and 3.1 million by 2020.

Lu Chunfang, vice minister of railways said, ‘The northern part of Tibet is rich in natural resources, and the Nagqu logistics center will provide easier access to the resources, which will drive the industrial development and trade in the area and raise its self-development capabilities.’

According to the Tibet Regional Statistics Bureau Tibet’s gross domestic product (GDP) posted a 14.7% growth to reach RMB14 billion ($1.84 billion) in the first half of this year. (People’ Daily Online)

China witnesses surge in demand for logistics Owing to the boom in its economy and the influx of foreign direct investments in 2006, China witnessed a surge in demand for logistics, experiencing robust market growth.

The Chinese Government deregulation on foreign-owned logistics companies has increased market opportunities for these companies to penetrate the market further.

New analysis from Frost & Sullivan Strategic Analysis of the Chinese Logistics Market, reveals that the Chinese logistics market generated revenues of $7.38 trillion in 2006 and estimates this to reach $28.78 trillion in 2013.

Top China logistics firm eyes $2 bln IPO China Post Logistics, the country’s top logistics firm, plans to raise over $2 billion in a Hong Kong and Shanghai stock market listing

The trend of U.S.-based logistics services providers making inroads into China has accelerated in the past 2 years Other examples of this trend • Werner Global Logistics (WGL) was founded in 2006 to meet its customers logistics needs in China. WGL has established alliances with select Chinese logistics providers to provide inland distribution from major ports and warehousing and transportation services from 20 distribution centers throughout China; • C.H. Robinson acquired Dalian Decheng Shipping Agency Co. in 2005., allowing it to establish an international transportation management presence in China. The company has seven offices: Dalian, Tianjin, Qingdao, Shanghai, Ningbo, Xiamen, and Shenzhen.

• In 2005, YRC purchased a China-based forwarder and took a 50% ownership in another.

GPS Logistics and JHJ International Transportation added 1,400 employees and 82 offices in Asia for YRC and; • In September, Schneider Logistics announced an acquisition of Shanghai China based BaoYun Logistics.

(Armstrong & Associates research)

Manufacturing Motorola not so mobile Gregory Brown’s appointment as Motorola’s new CEO, effective in January, earned tepid support from shareholders, who boosted the company’s stock price a mere 2 percent the day www.chainamagazine.com

in 2008, sources said, amid mounting foreign competition in the booming sector.

The company, run by the state operator of the country’s huge postal system, is expected to raise at least $2 billion in total on both markets. “We do have a listing plan, but now we don’t have any timetable, maybe next year

FM Logistics gears up it’s China business SHANGHAI, December 20 -- FM Logistics organized a press-conference to announce that they had completed the first step of their development in China and that they are now developing their own logistics center in the Shanghai and Beijing area.

This first phase goal was to build regular activity in long-haul transportation, distribution and to manage an initial warehouse. The company’s main customers are Nestle, Procter & Gamble, Unilever, IKEA, Wal-Mart, Lotus, Mengniu and Nidec.

“The main difficulty is that the higher the level of perfect order you want to achieve, the more expensive are the solutions that you must setup,” said an FM spokesman. “The difficulty of the Chinese market is that it is asking for a level of performance which is not in line with the cost it is ready to accept.”

Chinese Army to modernize its logistic sector by 2020 China has published a guideline for the development of the logistic sector of the Chinese People’s Liberation Army (PLA) that plans the route to a modern, efficient and flexible logistic sector for the Army by the year 2020.

Hu Jintao, State President and Chairman of the Central Military Commission, recently signed a decree to circulate the “Guideline on the Comprehensive Development of the Modern Logistic Sector” for the Army.

For decades, the PLA had organized its own logistic supply. Now, under the guideline, the Army will introduce more and more civilian suppliers.

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Railway Chinese insurers to invest $2bln in railway A group of insurance companies led by Ping An Insurance, China’s second-largest life assurer, will invest more than $2bn in a highspeed railway line connecting Shanghai and Beijing, the company said on Friday.

The consortium of insurers, including Italy’s Generali and five other large Chinese firms, will take a stake of nearly 14 per cent in the company established to build the high-speed line. Construction begins next month and is expected to cost Rmb220bn ($30bn) by the time the line is completed in 2013.

The consortium will be the second largest shareholder after the Ministry of Railways, which will hold 78.9 per cent.

So far, 5,200 barracks of the PLA have employed civilian suppliers for catering and medical services. Meanwhile, 95 percent of the Army’s clothing and quilts are provided by civilian manufacturers.

Through reforms, the Army has cut its staff working for logistics service by more than 60,000. (Editor: Wang Hongjiang ) Sinotrans sells stake in unit to DHL for €61m Confirming reports in November, and speculation as far back as June, Reuters has reported that Sinotrans is to sell its stake in Exel-Sinotrans Freight Forwarding Co to its joint-venture partner. DHL Exel Supply Chain’s Hong Kong subsidiary is to acquire the remaining stake-hold for a fee believed to be around €61.0 million although the Company has not yet confirmed this report.

DHL in November announced it was spending $137 million to build a logistics hub in Shanghai.

Ports Sinochem Fertilizer to build Logistics Center at Yantai Port On November 22, Sinochem Fertilizer signed the “Contract on Jointly Building up a Fertilizer Logistics Center in Yantai” with Yantai Port. The contract confirms that the two companies will jointly build up a fertilizer logistics center in the North of China, providing one-stop services including export, import, entrepot, distribution, transit transport and clearing.

According to the contract, Sinochem Fertilizer will hold 51% of the equity interest. Mr. Du Keping, CEO of Sinofert and Mr. Ji Shaobo, General Manager of Yantai Port signed the contract on behalf of the each party.

Retail China: Retail Sales Show Big Jump China’s retail sales increased at the quickest rate in at least eight years on rising incomes, helping government efforts to curb the economy’s dependence on exports and investment to achieve growth. Sales climbed 18.8 percent, to 810.5 billion yuan ($110 billion), in November from a year earlier, the statistics bureau said, after rising 18.1 percent in October. That was the biggest gain since 1999, according to Bloomberg data.

Quality and Safety China can’t improve product safety alone Companies outsourcing to China need to go well beyond price and delivery terms to ensure that their products are not toxic, warned the Investor Environmental Health Network (IEHN) as trade talks between the US and China kicked off in Beijing.

Product safety is high on the agenda after scares such as the discovery of dangerous counterfeit toothpaste and toys around the world raised concerns about imports from China among consumers and policy makers alike.

The question of product safety has already been brought to the table at the US-China trade talks this week with the two countries promising to work more closely together on the issue.

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Dazhong to fuel GOME’s dominant position in China GOME Electrical Appliances, China’s top electronics retailer, said recently that it will have a dominant position in key Chinese markets after taking over the management of Beijingbased rival Dazhong Electrical Appliances.

GOME has agreed to lend 3.6 billion yuan ($489 million) to a third party to buy Dazhong.

GOME will take over the management of Dazhong, which has annual sales of more than 6 billion yuan, and will have an exclusive option to buy Dazhong for not less than 3.65 billion yuan. www.chainamagazine.com

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“This arrangement will give our shareholders more protection and we can consolidate Dazhong’s earnings into the listed company (GOME),” GOME’s president Chen Xiao told a telephone conference call.

EU braces for end of Chinese clothing quotas BRUSSELS: The European Union is bracing for the expiry of import quotas on Chinese textiles at the end of the year amid fears of a new wave of T-shirts and trousers bearing “Made in China “ labels flooding in.

The quotas, which the EU and China agreed to put in place in 2005, are to be replaced with a joint monitoring system that will be on the lookout for new signs of an upsurge in Chinese imports over the ensuing year.

“The advantage is that we’ll at least know what to expect through the licences,” said Franceco Marchi at Euratex, a trade association for European textile makers.

After international textile quotas expired in the January 2005, Europe was swamped by a wave of cheap clothing imports from China , which led Chinese and EU authorities to negotiate new temporary limits. (AFP)

logistics and making furniture under its own brand. (Reporting by Andrew Torchia, editing

by Will Waterman)

R&D China is leading the world in R&D expansion. OECD analysts say that, in 2005, the Sino Superpower contributed 55% of R&D gains in non-member nations. The OECD is comprised of many of the world’s established economies, such as the U.S., the member countries of the European Union, and Japan.

ARJ21-900, an upgraded version of the ARJ21-700, will be capable of seating 105 passengers and can offer more seats, depending on customers’ needs. Improvement will also be incorporated in the performance of the aircraft.

The higher version aircraft will be jointly developed by China Aviation Industry Corporation I (AVIC I) and Canadian aircraft manufacturer Bombardier Inc. The ARJ21 series project is seen as a foundation stone of the “grand aircraft project” of the country, which will be carried out in the next ten years. The aircraft will be

R&D Samsung Seeking to Build Printer R&D Center in China The center, if completed, will be dedicated to helping produce tailored products for Chinese consumers. Samsung’s Weihai plant is currently responsible for producing 80 percent of its total printer production. The remaining 20 percent, mostly high-end products, are produced in the southeastern city of Gumi.

The printer sector is one of the six pillars that the company has recently picked.

According to IDC, a market research firm, the global printer market is expected to reach 130 trillion won this year, compared with 40 trillion won for the memory chip sector and 100 trillion won for the digital TV market.

Samsung ranks second after Hewlett-Packard in the color laser printer and combination section in China with a market share of 20 percent. However, Samsung is reluctant to invest in China. “The possibility of technology leaks is still high as Chinese manufacturers are struggling to obtain technologies from abroad,” an official said.

Carlyle invests $21 million in China restaurant chain U.S. private equity firm Carlyle Group [CYL. UL] said on Thursday it was investing $21 million in F&B Group, a major restaurant chain in China.

The investment will support expansion of the DIO Coffee brand, which serves coffee and Western food, to 1,000 stores across China within five years from over 300 at present, Carlyle said in a statement.

DIO Coffee opened its first store in Shanghai in 2001, and the DIO group also manages businesses including food processing, www.chainamagazine.com

And more growth could be on the way.

Beijing has a long-term goal of dedicating 2.5% of gross domestic product to research and development. Spending has risen rapidly as a result. For example, from 2000 to 2005, China’s R&D outlay grew by 18.5% a year, up from 16.4% annually in the five years prior.

