2007 Jul-Aug Issue

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THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

Still made in China?

China is the workshop of the world, but for how long? page 16

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The challenge from Vietnam, page 22

JULY/AUGUST 2007

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Supply chain visibility: is China ready? page 7

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CONTENTS THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

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COVER STORY

Still made in China?

China is the factory of the world, but for how long?

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REGIONAL FOCUS

The challenge from Vietnam There’s talk that Vietnam may be a better bet than China as the world’s most attractive desination for large-scale manufacturing

REGULARFEATURES 7

COMMENTARY ■ Providing supply chain visibility: is China ready?

■ Caveat emptor: let the buyer beware ■ International procurement organisations

11 NEWSROUNDUP 27 Q&A Robert Timmerman, chief executive officer, PRC and Taiwan, Panalpina World Transport 29 Q&A Weimin Lu, chairman and general manager, Best Buy China 34 Q&A Eric Laborie, vice president corporate development, SITC Logistics

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39 BLOGWATCH 31

SUPPLY SUPPLYCHAIN CHAINFEATURE FEATURE

Integrating your China and North American supply chains A myriad of fresh ideas on how to increase the leverage of your transpacific supply chain

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41 CAREERS 44 CLASSIFIEDS 45 EVENTSCALENDAR / COMPANYINDEX 46 CHINA SUPPLY CHAIN IN NUMBERS

SALES& &MARKETING MARKETINGFEATURE FEATURE SALES

Delivering the goods Value-added sales and marketing for 3PLs in China

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weblog based in the United States recently published a post called Dangerous Made-in-China Products: 2007 Timeline, which listed 55 faulty products manufactured in China and recalled in the United States for one reason or another so far this year.

The products range from Thomas the Tank Engine toys to pet food, toothpaste, tires and gas grills. The same weblog also conducted an online survey asking their readers, “Are you concerned about the safety of ‘Made in China’ products?” with nearly 86 percent answering “Yes”.

American manufacturers and the Chinese government are in crisis management mode in an effort to protect their sales and the ‘Made in China’ image respectively. One company's solution to the problem: labelling food ‘China-free’. The company is hoping the label will ease its customers’ fears about the possibility of contamination in its products.

After weeks of insisting that food products from China are largely safe, regulators in Beijing announced recently that they have closed 180 food plants and inspectors have uncovered more than 23,000 food safety violations. Regulators have also admitted that nearly one-fifth of all products sold in China fail to meet the country's quality standards. Smaller companies have been singled out as persistent offenders and officials at China's various food and drug safety administrations have come under criticism for accepting bribes and approving the licensing of substandard drugs and endorsing 'fake' food products. The recent introduction of an inspection and quarantine system to guarantee safety has also been announced which should go some way to correcting some of the problems.

China's supply chain infrastructure and systems have also come under scrutiny with one large international consulting form suggesting that one cause of the food safety problems is the serious lack of modern cold storage facilities that exist in China.

Right on topic, in this issue of Chaina magazine we anaylse the strength of China's position as the workshop of the world (see Still made in China?, page 16) and ask whether the country still offers international manufacturers the same level of attractiveness it once did, or whether Vietnam is a better bet (see The challenge from Vietnam, page 22).

Despite the threat to the ‘Made in China’ image, the ascendancy of countries such as Vietnam and the rising costs of doing business in China, Chaina magazine remains convinced that the country will continue to dominate the world's manufacturing scene for decades to come. This current round of issues might be more appropriately called growing pains, experienced by every country as its economy matures and before proper systems and regulations are put in place. Indeed the United States faced similar public outrage over the manufacturing of tainted drugs and food products there in the early 20th century which prompted the passage of the landmark Pure Food and Drug Act. Michael Pennington Editor and Publisher michael@theredcirclegroup.com

Publisher Michael Pennington michael@theredcirclegroup.com

Contributing Writers Chris Horton, Cameron Wilson, Pilar Dieter, Andrew Hupert

Editorial Consultant Max Henry Art Director Emily Zhang Graphic Designer Veronica Zhu