China to Start ARJ21900 Plane R&D in 2009 China will start R & D on the ARJ21-900 regional aircraft after launching the maiden flight of the ARJ21-700 in 2008. The country, which has accelerated the steps to developing its own aircraft, rolled out the ARJ21-700, a regional jetliner with 90 seats capacity on Dec. 21, 2007.

manufactured in aviation bases around the country and assembled in Shanghai.

GlaxoSmithKline Invests in Move from ‘Made in China’ to ‘Discovered in China’ GlaxoSmithKline (GSK) announced it would invest $40 million to establish a neurological R&D center in Shanghai’s Zhangjiang Hi-Tech Park. The company says it will spend $100 million by the end of 2008 on this same facility, which will have 1,000 staff members in place by the end of 2010.

Moncef Slaoui, the Chairman of R&D for GSK, said the Shanghai facility will be a “one-stop shop” that does all the research on neurodegenerative drugs.

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Slaoui was emphatic about the importance of China to GSK. “For us, China is not about outsourcing and cheap labor. Within five to ten years we will be moving from ‘made in China’ to discovered in China,” he said. When GSK looked around the world to see where the best R&D talent was, “China came out on top, especially in oncology and neurology,” according to Slaoui.

Like other big pharmas, GSK has been restructuring as its pipeline failed to replace big-selling drugs that went off patent. GSK has responded by outsourcing a greater amount of its manufacturing while attempting to streamline its R&D efforts, getting more and better results while curtailing its R&D spend.

Sourcing China: Tokai Rubber to boost Chinese sourcing Japanese supplier Tokai Rubber Industries is looking to double the number of components its buys from China by 2012. In China, Tokai Rubber buys primarily metal products (stamped steel housings and aluminium alloy components) for its rubber parts.

Either way, the sourcing process is an expensive, lengthy and increasingly complex process that stretches the financial and manpower resources of a buyer. To ameliorate the situation, more and more global OEMs, Tier I, Tier II suppliers and aftermarket buyers have turned to Gasgoo.com for help.

“Gasgoo.com has done a lot of homework for us. It has made our China sourcing work more efficient and fulfilling. These suppliers coming here today represent the best part of Chinese suppliers,’’ said a sourcing manager from Chrysler.

Shipping Chongqing Zhongxian to build 10,000 tonne river port The authorities of Zhongxian in Chongqing city said they have signed a co-operation agreement with Chongqing Port Logistics Group and Wanzhou Port Group for a new 10,000-tonne harbour facility along the Yangtze River, Xinhua reported.

With an investment of CNY120 million (US$16.2 million), the river port project will cover a deep-water terminal and a logistics zone with annual handling capacity of two million tons, the report said.

After the project is completed, 10,000tonne vessels from the lower stream of Yangtze River can sail up to Zhongxian, which is also connected with highway and railways to other parts of the country, the report said.

Gasgoo Helps Global Buyers Meet Chinese Suppliers A matchmaking type event called ‘’Matchmaking Event’’ sponsored by Gasgoo.com was held recently in Shanghai. Nearly 20 global buyers including Renault, Ford, Chrysler, Canadian Tire, Autozone, WAI from ten countries and over 160 Chinese suppliers came to the event for business talks.

Traditionally, global buyers conduct sourcing businesses in China via their sourcing offices: on the one hand, they have a database on a huge number of suppliers; on the other hand, Chinese suppliers proactively contact them to seek business opportunities.

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Shenzhen Dachan Bay Terminal One opens with two new berths The first phase of Dachan Bay container terminal in Shenzhen opened to vessels on December 21 with the inauguration of two new berths.

Dachan Bay Terminal One, located in western Shenzhen, is a jointly operated by Modern Terminals and Shenzhen Dachan Bay Port Investment and Development Co. At the opening ceremony, Peter Kwong Ching Woo, chairman of Modern Terminals’ parent company Wharf Holdings, said the other three berths of Dachan Bay Terminal One would be ready in 2008.

The 112-hectare Dachan Bay Terminal One includes five berths with a quay length of 1,830 metres and draught of 15.5 metres. Draught of the terminal quay will be dredged to 18 metres, deep enough to accommodate the largest container vessels.

Huizhou opens biggest logistics park in eastern Guangdong HUIZHOU city in Guangdong province recently launched a new logistics park, which is the largest of its kind in the eastern part of the province, Xinhua reported.

The new Jinzhe International Logistics Park, which has attracted more than 100 logistics companies including FedEx to use its facilities, will provide logistics supply chain service for logistics companies and manufacturers in eastern Guangdong, the report said.

Huizhou city has seen rapid growth in port, railway and air logistics service development in recent years and is becoming a logistics centre in eastern Guangdong, the report added.

Training and Education An MSc in Supply Chain Management for the real world The newly launched MSc in Operations and Supply Chain Management run by the University of Liverpool in partnership with Laureate Online, is set to create a benchmark for the profession. www.chainamagazine.com

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Taught fully online 24/7, the programme offers flexibility to busy professionals around the world. It is based on a successful campus course, which is now on its sixth cohort and has been accredited by the Chartered Institute of Purchasing and Supply (CIPS).

“We are going online because we want to share our expertise globally,” said Dr. Andy Lyons, Director of Studies for the program. The goal of the online programme is to enable working professionals to balance the demands of their careers, studies and family life. So far, the University has received more than 400 applications for every 30 places.

Logistics centre opens in China to address skills shortage BEIJING, December 27, 2007 -- An education group has been established to tackle a chronic shortage of professionals in Shanghai’s transport sector.

Based on two existing vocational schools, the Shanghai Transport and Logistics Vocational Education Group is a polytechnic-

level education institute that has the support of 23 transport firms. The corporate supporters - such as Shanghai Jiaoyun International Logistics Co Ltd and Oriental International Logistics Holdings - will team up with schools in course design, faculty training and student evaluation programs.

Students will be able to do hands-on internships at the companies, “It’s our target to nurture young talent with both high level theoretical ability and innovative hands-on

February 28, 2008 Millennium Hotel, Shanghai +86 21 5102 1617 www.chainamagazine.com

+86 21 5258 3864

ability to handle the professional shortage,” Shen Xiaoming, director of the Shanghai Education Commission, said at the group’s inauguration ceremony.

Shanghai is estimated to need a total of 500,000 logistics professionals over the next two or three years. The present supply, however, is less than 100,000, according to an earlier report by the Shanghai Labor and Social Security Bureau. (Source: Shanghai Daily)

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info@supplychain.cn

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SPECIALFEATURE

Vietna New Manufacturing Haven

T

he 4 million motorcycles on the streets of Ho Chi Minh City offer a remarkable -- if somewhat noisy -- testimony to the prosperity that beckons in Vietnam.

Andy Mukherjee is a Bloomberg News columnist.

The opinions expressed are his own. To contact the writer of this column: Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

“

A $900 Honda may not be everyone’s idea of affluence. However, it has the same pride of place in this rapidly industrializing nation as a bullock cart in an agrarian society.

Young men and women -- many of them migrants from rural areas -- commute to large, modern factories on the outskirts of the city on bikes they are proud to own and scared to lose.

After China, Vietnam is emerging as the world’s next factory of choice for labor-intensive goods.

”

This mobility is so crucial to the workers’ productivity that some employers in the city formerly known as Saigon have even begun buying insurance, at their own expense, against the risk of bikes being stolen from their factory premises.

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Investors who take the boom in Vietnam’s two-wheeler market as a harbinger of a burgeoning mass market may be disappointed for a few years. Those who see the lust for bike ownership as a sign of Vietnam’s young labor force yearning for the tools it needs to plug into a global supply chain will win.

After China, Vietnam is emerging as the world’s next factory of choice for labor-intensive goods.

One can see that in the changing composition of the country’s exports. Rice and coffee -- two of Vietnam’s biggest agricultural exports -- are now becoming less significant to the $61 billion economy than textiles. Footwear shipments are gaining prominence over seafood.

Furniture Capital The other fast-growing export industry is furniture.

Exports of wood-based products have grown 24 percent from last year to more than $2 billion. www.chainamagazine.com

SPECIALFEATURE

m: James Koh, a Singapore businessman, makes dining tables and chairs in Vietnam for customers around the world, including Williams-Sonoma Inc.’s Pottery Barn stores in the U.S. Koda Ltd., of which Koh is the managing director, also has factories in Malaysia and China. Yet, it’s Vietnam’s lower costs that are prompting the company to expand capacity here by 25 percent.

“The labor cost in Vietnam is half that of China, while worker productivity is about the same,” says Koh. Starting next year, the government will increase the mandated minimum wage for foreign-funded companies in Ho Chi Minh City and Hanoi, the national capital, by 13 percent to 1 million Vietnamese dong ($62), a level that is still affordable, Koh says.

premature in a country where the annual per-capita income was $723 last year.

The time for the Vietnamese consumer will undoubtedly come.

With a population of 85 million, and an economy that the International Monetary Fund forecasts to grow more than 8 percent this year and next, the Southeast Asian country will soon represent a sizable domestic market.

“

The labor cost in Vietnam is half that of China, while worker productivity is about the same, says Koh.

For now, the Vietnamese producer is the bigger opportunity.

”

There is, however, no room for complacency.

Cheap labor makes it relatively easy for a country to enter the global supply chain, but it has to work hard to stay in.

Increasing manufacturing complexity Especially now, when a seemingly simple task like attaching four legs to a rectangular piece of American poplar wood and shipping it back to the U.S. has become too complex to undertake without overseas capital and expertise.

Ready to Compete Chinese-made goods have become increasingly expensive in the U.S. for the past six months. That gives Vietnamese manufacturers an opportunity to win a bigger share in their largest export market.

Vietnam’s accession to the World Trade Organization in January has provided its textile industry with quotafree access to the U.S. Joining the WTO regime has also caused a 37 percent surge this year in overseas investment commitments to $13 billion.

The biggest draw of the country is clearly its labor The median age in Vietnam is 25 years. The workforce isn’t just young, but also literate and healthy: The proportion of people who are undernourished has been cut in half over the past three decades.

The risk for Vietnam is inflation, which accelerated to 10 percent last month, the fastest pace in three years.

In the short run, Vietnam must stand ready to sacrifice some economic growth to halt the increase in prices, especially of construction material.

If left unchecked, inflation will become a drag on Vietnam’s competitiveness even if the central bank doesn’t allow the dong’s nominal exchange rate to appreciate.

Vietnam is on the road to prosperity The swanky Louis Vuitton and Gucci showrooms that have sprung up in Ho Chi Minh City may be a bit www.chainamagazine.com

First, there is a minimum investment in technology without which large orders from retailers are impossible to win. Each of the Taiwanese-built assembly lines that Koda is installing in its new Vietnam factory costs $300,000.

This article is reprinted with permission from Bloomberg News.

Second, buyers in Europe are demanding more exacting environmental standards from their vendors, such as minimum use of packaging material, Koh says.

Americans, meanwhile, are getting fussy about making all shipments terror-proof.

Most importantly, no retail store -- European or American -- wants a sweatshop scandal at any of its suppliers’ units.

Like most developing countries, Vietnam is dogged by corruption and red tape. It must strive to improve its record now that it’s getting the investments it needs for the workers to graduate from motorcycles today to cars in the future.

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23

COVERSTORY

China’s Supply Chain raises the bar

Learn lessons from some of the leading

I

nnovation is a word we are hearing a lot more of in China these days. The consensus is that as manufacturing costs in China continue to rise and supply chain complexity increases, so companies have to innovate both to save money and to increase efficiency.

In this story we take a deeper look into what a few companies and individuals in China, both foreign and Chinese are doing to lead the way in service, supplier management, IT implementation, as well as cost and process efficiency. These companies and individuals were all winners of awards at the November 2007 CHaINA Summit.

Advances across the supply chain in China are taking the form of new IT implementations, greater levels of service through 3PL’s, better supplier management, strategic location of operations and an increased focus on domestic R&D and development of local human and other resources..

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The human edge of the pharmaceutical supply chain In the fast changing corporate world it is rare these days to find someone who has made one company practically his entire career. This is especially true in China where supply chain management expertise is in incredibly high demand and executives can have their pick of jobs. “I love Bayer,” proclaims Dittmar Nerger in an interview with CHaINA Magazine, speaking enthusiastically of the company he has worked at for 25 years in various www.chainamagazine.com

COVERSTORY

by Russel Beron

companies in China capacities and in different countries including Germany, the US, Korea and China.

Nerger was the recipient of China’s Supply Chain Executive of the Year award at the November 2007 CHaINA Summit Awards. His team of four people is responsible for sourcing raw materials and services for much of Bayer’s global production of drugs. From their Shanghai office overlooking the old Bund and the busy freight traffic of the Huangpu river, Nerger’s team develops sophisticated sourcing strategies and evaluates and manages suppliers from across Greater China.

In 1994, Nerger transferred to Bayer in Korea to take responsibility for Technical Operations of animal health, pharmaceutical and vaccines products. After being responsible for the global Technical Operations of one of Bayer Healthcare’s Divisions in Germany from 1998-2002, he moved to Chengdu, in the capacity of General Manager of Bayer’s JV, where he still serves as Chairman. Nerger www.chainamagazine.com

received the Bayer Healthcare Asia Pacific Star Award in 2005 for his efforts in turning around the business and profitability of this venture. In 2004, Dr. Nerger accepted the task to establish a new department in Shanghai for Sourcing for Bayer HealthCare’s Global Divisions.

Sourcing pharmaceuticals isn’t easy “Pharmaceutical supply chains can be very complex,” says Nerger. “With the supply chain we have to warrant compliance and quality and at the same time ensure a competitive, flexible and timely supply. We have to remember that the money that we get comes from our customer and we need to deliver the best product at the best price.”

Unlike other types of sourcing, Angela Ye, one of Nerger’s team members adds, “With pharmaceutical sourcing the procedure is more complicated and time JANUARY/FEBRUARY 2008

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COVERSTORY consuming mainly because the industry is so highly regulated. We source everything related to the drug: the raw material intermediate and the Active Pharmaceutical Ingredient (API) and increasingly the packaging and services.”

For one finished dosage, Nerger’s team might have to screen an initial 300 manufacturers, select about 100, then further reduce these to 10 or 20, before doing the RFP, RFI, RFQ, and selecting a final 3 companies to start the bidding and develop the supplier to Bayer’s required standards. This process can take up to 3 years.

Pharmaceutical transportation also brings its own challenges, says Richard Li, another of Nerger’s team.

“We have to educate the local suppliers about safe handling and transport. The guiding principle is that package must be safe as well as operator friendly, so that the product is not contaminated, international rules and our customer’s requirements are followed.”

Why China?

Increasingly, Nerger’s team involves R&D in the sourcing process at an early stage, which allows the sourcing team to give input right at the research stage, which makes sense in terms of building in cost savings.

“

Why is China the right place for pharmaceutical sourcing, you might wonder? Isn’t China the place where companies come to do low cost, low value large manufacturing runs? Apparently things are changing.

Another major reason for being in China,” says Nerger, “is in terms of R&D, you can do a lot more in China with your research budget.

”

“China offers a number of advantages, says Nerger.

“The Chinese fine chemical industry is very fragmented, which makes it competitive and in certain cases also innovative. They also have access to certain raw materials in China. The major reason why it is effective to source pharmaceutical ingredients from China is that labour costs are lower, depreciation costs are lower and also structural costs are lower.

were allowed to open their own stores in China in 2003 – the problem was they didn’t have an effective distribution and logistics solution for mainland China.

They turned to their Hong Kong logistics service provider, Kerry EAS. Formed out of a merger between Kerry Logistics and EAS, an air freight business formerly owned by the national security bureau, Kerry acquired EAS to help them enter the mainland market..

Acquiring EAS allowed Kerry to access a wide distribution network in China.

For the work Kerry EAS did with Alfred Dunhill, they were given the award for Best 3PL Supply Chain Provider a this year’s CHaINA Summit. Kerry has a lot of FMCG clients in fashion including Alfred Dunhill which is a subsidiary of large luxury brand company Richemont, whose distribution centre is in Kerry’s Asia headquarters in Hong Kong. With their success with Dunhill, Kerry counts other Richemont brands as well as Zara and H&M among their client’s in China.

“We offer Dunhill a one-stop solution,” explains Kevin Lam, who manages Kerry’s fashion logistics division. “We pick up their cargo at the DC in Hong Kong and air-freight it to China through our freight-forwarding branch. Upon arrival of the flight, we register their cargo in the Waigaoqiao free-trade zone. We also help with packaging, storage and labeling for Kerry. Upon receipt of the goods, the local retailer can see the availability of the goods on the system. We also operate the order system and handle the pick and pack. Most of the shipments are handled automatically by the system. It’s an auto replenishment system which requires no manual ordering.”

From state owned to market driven Alfred Dunhill first started its business in China through 3rd party sales channels without self-owned shops. Since partnering with Kerry in 2005, it now has 39 self-owned stores and 27 wholesale stores, which increased from 28 and 19 in 2005.

“Only a few years ago, state owned enterprises (like China Resources Company) used to do distribution for

“Another major reason for being in China,” says Nerger, “is in terms of Clinical R&D, you can do a lot more in China with your research budget.”

A one-stop luxury logistics solution Similar to the pharmaceutical supply chain, luxury goods have their own complexities.

Until a few years ago, distribution of luxury goods in China were controlled by state owned companies with little knowledge about sophisticated marketing, distribution and supply chain management strategies. Under WTO commitments, companies like Alfred Dunhill 26

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COVERSTORY

Teamwork: The key to sourcing success

When Dittmar Nerger’s Global Sourcing team organized a series of training modules in English and in Chinese, you could find them on an early Sunday morning in Shanghaiís Zhongshan park for Taichi lessons, and, after a hard day of training, cooking and eating Jiaozi, together in the evening.

Getting together after work creates a sense of personal trust with each other and makes it easier to cooperate and appreciate each other’s culture and thinking. Likewise, it is important to the team to maintain intensive communication and cooperation with their colleagues around the world, in Europe, the Americas, and in AsiaPacific. Often, the team starts the morning with teleconferences with their Australian collegaues, and finishes the day by talking to their colleagues in the Americas. luxury products,” comments Lam. “These SOE’s used to handle all the marketing and distribution of the products, but didn’t do it that well.

End-to-end solutions -- including transport and handling, storage, labeling as well as customs, import duties and taxes -- such as Kerry offers to Dunhill with full supply chain visibility, are rare in China.

According to Lam, companies like Dunhill are willing to pay for this kind of service as it removes a lot of potential headaches. “Kerry has the economy of scale as well as the credibility to handle everything for the customer.”

Kerry offers much more than an off-the-shelf logistics solution. “For a 3PL to be a good contract logistics provider, we have to work with our customers in developing new models to cope with the requirements of the market. We are more like a consultant providing customized solutions.”

Haier Group, a Chinese company which is ranked as one of the top ten global appliance giants, makes everything from white goods, to personal electronics, mobile phones and computers. They are expanding aggressively into world markets.

“

For a 3PL to be a good contract logistics provider, we have to work with our customers in developing new models to cope with the requirements of the market.

”

IBM developed a supplier evaluation model to objectively and precisely reflect supplier performance and capability. Their model which is linked with various supplier development strategies, helped transform Haier’s procurement supplier management to a global best practice level.

Get your suppliers in line While Alfred Dunhill needs specialized service to handle its high value products, large manufacturers such as Haier Group need specialize strategies to handle their suppliers.

According to a Gartner Research study about on Why supplier relationship management matters, procurement costs account for about 50% of expenses. As profit margins in manufacturing tend to be slim, the incentive to save on purchasing costs is very high.

To reduce costs, improve efficiency and obtain competitiveness to support the aggressive sales growth of different business units, Haier Procurement asked the IBM Global Business Services, SCM Procurement team to develop a procurement strategy for them. For their work with Haier, IBM won the CHaINA award for Best Supply Chain Consulting Partner in China.

“The benefit for Haier of IBM’ strategy is that they now have the right KPI and the right volume indication to give to suppliers,” said JC Lee, IBM’s project manager.

The three-year master plan for the procurement strategy, covered the entire procurement process, with the first phase involving the design and implementation of a Supplier Relationship Management (SRM) plan.

The next step, a Strategic Sourcing Project will be launched in January 2008. The focus will be on installing advanced strategic sourcing methodology and processes through a pilot category. The result is expected to achieve considerable cost savings.

Further explaining their approach, Lee pointed out that before IBM’s strategy initiative, “Haier was only focused on direct procurement; we will also implement indirect procurement innovation.” Indirect procurement refers to corporate wide spending on office furniture and other items that are not purchased centrally. “Our target is to save at least 10% of the procurement cost in the direct procurement category,” said Lee. In a company the size of Haier such cost savings are nothing to laugh about.

www.chainamagazine.com

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COVERSTORY mestic automotive market. Their market leading solution has now forced most other OEM’s to re-evaluate their SCM solutions.