Chaina magazine editorial advisory committee Mark Millar Director of Strategic Business Development UPS Supply Chain Solutions Jean-Luc Laboucheix Supply Chain Director Asia Pacific, Goodyear Eugene Lim Registered Foreign Lawyer Baker & McKenzie, Hong Kong Sean Shao Logistics Manager NuSkin China Henrik Anker Olesen Transport & Logistics Leader, Asia IBM Global Business Services

Jamie Bolton Executive Partner Supply Chain Management North Asia Accenture Amit Kumar Director Inbound Logistics North America Electrolux Group Bee-Choo Lim Materials Director Asia and Latin America Intel Jeffrey Tew General Manager and Lab Group Manager General Motors R&D Centre

ADVERTISING SALES Thomas McKinley, Business Development Director thomas@mk-media.net +86 137 6164 5140 DISTRIBUTION By direct mail to subscribers in China, Hong Kong and Singapore who are involved in supply chain management, manufacturing and logistics including: supply chain directors and managers; logistics, warehousing and transportation directors and managers; sourcing, materials management, procurement and purchasing directors and managers; operations, manufacturing, import/export and trade managers; and chief executive officers, chairpersons, presidents, vice presidents, general managers, managing directors and country managers.

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We welcome your comments and feedback, please contact the Publisher at: michael@theredcirclegroup.com

© Copyright 2007, Red Circle Group (Hong Kong) Limited. All rights reserved. Chaina magazine (ISSN 1992-9668) is published by the Red Circle Group (Hong Kong) Limited, Room 813, Hollywood Plaza, 610 Nathan Road, Kowloon, Hong Kong. Fax: +852 3015 8719.

No charge for subscriptions to qualified individuals. Annual rates for subscriptions to non-qualified individuals differ depending upon the subscribers country or territory and can be found at: www.chainamagazine.com Send address changes to: subs@chainamagazine.com The contents of the publication may not be reproduced in whole or part without the written consent 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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COMMENTARY

Providing supply chain visibility: is China ready?

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lobalisation has introduced an increasing number of unknowns into our world, causing shippers to demand increased transparency in the shipment lifecycle. Ecommerce software vendors offer packages aimed at addressing this need, but have found adoption of their standard solutions in China challenging due to the unnecessary side-effect inherent in their products’ value proposition: technology enables automation and cost savings through labour reduction – an impact of understandably limited appeal to an already immense and cheap labour pool.

The China case is clearly an exception, and adoption of e-commerce platforms has been sluggish as a result. While supply chain organisations in China can see the theoretical value in supply chain visibility software solutions, the reality of the Mainland’s severely underdeveloped physical infrastructure and notorious industry fragmentation make the gains seem distant and implementation feel premature. Chinese firms considering IT investments are ultimately tipped into implementation at the behest of their foreign clients demanding to know the exact whereabouts of their packages and not because it is unequivocally value creating. Oddly enough, China is a trading and manufacturing giant, yet one that is limping along on a feeble physical infrastructure and without a well-established

logistics communication protocol to enable the transparency the international shipping community demands.

Visibility is the concept of connectivity: only by being connected can goods be tracked throughout the logistics process. This kind of connectivity requires a system in which parties involved can exchange timely information. First, all parties in the shipper’s supply chain network must be equipped with an IT solution that provides nearreal-time data capture that can then be exchanged and made available to the shipper for tracking purposes. Once local parties have software systems in place, connecting them to selected supply chain partners through data exchange programs becomes a data-mapping task. The realisation that Chinese companies will not pay Western prices for technology solutions, coupled with unnecessarily robust system features that overwhelm the technical skill level of the local operators has led software vendors to identify a niche for functionally stripped down versions of their standard software packages. These ‘light’ versions must also accommodate Chinese-specific idiosyncrasies such as VAT calculations, duties and language.

Pilar M. Dieter is Director at Alaris Consulting. The author would like to thank Alaris Associate, Scott Taing, for his contributions to this article.

Technology light While implementing ‘light’ versions of e-commerce

Imaginechina

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COMMENTARY

The benefits of enhanced visibility technology In a 2007 study evaluating supply chain visibility initiatives over a two year period, Aberdeen Research uncovered some of the benefits of enhanced visibility technology.