“One of the big challenges with the China supply chain is the fact that many tier 1 suppliers, while they might have ERP, can’t necessarily do system to system communication,” says Hatcher, explaining the rationale behind the Web-EDI system.

“Part of what we architected for suppliers who could do traditional EDI messaging is a comprehensive web EDI portal which provides a user interface, so that while they don’t have an IT system, they have the ability to do JIT and JIS.”

Making the auto supply chain transparent Similar to Haier Group, China’s automotive industry has an array of suppliers which require sophisticated systems to manage them. China’s auto market, an ongoing hot topic is becoming more competitive and manufacturers have to look at the entire supply chain to cut costs.

“

BeijingBenzDaimlerChrysler (BBDC) is a more recent joint auto venture which built a new manufacturing facility in Beijing in early 2007 to build the EClass Mercedes and Chrysler 300C. Recognizing the importance of communication with their suppliers, BBDC implemented a web-based EDI system which is user friendly for all levels of BBDC suppliers. This implementation earned Seeburger the CHaINA award of Best IT Supply Chain Solution for China.

When you implement this type of comprehensive supply chain solution you can more quickly share demand from your customers down to your supply base.

According to James Hatcher, managing director of Seeburger Asia Pacific Ltd. who managed this project, the implementation “Gives BBDC a way to optimize their supply chain while giving them a competitive advantage.” Hatcher has worked in Asia for 24 years in Taiwan, Hong Kong and Singapore in various supply chain capacities.

”

Just-in-Time (JIT) and Just-in-Sequence (JIS) BBDC went live in January 2007 with their complete JIT/JIS solution that also integrated their 3PL for full visibility. This project is a good example of some of the innovative changes that have begun to take place in China’s automotive manufacturing industry. Over 150 suppliers are live and using the system daily giving BBDC a competitive advantage in the do-

“This means you have a fully integrated solution for any level supplier,” explains Hatcher. “For BBDC, this means there is no data entry required, they can just scan the bar-code, there is little room for error.”

Deliver faster, sell more According to Chunmei Han, the system administrator at Seeburger who helped implement the system, “The benefit for BBDC of the web-EDI system in that we can send out the PO and our material schedule automatically through the system, which allows us to save time and the vendor can supply the material in time.”

Just-it-time and Just in Sequence are key differentiators in a competitive market. “The biggest challenge for China automotive manufacturers is demand and inventory,” says Hatcher. “Because demand is growing in irregular spurts it’s constantly a challenge to juggle how much inventory to keep versus having lead time from suppliers. When you implement this type of comprehensive supply chain solution you can more quickly share demand from your customers down to your supply base, improving inventory management and shortening lead times. If you can deliver faster, you sell more.”

The Web-EDI system also helps BBDC to optimize their production line so they can produce more than one car on the same production line – from 2008, they will produce the Mercedes C-Class -- and receive parts directly to the production line through the JIS information. This allows BBDC to bypass delivery of the parts to a warehouse.

The regional trend appears to be that China will continue to take on more business process and service functions while countries like Vietnam will grow in manufacturing.

As China’s role in the global supply chain continues to shift, manufacturing companies in China will have to continue raising the bar by establishing and maintaining new best practices.

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QA

QUESTION&ANSWER

In Conversation with...

Jack Buffington

&

: What made you decide to write

the book?

Jack Buffington: The same theme kept coming up regarding how most companies don’t take the time to work through improving themselves in a way that is going to enable them to grow in business. I think that what a lot of companies do is that they’ll overuse outsourcing. : So what you’re saying is that US companies are outsourcing incorrectly?

JB: Yes, what I call it is irrational outsourcing. Since I wrote the book I’ve talked to a lot of corporate executives in the US, Canada and the UK and the theme is resonating that a lot of corporations aren’t taking the time to look at things. I think outsourcing is a great tool but it has to be done rationally. : It sounds like you’re advocating that companies do some strategic thinking before they start outsourcing?

JB: Yes, I think what it gets down to is the real specifics of the operation, and making sure you look at activity by activity. Once you have a good understanding of that you decide whether to keep it in house or outsource it. But what happens is a lot of companies don’t want to bother figuring it out so they throw it over the wall to China or a domestic US company and those situations, in cost, can either be the same or higher, or quality can be an issue.

Jack Buffington is Director of Supply Chain Logistics for Molson Coors Brewing Company and also the author of a new book, Easy Out: Corporate America’s Addiction to Outsourcing, which looks at productivity in the United States, outsourcing and America’s relationship with China. Buffington discussed his book in more detail with CHaINA Magazine.

a difference of between 10%-20% fully landed, even before you look at the order cycle. So if you look at service and cost in conjunction, outsourcing could be a bad decision. : With regard to manufacturing, how can the US compete?

JB: I am advocating that maybe there’s a lot of different industries where manufacturing should stay here in the US. There are a lot of consumer goods that are low labour /high technology, for example band-aids, and things that require a lot of labour that could be automated. I think you can be competitive when you look at a fully landed cost.

: Is part of writing the book a response to American Protectionism, or a fear of China?

JB: Absolutely; and that’s my concern about the whole thing I call irrational outsourcing.

I think in the 2008 elections in the US that this is going to become a really important issue, and there is going to be a lot of rhetoric around trade. What a lot of politicians here need to acknowledge is that you can’t stop

international trade; in fact what I note in my book is that America was really founded off international trade. : Yes, you talk a lot about how outsourcing is not really a new thing…

JB: Certainly not, it may have been called something different before. People need to understand that the international economy is going to grow. What US companies need to do is learn how to be more competitive and find ways that we can be innovative. : As a logistics manager in the US, what would you tell Chinese manufacturers or logistics managers about your needs?

JB: I think it comes down to really understanding the specs of what they are manufacturing for us and looking at a relationship as a value process issue versus an astronomical revenue growth opportunity. I think in a lot of cases there is so much business going over there that the company will just say I’ll source something over there and they’ll just find a manufacturer and get it going as quickly as they can. Getting it quick and right is where I see Chinese manufacturers having a problem.

Jack Buffington gets hands on at a Molson Coors Brewing plant in the U.S.

: You say in the book that in some cases the savings of outsourcing in China may be around 10%, but that 10% might be less by the time you “land” the product.

JB: Well obviously people are enamored by that low labour differential, but once you look at the fully landed cost, it might not look so good. Consultants I have talked to have found www.chainamagazine.com

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SPECIALFEATURE congestion at the ports on the US’s West Coast.

What the Mexican proposal could well do is significantly ease that.

The ports will be developed as part of an integrated multimodal transportation system, which will include the building of 12 multimodal road and rail channels connecting them. In short Mexico is giving itself real infrastructure to meet its own and some of the US’s needs.

Punta Colonet: Mexico’s Yangshan?

Topping the list is the ambitious Punta Colonet project.

This is in some ways an echo of Shanghai’s Yangshan port: a huge built-from-scratch piece of infrastructure specifically designed for the ultra modern world.

The proposal is to turn a desolate and sparsely inhabited inlet, Baha Colonet into a multi-billion dollar deep-water mega-container port able to handle nextgeneration vessels.

It will cover a 30 km coastline making it as large as the US ports of Los Angeles and Long Beach combined. The port, 241 km south of San Diego, US, will have up to 20 berths and a 300 km double-track rail connection to the US border but not seemingly to the Mexican heartlands further South. If it was for Mexico it would be further South. This should be pointed out is Punta Colonets only objective; to help serve the US market. To that extent it is very different to Yangshan.

Bidding for the concession for the two projects - the port and the railroad - could start next year and construction is expected to take four years. The port will have an annual capacity of one million TEUs initially and six million TEUs by 2025.

Mexican Infrastructure

Offers Hope for Chinese Shippers

30

is a covers trade globe.

But the grandiose Punta Colonet project may never get off the ground as some say there are too many hurdles to overcome. First, the entire infrastructure will have to be built from scratch as the site is virgin area and would require the building of the most basic urban facilities. A second problem is the US$6 billion price tag.

M

The government is committed to the project and financiers and engineers are raring to go, but there are some industry experts who see the entire project as unrealistic, in large part because of the issues of financing and government coordination. “It is not clear if it will be built,’’ said Norman Anderson, president and chief executive officer of CGLA Infrastructure in a comment that was not untypical.

Overall the plan will see Mexico build five new ports, expand or modernize 22 more, increase annual container capacity from four to seven million TEUs and improve performance at terminals.

Punta Colonet is not the only port to consider said Luis Alberto Ibarra Pardo, director of the infrastructure unit of the Office of the President of Mexico. He pointed to the more southerly ports of Manzanillo which serves the industrial centre of Guadalajara while Lazaro Cardenas caters to central Mexico.

For companies in China wishing to export to the US and beyond, this has plentiful implications.

Currently one of the bugbears for this sector is

Both have ample scope to expand. Manzanillo will develop 270 hectares in the first phase and 470 hectares in the second phase. This is only half of the 1,500

exico’s ambitious National Infrastructure Programme 2007-2012, which envisages a sharp expansion of its infrastructure and a plan to build a port for the US-bound transpacific container market, offers real opportunities to companies in China wishing to export to both there and the US. Michael Mackey freelance writer who supply chain and issues across the

Bold planning meets big hurdles

JANUARY/FEBRUARY 2008

www.chainamagazine.com

List Price: USD 720 / RMB 5,400 per report CSCC Member Price: USD 575 / RMB 4,300 per report For more details, please contact Lindsay Oliver at Lindsay.oliver@hewitt.com.

hectares Lazaro Cardenas, which is planning to build bulk metals, mineral and ro/ro terminals next year and increase container capacity to 2.5 million TEUs.

Connecting the dots What will makes all these ports so much more effective are the plans for the highways where the goal is

to build 17,598 kilometres of highways and rural roads, an increasing proportion of which, the government wants operating to good international standards. Not only is it being made easier to export to Mexico’s ports but will also address the second problem of moving goods around.

Maybe more importantly the thrust of schemes in the years till 2012 is to address a curious lack in Mexico´s weakness by emphasising new East to West Roads because as Richkarday said “we have quite a few North-South.”

“

For companies in China wishing to export to the US and beyond, this has plentiful implications. Currently one of the bugbears for this sector is congestion at the ports on the US’s West Coast. What the Mexican proposal could well do is significantly ease that.

A similar feeling is found in the railroad sector where the government’s goals are quite clear and again have attractive implications for those who think of Mexico as a transit point rather than a destination in its own right.

”

The headline here is about plans to build 1,418 kilometres of railroad, increase the average speed of the system from 24 to 40 kilometres per hours and develop 10 new multimodal corridors, including the construction of 12 intermodal cargo terminals which include Punta Colonet.

A Werner Enterprises truck moves freight in Mexico.

www.chainamagazine.com

For those looking to Mexico as a logistics platform for the US, this is a highly significant development, especially so for Chinese companies who already export to Mexico.

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REGIONALFOCUS

Silk Road Revival A

t the height of the Tang Dynasty one millennium ago, the region now known as Xinjiang Uighur Autonomous Region sat at the center of Eurasian trade, with caravans constantly flowing east and west connecting China with Persia, India and Europe. The region’s golden age quickly faded with the advent of seaborne transport, which changed the region’s role in international trade from central to irrelevant.

In the last decade, however, Xinjiang has begun to re-emerge as a transport and logistics hub, serving primarily as a conduit for a recent boom in China’s trade with Central Asia, especially oil-rich Kazakhstan. Recent and planned logistics infrastructure improvements are expected to not only enhance Xinjiang’s regional importance, but may also lead to a new incarnation of the Silk Road that will increase access by Chinese goods to important markets including Western and Eastern Europe, and even the east coast of North America.

Xinjiang is the largest administrative region in China, covering an area of 1.66 million square kilometers.

In domestic terms, Xinjiang is rather remote – it is separated from the rest of China by the sparsely populated western regions of Tibet, Qinghai and Gansu. But in terms of international access, Xinjiang occupies a central location on the Eurasian landmass. It shares borders with eight countries -Mongolia, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan and a disputed border with India - more than any other Chinese administrative region.

Chris Horton is managing director of the Meridian Group of Hong Kong, a research firm with offices in Hong Kong and Kunming. He is also the editor of GoKunming.com and is a regular contributor to Chaina magazine.

32

During the recent decades of China’s economic boom, Xinjiang has primarily served as a source of energy – it is China’s largest producer of natural gas and is home to several major oil fields – as well as mineral resources.

According to statistics released by the Urumqi Customs Bureau, in the first 11 months of 2007 Xinjiang recorded a total of US$12.3 billion in total foreign trade - an increase of more than 50 percent over the same period in 2006. Most of the trade was

JANUARY/FEBRUARY 2008

outbound, with US$10.2 billion of the total comprised of exports.

In the wake of the breakup of the Soviet Union in 1991 and subsequent growth of Xinjiang’s cross-border trade with former Soviet republics in Central Asia, the last few years have seen a significant increase in the number of logistics providers in the region’s capital Urumqi and other key markets such Kashgar and Hotan.

“The development of the logistics industry in Xinjiang is trending toward increasingly rapid growth, with the number of logistics providers setting up operations in the region growing quickly,” Zhao Dongfeng, manager of South Korea-based Unico Logistics’ Urumqi office, told Chaina.

“The companies that are already established here seem to be focusing on increasing capacity and expanding in terms of HR. There are a lot of new companies setting up here as well - some are local companies but there are also a lot of companies from other parts of the country setting up branch operations in Xinjiang.”

Zhao said that despite its remoteness within China, Xinjiang offered several unique advantages, particularly as a gateway to markets throughout Central Asia and beyond.

“Owing to the geographic advantages enjoyed by Xinjiang, there is significant potential for logistical development,” he said. “The natural resources of the five nearby Central Asian countries are quite abundant – there are numerous nonferrous metals and rare metals in high supply in Central Asia and energy resources in the region are also plentiful.” www.chainamagazine.com

Picture courtesy of Imagine China

Many new oil and gas projects are being developed across Xinjiang.

REGIONALFOCUS Highways key to unlocking Xinjiang’s potential

incurred by shipping cargo to the eastern US via the Pacific west coast and would circumvent congested ports in Europe and the US west coast.

Governments in Central Asia have begun to warm up to the idea of increased connectivity with each other as well as Xinjiang. In early 2007, the Central Asia Regional Economic Cooperation (CAREC), which includes Central Asian countries as well as China with a focus on Xinjiang, approved a US$18.7 billion plan to upgrade Central Asia’s network of roads, rail lines and airports.

The Asian Development Bank-supported plan is aiming to revive the region’s role as a trade link between Europe and Asia.

In addition to increased connectivity with neighboring countries, improvements are also being made to Xinjiang’s internal road network. In late 2007 the second road across the Taklamakan Desert in southwestern Xinjiang was opened, connecting the regionally important cities of Hotan and Aral. The road has provided a much-needed alternative to the first road across the desert, also a northsouth road, which links Lunnan with Minfeng County and opened to traffic in 1995.

In 2007 China announced its intentions to construct 12 highways within Xinjiang that will link up with roads

in Russia, Kazakhstan, Kyrgyzstan and Pakistan. These highways will connect Xinjiang to the United Nations’ Asian Highway network, which includes 141,000 kilometers of highways connecting 32 Asian countries.

The longest planned road of the network is a highway from Urumqi to Istanbul on the southwest edge of the Black Sea. Planned highways and necessary road improvements aside, most of the basic hardware for transporting goods between Asia and Europe via road transport is already in place. The major remaining obstacle to the launch of significant commercial operations on the highway network is China signing on to the Transports Internationaux Routiers (TIR), United Nations conventions which regulate international road transport, which is expected to happen soon.

The 424-kilometer highway cuts the transport time between the two cities by seven hours and is expected to be a boon to the economies of Hotan, which has

abundant natural resources and a large population, and the newer, less-developed city of Aral. The US$107 million road was funded by China’s central government and will improve access from central Xinjiang to Tibet as well as Pakistant and Tajikistan.

Xinjiang spent more than 10 billion yuan to build more than 9,500 kilometers of new highways in 2007, with much of the investment going toward connecting Horgos Pass on Xinjiang’s border with Kazakhstan with the port of Lianyungang in northern Jiangsu province.

Urumqi to become rail hub “In the last few years logistics development in Xinjiang has experienced a period of diversification,” says Zhang Feng, marketing manager for of the Urumqi office of

The aim of TIR is to streamline international road transport by minimizing unnecessary customs inspections and delays. Transit countries are provided with customs duties guarantees, which would allow trucks setting off from China to travel to Europe without having its cargo inspected until reaching their destination countries.

Until China joins the other old Silk Road countries as TIR signatories, trucks leaving from China will continue to deal with delays at border crossings.

One of the more interesting and perhaps counterintuitive ramifications of a reopened Silk Road enabling Chinese goods streamlined access to the Black Sea would be creating an alternative route to the eastern seaboard of the United States. Goods trucked to Black Sea ports from China will be able to be shipped directly to the US. This would remove nearly half the distance 34

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REGIONALFOCUS

“Things have already progressed from the traditional single truck crossing the border to foreign trade via rail transport becoming increasingly substantial. The station at Alataw Pass is currently Xinjiang’s only rail station with import/export capacity, but after work is completed on the rail line to Horgos Pass in northwest Xinjiang’s Yili, Horgos Pass will serve as an overland port for both road and rail traffic. As for air cargo, the days of passenger planes taking cargo in and out of Xinjiang have given way to dedicated cargo planes.”

“With the recent few years of stable economic development and sustained economic expansion in Central Asia, there has been a major increase in demand for all kinds of goods. These conditions have created seemingly limitless room for growth of the logistics sector.”

Rosy the future may be, there are still many pressing issues that need to be addressed before Xinjiang realizes its potential as a transport hub, Zhao said.

“Lack of enough transport capacity has created a bottleneck for Xinjiang’s logistical development,” he said.

“Whether you’re talking about railways, air transport or road transport, all areas of transport are suffering from this problem.

“Trains being forced to stop, cargo planes having to wait for space to clear at airports, trucks having to queue up at the border – this is all quite commonplace in Xinjiang. Transshipment efficiency is also quite low, while costs are high. This is manifested in all stages of the supply chain from storage to loading and unloading.”

Picture courtesy of Imagine China

To serve increased domestic and international rail traffic, Urumqi will be built up into one of 18 container rail hubs across China. Hong Kong-based NWS Holdings and China United International Rail Containers Co - a joint venture between China Railway Ministry unit China Railway Container Transport Corp and Israelbased Zim Integrated Shipping Services - announced in 2007 that they would develop a network of container rail terminals to upgrade China’s containerized rail cargo capacity. The Urumqi terminal is expected to primarily serve outbound cargo from mainland China into Kazakhstan via the existing rail line through the Alataw pass and the upcoming line through Horgos Pass.

“Xinjiang is rather remote when compared to the rest of the country, so transport costs are relatively high,” he said, “but this offers logistics-related companies much operational space. In the last few years, the economic benefits enjoyed by firms involved in logistics and supply chain management in Xinjiang have been very good overall. The fact that Xinjiang is becoming a hotspot for investment is good proof of this.”

Remote skies Owing chiefly to its remote location, difficult terrain and massive size, Xinjiang is home to more airports and longer air routes than any other administrative regions in China. It is also being developed along with Beijing, Shanghai, Guangzhou and Kunming into a regional air hub. In April of 2007 expansion work began on Urumqi’s international airport – the expansion project is expected to cost 2.8 billion yuan. Once completed, Urumqi is expected to host more flights to Central Asia, Russia and Europe.

Risk vs reward Unico’s Zhao said that despite challenging local conditions, logistics providers in Xinjiang are reaping the benefits of the region’s recent growth. www.chainamagazine.com

Picture courtesy of Imagine China

Kerry EAS Logistics, which in 2006 built northwest China’s first bonded warehouse in Urumqi. Kerry EAS is one of the few companies in Xinjiang offering import and export agent services for sea cargo (typically connecting Urumqi with ports in Tianjin or Shanghai), air cargo, rail transport and road transport.

In Zhao’s view, the general scope of operations of logistics companies in Xinjiang is small and the quality of service is low – the sector is in its early stages of development – which suggests vast room for development and significant opportunities for supply chain firms with economies of scale and established networks in China and/or Central Asia.

Ultimately, Xinjiang has location working in its favor, it is now essentially a matter of time for supply chain providers and the local and central government to decide if they are ready to invest the capital and effort required to tap into the region’s potential.