Companies that currently use a global supply chain visibility platform are: ■ Twice as likely to have reduced total landed costs ■ 1.7 times as likely to have the ability to make mid-course changes to international shipments (such as reallocate or reroute in-transit) ■ Twice as likely to have reduced lead times and lead time variability from international locations ■ Almost twice as likely to report increased global supply chain budget accuracy over the past 2 years

platforms serves the objective of China’s technology enablement, it does little to guarantee the establishment of a powerful data exchange with other supply chain parties. With so many suppliers struggling to establish systems to improve basics such as inventory management, order management and financials, it is no surprise that we do not yet have full visibility into our Chinese partners’ operations. Nor has the tremendous value that a fully integrated network provides been realised. Internal management systems are a prerequisite to achieving a collaborative platform for data exchange – and this need continues to go unfulfilled.

Given this current reality, it would be all too easy to conclude that China is not ready for ecommerce supply chain solutions. But two government-driven initiatives bode well for China’s imminent logistics future: the 11th Fiveyear plan’s emphasis on logistics development and China’s e-commerce policies gravitating toward a state-sponsored standard called Golden Gate. In 2005, the government invested RMB775 billion in infrastructure to address bottlenecks in the transportation network, a 23 percent increase over the previous year. This would seem to indicate that forthcoming development of the needed infrastructure will soon be in place; now is the time to adjust supply chain strategies in anticipation.

In 1996, the founding of the China International Electronic Commerce Centre (CIECC) led to the establishment of a secure network focused on linking global networks for the purpose of processing international transactions. This project, a platform called Golden Gate, will serve as

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the foundation for data exchange with trading partners in China. Software vendors can be found leveraging this pseudo-government “mandate” to expand their Chinese customer base. TradeBeam, a global trade management supply chain software provider with headquarters in the United States, realising the gravity of state-sponsorship, has signed a ten-year strategic partnership with CIECC to sell its e-commerce platform. This development may become China’s standard, and, at the very least, help CIECC develop a viable platform it can apply across China. “The government is encouraging IT investment amongst small to medium-sized enterprises in China,” explains Peter Chen, President of TradeBeam in Beijing.

“Chinese trading partners will soon be able to provide the visibility being rightfully demanded by the international shipper community.”

While Chinese logistics providers, manufacturers, agents and suppliers are debating the true need for IT investment, those who are adopting e-commerce systems to placate the demand for increased supply chain visibility are unknowingly walking into an efficiency boom - just as the pieces of the logistics efficiency puzzle seem to be converging. The three pillars of physical infrastructure, technology enablement, and integration capability, will seemingly juncture in about three to five years’ time, which is imminent in this industry, especially given China’s massive scale. As these three pieces come on board, they will reduce the cost of partner-to-partner integration and also highlight the immediate value of scale translating into Chinese providers’ ability to serve global customers at truly international service levels.

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COMMENTARY

Caveat emptor: let the buyer beware

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hina has in the past few decades been regarded as the factory of the world.

Factories operate round the clock to fulfil the deluge of orders from international buyers.

Many companies have also moved production to China to capitalise on the cheap production costs.

However, several developments could adversely affect China’s competitiveness.

Tax reform

manufacturing. If the challenge is successful, the following implications could follow: one, China would have to dismantle the incentives; two, retaliatory measures (such as increased tariffs) could be imposed on Chinese exports; and three, there could be a claw back of the benefits of these incentives.

Continuing trade remedy actions

China’s unified enterprise income tax (EIT) regime will increase the tax burden for most foreign-invested enterprises (or FIEs) engaged in manufacturing activities. The new EIT laws will come into effect on 1 January 2008. Under the new regime, newly established FIEs will no longer be entitled to manufacturing tax incentives.

The EIT rates for manufacturing FIEs will also be increased to 25 percent over a five year phase-in period.

China agreed to allow WTO member states to impose quotas on Chinese textiles when acceding to the WTO. Since then the United States and the EU have imposed such quota measures. This quota regime is set to expire at the end of 2008.