“I would like to see Xinjiang eventually serve as the integrated regional transport hub it has the potential to be,” said Kerry EAS’ Zhang. “I hope that under the guidance of national planning and policy it can contribute more to the country’s inland exports.”

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TIERTWO

QA

Second Tier City Focus:

&

Nanjing

Interview with Jeff Broadhurst of Apprise Software in Nanjing

Jeff Broadhurst runs the Nanjing office of Apprise Software Asia Company Limited, a US based company which recently established a branch office in Nanjing.

: Can you tell me a little bit about your business?

JB: We sell software to companies that export from China to the US, mostly retailers.

It could be anything from furniture to clothing, table top ware, anything you can buy in Walmart. Our software handles the whole enterprise function; we manage accounting, supply chain, EDI and vendor compliance.

Most of our customers have a presence in China so therefore we opened up in Nanjing to support our customer base.

: Are you actually developing the software in your office in Nanjing?

JB: Right now all the development is back in the US. The office in Nanjing is fairly new.

The first people started working in September.

We are up to around 45 people now. : Why Nanjing?

JB: We selected Nanjing as a good place for us because of the availability of college graduates. Typically all over the world we hire people right out of college and train them. So for us the raw material we were looking for is smart college students. : What else makes Nanjing a good place for you to set up your office?

SAIC just bought Nanjing Auto, maker of MG Rover, forging a new car company.

Nanjing is home to many of China’s large companies, including Nanjing Cigarette Factory.

JB: It is a decent hub for transportation in China. It’s about halfway between Beijing and Shenzhen which are two of the big manufacturing areas. The products that all our customers produce end up in containers and on ships going across the pacific; so therefore you have the greater Beijing area, the Pearl River Delta down in Shenzhen and Hong Kong and Yangtze river which is what we’re on. So from a logistics standpoint we’re kind of central. Nanjing also has a good airport and all the costs are less than Shanghai. For us there was no real reason to be in one of the high cost areas such as Shanghai, Beijing, Shenzhen, HK. : In terms of manufacturing labour is there a supply of that in Nanjing?

JB: Yeah. There’s a lot of housing being built and industry going into Nanjing and it’s kind of like Shanghai was 10 years ago. The growth is just incredible. : What’s the most interesting thing about Nanjing?

36

JANUARY/FEBRUARY 2008

JB: It’s fascinating, we are interviewing and hiring and it is all the very smart people.

Nanjing University is the 4th ranked university in all of China and we just keep finding great people. It’s not that you can’t find great people anywhere else – it’s the quantity. There was a job fair about a month ago and there were about a 100 000 people who showed up for it. If you take a look at where the city is going I think that while they are still promoting industry there is a real hard push to promote educated jobs like outsourcing. There’s a real push on software. Nanjing University has a campus that just does software now. : Could you speak generally about some of your current projects?

JB: Our biggest project right now is getting these people up the curve on learning. It takes about 6 months for us to get people productive because the application is so complex. So right now we are in the learning phase, the education phase. We are putting a tremendous amount of resource into training these people and in 2008 we should be benefiting greatly from it. www.chainamagazine.com

SPECIALFEATURE

Trucks in China

Remain a Purely Local Affair

T

he long approval process for foreign investments and the China stock market have struck again, foiling yet another foreign investor with ambitious plans to enter the China market. This time, the victim was not a private equity firm, but DaimlerChrysler, a global industry leader in vehicles and trucks whose money and participation China would have welcomed with open arms five years ago.

The ground rules are changing rapidly in China, and foreign investors are finding it increasingly difficult to gain meaningful equity stakes in existing Chinese companies.

The plans of private equity firms and strategic buyers alike to penetrate the China market are now confronting the same obstacles: a bias against the sale of majority stakes; a long approval process; and a stock market that is pricing privately placed deals out of the market.

In November 2006, DaimlerChrysler agreed with Beiqi Foton Motor Co., one of China’s largest truck makers, to buy a 24 percent ownership interest in Foton for 817 million yuan (US$103.8 million at that time).

Foton had agreed to sell 297 million new A shares to DaimlerChrysler for 2.75 yuan per share. (Daimler has since spun off its Chrysler unit to a private equity buyer in the United States, and is now simply known as Daimler.) With Foton’s A shares now selling for 11.42 yuan, nearly four times the Daimler purchase price, the private transaction is under water and was rejected by the regulatory authorities. While the proposed share placement has been scrapped, Daimler announced its intention to do a joint venture with Foton to make medium and heavy duty trucks.

Unlike China’s passenger car market -- which has a heavy dose of foreign participation --China’s commercial vehicle market - which includes both trucks and buses -- remains a purely local affair. Through October, 2007, www.chainamagazine.com

China produced 1.65 million medium and heavy duty trucks, a 10.8 percent increase over the same period last year. Nearly all of these trucks were produced by local Chinese companies and sold under Chinese brand names. Daimler’s proposed equity ownership in Foton would have represented one of the few instances of foreign participation in China’s truck industry.

Dominance of China’s commercial vehicle market

by Chinese companies, however, is not limited to the assembled vehicle. The diesel engine is a key component of any truck or bus, and this too is dominated by local players. In China, the top 8 diesel engine companies account for 98 percent of all production of the sixcylinder diesel engines used in medium and heavy duty trucks and large buses. Of these top 8 companies, all are Chinese companies, except for one: Dongfeng Cummins, a joint venture between Dongfeng (previously known as Second Auto Works) and US Cummins.

“

Jack Perkowski is the chairman and CEO of ASIMCO Technologies a major auto components company. He has lived in China for many years and recently wrote a book titled, Managing the Dragon: How I’m Building a Billion Dollar Business in China.

Unlike China’s passenger car market -- which has a heavy dose of foreign participation --China’s commercial vehicle market - which includes both trucks and buses -- remains a purely local affair.

As China’s market develops, and Chinese diesel engine companies and truck and bus producers upgrade their quality and technology, it will become harder, not easier, for foreign players to establish a meaningful market presence in China. A truck made by a foreign company in China may sell for as much as four times the price of a truck made by one of China’s local producers. Selling at much higher prices that are well above the affordability level of the country’s freight haulers, trucks made in foreign-invested enterprises have been largely confined to serving niche markets in China as a result.

JANUARY/FEBRUARY 2008

”

37

CHINESEMEDIA Olympics promote Chinese logistics development

http://www.logistics.cn/News/ Detail20963.html The 2008 Beijing Olympic Games bring a large need for dedicated logistics. Sports equipment need to be delivered and stored, while people bring travel, entertainment and other needs. The logistics need for competition equipment is expected to reach over 43.2 million RMB. This rare opportunity for China is also a challenge.

Two years ago, UPS was selected as the Beijing 2008 Olympic Games logistics

and courier services sponsor, taking a large piece of the Olympic logistics pie.

However, weak domestic third-party logistics enterprises should also get a piece of the pie and use the Olympic Games to develop and gain management and operation experience to improve their competitiveness.

discover.

Subprime Crisis affects Ningbo foreign trade

http://info.jctrans.com/news/ myxw/20071221574284.shtml The Subprime mortgage loan crisis in the United States is increasingly close to Ningbo’s Economic pulse, which is largely dependent on international trade. November exports to the United State from Ningbo decreased by about 9 million US dollars compared to October, which is unusual.

Faced with ongoing signs of weakness in the United States market, many Chinese trade companies began to seek countermeasures, developing Russian, Latin American, African and other emerging markets. Since the Euro is still relatively strong, Chinese companies are also focusing on the EU market to offset the impact of lost American orders. third-party logistics enterprises should use the Olympic Games to develop and expand, learned management and operation experiences from past Olympic Games logistics providers, improve the market competitiveness of enterprises.

Lenovo factory to focus on booming domestic market

http://www.ftchinese. com/sc/story_english. jsp?id=001013349&loc=story

... to bring your products to market more quickly. www.moduslink.com/discover

By Amy Yee in New Delhi As part of an aggressive push to make a bigger global splash, Lenovo is diving deeper into India. The computer maker’s new plant in northern India is due to open next month and aims to triple Lenovo’s annual production capacity in the country to 3 million computers.

Lenovo, the Chinese manufacturer that bought IBM’s personal computer business in 2005, is investing US$30 million in factories in India’s Himachal Pradesh state and Monterrey, Mexico. While the Mexican plant will cater to customers across the Americas, the Indian plant will focus on the growing domestic market.

for more information, visit us online 38

JANUARY/FEBRUARY 2008

www.chainamagazine.com

QA

QUESTION&ANSWER

What its Like to Work for...

Coca-Cola

&

Bottlers Manufacturing (Dongguan) Co., Ltd

Li Rui, Logistics Manager, Coca-Cola Bottlers Manufacturing : Who’s the boss?

Li Rui: Ainsley Mann has been with the company since the establishment of the company and now he is our Chief Executive Officer. Finance, Operations, Manufacturing, Quality and HR functions directly report to him. : How ma ny st a ff do yo u have ?

LR: 726 : What are responsibilities?

your

Supply

chain

LR: We are the link between our customers, our manufacturing plants and partners, which are spread across China. I am here to enable my team to deliver the product to our customers with the best quality and service.

Our target is to lower the whole supply chain cost, which will help our products achieve a competitive advantage. In addition, we also share the responsibility to contribute to levels of environmental protection actions. : Who are your customers?

LR: Our job is to manage the supply chain for the NCB (Non-Carbonated Beverage) products of Coca-Cola’s brand family. We like to call ourselves a SCMC (Supply Chain Management Company). All the Coca-cola bottling plants are our customers. Most of the time we focus on customers within China, but sometimes we also provide the products to overseas plants. : How does someone get a job at CCBMC? LR: The company posts its general recruitment job specifications and requirements on the internet through www.51job.com.

Internal posts www.chainamagazine.com

are available to staff for cross-functional opportunities and we also encourage our staff to introduce competent people from outside the organization.

company standard. This assessment occurs at the hiring process, internal transfer/promotion process and training requirement process. : How is the pay and perks?

: What training opportunities does the company offer?

LR: The company structures its training program under 3 major pillars: •Manufacturing Programs: targeting staff in production, QA/QC, engineering and warehouse departments.

•Functional Programs: targeting other staff not directly related to manufacturing •Leadership Program: specifically designed for high potential, middlesenior level employees Everybody in the company has an individual profile of his/her current capabilities which are benchmarked to the

LR: The pay is competitive compared to the industry average. For all supervisory and above staff, we are offered a retention program which is very attractive if we stay on with the company. : What hours do you work?

LR: The work schedule is quite flexible.

Trust has been built into the culture. We have a lot of opportunities to go on staff events, company outing and sports activities. : Are you required to do business travel?

LR: My team will spend a lot of time traveling, normally within China, as the closer we are to the front line of supply chain operations, the more value we may bring to our customers and consumers.

JANUARY/FEBRUARY 2008

39

EVENTUPDATE

CHaINA Summit fields record attendance

Klein urged companies to take action: “Be proactive, don’t wait for things to happen -- that is legislation -- companies need to figure out where they are in the maturity cycle and act from that point.”

The event also touched on the full range of ongoing topics in the China Supply Chain, including regulatory issues, HR developments, IT systems, M&A’s, infrastructure changes, westward expansion, tax, legal and other relevant topics.

Next year’s summit has already been confirmed and will be held on November 5 and 6 in Shanghai.

T

his year’s 3rd annual CHaINA summit was held at the Regent Shanghai over two days in November. Over 400 people, from many of the largest companies involved in Supply Chain Management in China, attended the event which featured 90 different speakers delivering presentations, giving training workshops and holding roundtable discussions.

The over-riding theme of the event was green supply management or “sustainability as an engine for value,” as expressed by Jeffrey Russell, an Accenture partner and keynote speaker. Peter Klein of Carbonview Consulting continued this theme in his talk about the “Carbon Disclosure Project,” a software system his company has developed to help companies reduce their carbon footprint.

T

he IDS Value Chain Seminar was held on November 11th at Shanghai Jiaotong University, Antai College of Economics and Management. Attendees at the talk sponsored by IDS Group, Li&Fung and Shanghai Jiao Tong University, came from business and academics.

The event featured keynote presentations by two eminent speakers – Professor Hau Lee, Thoma Professor of Operations, Information and Technology, Graduate School of Business, Stanford University, and Dr. Victor Fung, Chairman of the Li & Fung Group.

Li & Fung Chairman delivers supply chain value

talked provided insights on how companies can capitalize on growth opportunities by re-designing their value-chain to drive efficiency and performance.

Professor Lee gave a case filled talk on how supply chain innovations can be developed to drive business performance, while Dr. Fung’s 40

JANUARY/FEBRUARY 2008

Li & Fung is a $12USD billion company, with over 25,000 employees, that sources product from over 10,000 factories mostly in the FMCG sector.

They were a leader in developing outsourcing from Hong Kong to Mainland China in the early 1980’s; their sourcing model was successfully adopted by many companies. www.chainamagazine.com

BLOG

BLOGWATCH

All Roads is written

by Richard Brubaker, Founder and Managing Director of China Strategic Development Partners. Based in Shanghai, Rich assists clients understand the China market, construct and operationalize China based platforms.

China Logistics: Its On The Road, Not In The Air For anyone in the logistics industry, the title will not come as a shock. More than anything there are a few things that are common knowledge in Chinaís logistics industry: 1) With the majority of foreign owned freight being for Export/ import, and the majority of manufacturing for export being on the East coast, the need for roadhaul is much greater than air frieght 2) As fragmented as road haul carriers are, the airlines are an even bigger mess (something we recently found out when costing airfrieght for 15 cities around China) 3) Only foreign firms shipping high value goods (Intel in Chengdu) are going to rely on air frieght. Others, who are not time sensitive and are shipping common items, will chose a trucking or Kuai Yun copmany to support them (CNEX, FedEx, Kerry, STO, etc) While reading the FT this morning, I found a couple of good articles that sum up some of the issues facing Chinaís logistics industry.

The first, Air freight from China: “Clouds on the horizon,” focuses on the fact that while many areas are setting up new airports (currently there are 130 +/-, with 30~50 more planned), there are relatively few companies putting goods into the

belly of the aircrafts right nowÖ and that there could be a situation where there is a significant amount of overcapacity and imbalance in the market (good for those who need to ship stuffÖ bad for carriers).

The second article, “China: Logistics is key to inland shift,” to be honest is not as well written as the first (Different writers) and starts off with a bit of what I think is a factual error by stating: “Chinaís spectacular economic development record has largely been concentrated in two areas ñ the so-called Pearl River Delta just north of Hong Kong and the immediate hinterland of Shanghai.”

Uh, maybe I am getting picky here, but Tianjin has also done a fantastic job of attracting investment as well??

Following that though, the authors rightly focus on the fact that few companies are going to be willing to move inland to manufacture unless the logistics is there to support themÖ something I would agree with, BUT, for many of the firms I work with they are not looking for export logistics support, but regional logistics support as their investments are 2nd and 3rd investments meant to supply a region.

China Law Blog focuses on business law in China. It is written by Dan Harris, an international lawyer based in the United States and Steve Dickinson, an international lawyer based in China. Dan and Steve are both members of Harris & Moure, pllc, a boutique International Law Firm.

China’s New Labor Law: Compliance Comes Easy Posted by Dan on January 3, 2008 at 06:10 PM Co-blogger, Steve Dickinson, was in Seattle this week for the holidays. Steve is scheduled to talk at the Beijing Rotary Club on January 8, regarding China’s new labor law and we were discussing why so many foreign companies in China seem paralyzed by the new law.

We came up with two explanations. The first is the persistent belief that the government will not enforce the new labor laws, just as it has done very little to enforce the old labor laws. Our second explanation is that the laws are so complicated and difficult companies are throwing up their hands out of a belief compliance is either too costly or impossible. Both views are way off the mark.

Beijing probably will not enforce the new labor laws any more than it enforces the present labor laws. But, this completely misses the point. The chief risk of

failing to comply with the new labor laws lies in the risk of getting sued by your present and/or your former employees, not in governmental enforcement.

Compliance is not all that tough. Basically, all a company with employees (or even one employee) need do to comply with the new laws is have a written agreement with its employees and an employee manual.

One additional note. The employment agreement cannot call for application of foreign law as such contracts do not constitute a written agreement under the new laws. This means that if you have an employee working in China (whether a Chinese national or not) and your agreement with that employee is under the law of your country (other than China) or some other country (other than China), your employee will be able to sue you in China for statutory damages for failure to comply with the written agreement requirement.

WATCH www.chainamagazine.com

Told you it was easy.

JANUARY/FEBRUARY 2008

41

MOVERS&SHAKERS Changed jobs in the past month? Hired someone new recently? news@chainamagazine.com

Movers & Shakers Herbalife Appoints China General Manager Herbalife Ltd. has appointed Jerry Li general manager of its China operations, the company said Thursday.

Li, who started with the company as a sales director in December 2004, will report to Paul Noack who was recently named managing director of the company’s Asia Pacific region, according to a release. Li has held various operational roles at Herbalife and most recently was responsible for day-to-day operations in China.

Herbalife sells more than 34 products in China and operates a manufacturing facility in Suzhou, China, according to a release. In China, Herbalife is headquartered in Shanghai and operates 90 stores in 29 provinces. It received its first direct selling license from China’s Ministry of Commerce in March 2007, which was expanded to cover the entire Jiangsu province in July, according to a release.

Los Angeles-based Herbalife (NYSE: HLF) is a global network marketing company that sells weight-management, nutritional supplements and personal care products.

CB Richard Ellis Positioned for Further Growth in Greater China CB Richard Ellis recently announced a number of key appointments as well as the establishment of several additional business lines. CB Richard Ellis stated that, with the implementation of these initiatives, the company will be well placed to better respond to the needs of clients in the increasingly competitive real estate market environment across Greater China.

Mr. Brooke outlined a number of refinements to the organisational structure of CB Richard Ellis in Greater China, which he explained had been implemented in order to facilitate the proposed strategy relating to business activity in 2008. He explained that Mr. Yu Kam Hung, currently responsible for the Valuation & Advisory Services business line in Greater China, will be taking up additional responsibility for the overall strategic direction and management of the offices of CB Richard Ellis in Hong Kong, Taiwan and Southern China with effect from 1st January 2008, in addition to his existing role.

In addition, Mr. Brooke advised that CB Richard Ellis has appointed new Managing Directors in both Beijing and Shanghai. Mr. Daniel Yin, currently the Managing Director of CB Richard Ellis in Tianjin will be taking up the role of Managing Director, Beijing with effect from 1st January 2008, and will initially have oversight of operations in both Beijing and Tianjin, until such time as a new Managing Director is appointed in Tianjin. Mr. Mark Latham will be taking up the role of Managing Director, Shanghai with 42

JANUARY/FEBRUARY 2008

effect from 1st January 2008, in addition to retaining an ongoing senior management role within the Office Services business line in Shanghai.

Intermec Names David Jones as VP and General Manager, Global Services Intermec Technologies recently announced the appointment of David Jones as Vice President and General Manager, Global Services.

Jones is an accomplished executive with twenty-one years of critical business leadership and experience in the areas of global service, network management services and systems integration.

Jones was most recently at Motorola, where he was Vice President of Global Service Delivery. During his twenty-one year tenure, he was responsible for Motorola’s global service and support network providing critical repair and optimization service delivery to thousands of global customers.

Intermec develops, manufactures and integrates technologies that identify, track and manage supply chain assets. Core technologies include RFID, mobile computing and data collection systems, bar code printers and label media.

InFocus Corporation Announces COO Appointment InFocus Corporation recently announced the appointment of Joe O’Sullivan as the Company’s Chief Operating Officer.

As Chief Operating Officer and Vice President of Global Operations, O’Sullivan manages all aspects of InFocus operations and supply chain worldwide, including procurement, planning, logistics, sales and marketing, service and customer support. In addition to owning customer satisfaction, O’Sullivan is responsible for overseeing the creation and delivery of the award-winning products and services that InFocus is known for.

“I am pleased to be a part of a dynamic organization with such a rich history and tradition,” said O’Sullivan. “Besides improving operational performance, we will increase worldwide market share by delivering best-in-class products and services that delight our customers.”

O’Sullivan has held a variety of operational positions over the past 25 years including 15 years with Apple in Ireland, Japan, the U.S. and Singapore. He is credited with transforming Apple’s regional Asian operations into a low cost, high-volume organization through the creation of an effective OEM model that continues to competitively support consumer and channel markets around the world. www.chainamagazine.com

CLASSIFIEDS/ENTERTAIMENT

1

Are you up to speed on CSR?

2

3

5

4

{Corporate Social Responsibility)

6

7

10

8

9

Down 11

12

13

1 A waste/gas given off by humans and other organisms 3 Carelessness; lack of concern 4 Taking ownership of issues and responsible for finding solutions 6 Acting according to certain accepted standards 7 beliefs held by people which are important to their lives 9 A widely agreed set of procedures, practices and specifications 11 The rational investigation of questions about existence and knowledge and ethics

Across 2 Places where workers labor long hours in poor conditions for low wages 5 A system of principles governing morality and acceptable conduct 8 Chance of harm or loss, danger 10 Any act or waste substance that soils the environment 12 50 nations gather in 1945 to promote world peace 13 Keeping track of; watching

杇 Go Kunming Whether you're going to Kunming on business or for leisure you'll need to know how to get around, where to stay and the top places for food, drinks and fun.

GoKunming is the only English-language website serving the needs of visitors to and residents of Kunming, China's 'Spring City'. Filled with useful lis ings, an insightful blog that is updated daily plus forums and classifieds, GoKunming makes it easy to get the most out of one of China's top second-tier cities.

www.GoKunming.com

www.chainamagazine.com

JANUARY/FEBRUARY 2008

43

EVENTCALENDAR Supply Chain WED Auto Enablement: The year of EDI

2008

Real THU Logistics Estate Luncheon

2008

2008

January

9 2008

January

17 2008

January

COMPANYINDEX

WED

23 FRI

2008

January

25

Workgroup Shanghai Venue: Sofitel Organizer: German Chamber

Shanghai Venue: to be confirmed Organizer: CSCC

January

WED

16 January

TUE

22

2008

March

WED

5

China Customs Seminar Shenzhen Venue: Sunshine Hotel Organizer: CSCC

WED

16

2008

January

23

Supply THU Automotive Chain Luncheon

2008

Pharma Supply Chain Workgroup Shanghai Venue: Confidential Organizer: CSCC

WED

2008

24

2008

February

20

February

21

WED

CSR Supply Chain 2008 January Summit Conference Shanghai Venue: Millennium Hotel Organizer: CSCC

Catch a Thief - 2008 FebruaryWED THU ToFraud and Misconduct in China

2008

Cold Chain & Food 2008 January Safety Luncheon Shanghai Venue: to be confirmed Organizer: CSCC

Luncheon Shanghai Venue: JW Marriott Organizer: BritCham

27

China Industrial 2008 Real Estate Summit March Conference Tianjin Venue: Renaissance Hotel Organizer: China Decision Makers

Shanghai Venue: Confidential Organizer: CSCC

Chemical Supply Chain Luncheon Shanghai Venue: Confidential Organizer: CSCC

January

How corporate culture is influencing employee retention Workgroup Suzhou Venue: Hotel One Organizer: German Chamber

Lean Production Essence Training Beijing Venue: Plaza Hotel Organizer: CSCC

Class R&D in THU World China Workgroup

24

Shanghai Venue: JW Marriott Organizer: BritCham

corporate THU How culture is influencing employee retention

February

21

Workgroup Suzhou Venue: Hotel One Organizer: German Chamber

Supply Chain THU HRSummit Conference

Avoiding IP Leaks in 2008 Your Supply Chain February Workgroup Shanghai Venue: Sheraton Hotel Organizer: BritCham

28

Shanghai Venue: Millennium Hotel Organizer: CSCC

Accenture ................................................................................... 6 Aim Global ............................................................................... 16 Alfred Dunhill .................................................................... 26, 27 AMB Property Corp. ................................................................ 17 Apprise Software Asia Company Ltd. ..................................... 36 ASIMCO Technologies............................................................. 37 Baltrans Holdings .................................................................... 16 Baoyun Logistics ...................................................................... 17 Bayer .....................................................................24, 25 , 26, 27 Beijing Benz Daimler Chrysler (BBDC) ........................... 28, 37 Beiqi Foton Motor Co.............................................................. 37 Bombardier .............................................................................. 19 C.H. Robinson .......................................................................... 17 Carbonview .............................................................................. 40 Carlyle Group .......................................................................... 19 CB Richard Ellis ....................................................................... 42 Ceva Logistics ............................................................................ 8 China Aviation Industry Corporation ..................................... 19 China Post Logistics ........................................................... 17, 46 China Resources Company ..................................................... 26 China Strategic Development Partners ................................... 41 ChinaWhys ................................................................................. 7 Chongqing Port Logistics Group ............................................ 20 Coca-Cola Bottlers ................................................................... 39 Dalian Dechen Shipping Agency............................................ 17 Dazhong Electrical Appliances ............................................... 18 DHL .................................................................................... 18, 46 Dio Coffee................................................................................ 19 DongFeng ................................................................................ 37 Fedex........................................................................................ 20 Finnair ...................................................................................... 48 FM Logistics ............................................................................. 17 Ford .......................................................................................... 16 FT Chinese ............................................................................... 38 Gasgoo.com ............................................................................. 20 GlaxoSmithKline ................................................................ 19, 20 Go Kunming ............................................................................ 43 GOME Electrical Appliances ............................................. 18, 19 GT Nexus ................................................................................. 16 Haier Group ....................................................................... 27, 28 Harris & Moure ........................................................................ 41 Herbalife Limited ..................................................................... 42 Hewitt................................................................................. 31, 46 HMG Logistics.......................................................................... 43 IBM ............................................................................... 16, 27, 28 IDS Group ................................................................................ 40 InFocus Corporation................................................................ 42 Intermec Technologies ............................................................ 42 JC Trans .................................................................................... 38 JLJ Group .............................................................................. 9,10 Kerry EAS ..................................................................... 26, 27, 35 Kingdee .................................................................................... 16 Knight Frank ............................................................................ 11 Koda Limited............................................................................ 23 Kong and Allan LLC................................................................. 12 LCR Electronic.......................................................................... 12 Li & Fung ........................................................................... 40, 46 Logistics.cn ............................................................................... 38 Lotus ......................................................................................... 17 Mapletree Logistics Trust......................................................... 15 Michael Page ............................................................................ 46 Molson Coors Brewing Company........................................... 29 Motorola ................................................................................... 17 Nanjing Automotive Corporation...................................... 15, 36 Nanjing Cigarette Factory ........................................................ 36 Nidec ........................................................................................ 17 NWS Holdings ......................................................................... 35 Oriental International Logistics Holdings ............................... 21 Ping An Insurance ................................................................... 18 Procter & Gamble .................................................................... 18 Rohm Semiconductor .............................................................. 14 SAIC.................................................................................... 15, 36 Samsung ................................................................................... 19 Schneider Logistics .................................................................. 17 Seeburger ................................................................................. 28 Shanghai Jiaoyun Internation Logistics Company ................. 21 Shanghai Transport and Logistics Vocational Education Group ..................................................................... 21 Sinochem Fertilizer .................................................................. 18 Sinotrans .................................................................................. 18 SSAB Swedish Steel (China).................................................... 12 Tokai Rubber Industries .......................................................... 20 Toll Holdings Ltd. .................................................................... 16 Tradelink Technologies ........................................................... 16 Transport Logistic China ......................................................... 39 UBS........................................................................................... 15 Unico Logistics................................................................... 32, 35 Unipac Shipping Inc.A35 ........................................................ 16 Walmart .................................................................................... 42 Werner Global Logistics .......................................................... 17 Youshang.com ......................................................................... 16 YRC Logistics ........................................................................... 17 Zim Integrated Shipping ......................................................... 35

Sourcing THU China Summit Conference

12

Shanghai Venue: Millennium Hotel Organizer: CSCC

JANUARY/FEBRUARY 2008

45

7 0 1 2 4 8 5 2 6 9 7 3 0 16 24

3

1 5 6 3 9 6 9

CHINANUMBERS

Numbers

In the

Retaining employees in China is no easy job. Michael Page and Hewitt research shed some light on the issues.

US

$2 billion

Career advancement

Disagreement with management

China Post Logistics, the country’s top logistics firm, plans to raise over

53.7 trillion yuan

Change of industry More money

Redundancy/retrenchment Contract expired

Moved/went travelling

The turnover of the country’s logistics sector in the first 3 quarters of 2007,

$285 million

0%

Year when China will become the world’s second-largest consumer market.

25,000

Number of employees that Li & Fung employs in 3 distinct businesses - export sourcing, logistics through IDS and retailing through CRA. 46

JANUARY/FEBRUARY 2008

20%

10%

30%

40%

50%

The cargo throughput of Shanghai port reached 560 million tons in 2007, ranking the first in the world for the third straight year.

(Shanghai Port and Shipping Bureau)

Bonuses Stop options/ tax equalisation/a lowance 13 months salary

Flexible working hours raining Health benefits

ACTUAL INCENTIVES VS PREFERRED INCENTIVES

Office/ eam function Pa d maternity/ Paternity leave

DHL Express new investment to expand its airfreight facilities in HK & Shanghai.

2015

Almost half of respondents cited career advancement as the primary motivation for their last ob change.

Other

up 25.5 percent, according to the China Logistics Information Centre.

WHAT WAS THE REASON FOR YOUR LAST JOB CHANGE?

Lifestyle change

The total number

of billionaires in China has risen to

The survey showed there was disparity between the incentives employees wanted and those their employers were providing. Bonuses and stock options/tax allowances were the most preferred incentives by employees.

ime off in lieu Over time Parking

Preferred incentive Actual incentive

Other

0%

20%

10%

30%

40%

50%

second place in the world, just behind the United States.

(World Entrepreneur magazine)

Salary Increase By City (Manufacturing)

Shanghai Salary Increase Rate

Changzhou

2008 (Projection)

Wuxi

2007

Nanjing

2006

Suzhou

SH-Manu

2005

Hangzhou

0.0%

2.0%

4.0%

6.0%

8.0%

10.0% 0.0%

Manu Non-Manu Data Source: 2007 Hew tt TCM M Study ShanghaiFindings

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2007 2006 Data Source: 2007 Hewi t TCM Study

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H E L S I N K I G AT E WAY. THE S TRAIGHTES T C ARGO ROUTE TO EUROPE.

The fastest route between the Far East and Europe goes through Finland. At the Finnair Cargo Center we offer you an advanced cargo handling system, f lexible ser vice and professional personnel.

By way of the Helsinki Gateway, your cargo can reach your customer even faster than on a direct f light.

Contact your local Finnair Cargo dealer. www.finnaircargo.com