However, there are still numerous other trade remedy actions at the disposal of foreign companies and governments to protect themselves against Chinese imports. These include China productspecific safeguard measures, anti-dumping actions and countervailing actions.

Export VAT refund adjustments

Strategies for corporations

The downward adjustments of export VAT refund rates will increase the VAT cost of manufacturing operations in China. Over the past few years, China has been steadily reducing the export VAT refund rates for various products. The most recent set of adjustments came into effect at the beginning of July. The adjustments in 2007 are significant in that they affect over 2,000 tariff lines.

It is likely that the trend of adjusting (and in many cases reducing) the export VAT refund rates will continue in future.

Corporations which have significant procurement activities or that have manufacturing companies in China need to keep track of these developments and constantly re-calibrate and re-evaluate their operations to minimise their impact. Briefly, some of the strategies for corporations to adopt include: ■ Keep procurement and sourcing arrangements flexible and mobile. Include provisions in supply agreements which allow for easy exit in the event they are no longer economically viable.

■ Restructure manufacturing arrangements in China. Processing trade arrangements may be used to minimise the impact of increase EIT and VAT costs resulting from the tax reform and export VAT refund rate adjustments. However, various logistics and commercial considerations may have to be taken into account in the decision to restructure.

■ Pricing strategies have to take into account the risk of anti-dumping duties in export markets.

Anti-dumping considerations should be taken into account when determining the price of goods exported to countries which have domestic industries which may be injured by imported goods.

■ Use preferential customs regimes to minimise the cost of customs duties in supply chain structures.

These would include using free trade agreements or other customs duty planning techniques (such as first sale) to minimise the customs duty costs associated with importing goods in the destination markets.

RMB appreciation An appreciation in the renminbi would affect the viability of low cost manufacturing in China.

Considerable political pressure (especially from the United States) has been applied on China to revalue its currency. Whilst there is much debate concerning the amount of the revaluation, conventional wisdom is that the renminbi will appreciate over time. China’s foreign exchange controls will also in the long term be liberalised and market forces will increasingly have a role in determining the renminbi’s value.

WTO challenge on export incentives In February, the United States and Mexico filed WTO consultation requests relating to various China tax incentives for export oriented activities as well as for purchase of China made equipment.

Historically, fiscal incentives have been an important tool for attracting investments in

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Eugene Lim is a Registered Foreign Lawyer with Baker & McKenzie, based in Hong Kong.

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COMMENTARY

International procurement organisations Jamie Bolton is Executive Partner, Supply Chain Management, North Asia for Accenture, based in Shanghai.

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rior to the 1990s, most multinational companies seeking to source from China had to leverage trading services provided

by China’s state-owned trading companies. Like China itself, there was minimal visibility into suppliers’ market practices. Soon after, China began encouraging the development of jointventure business organisations. This meant new opportunities for (external) buyers and (internal) suppliers to learn more about each other’s business. Now, China is even more open and sophisticated. And international procurement organisations (IPOs) have become a leading source of high performance for multinationals working with Chinese suppliers.

Think of IPOs as extensions of a company’s global procurement organisation – shared services entities staffed with specialised sourcing teams that perform dedicated functions such as supplier identification and qualification, contracting, negotiating, integration and development.

Compared to less-advanced sourcing approaches (trading agents, local joint ventures, wholly owned foreign enterprises), IPOs are a superior mechanism for reducing total sourcing costs, shortening sourcing cycle times and providing much-needed local interfaces with Chinese suppliers. IPOs also help ensure that supplier market information is communicated to corporate business units worldwide.

An IPO’s core functions are extensive: local supplier identification, screening and negotiation; purchase order management; sampling, design and engineering support; logistics coordination and management; and quality assurance and control.

However, the payback can also be extensive. About 25 percent of companies that took part in a recent Accenture survey have leveraged their IPOs to achieve savings of 30 percent or higher (compared to purchases made before launching their IPOs).

Making it happen For multinationals that value market insight and a consistent, company-wide approach to Chinese supplier relationships, IPOs have no peer. However, IPOs are no silver bullet. They still must adhere to many of the same guidelines that engender high performance in any supply chain context.

Consider, for example, that half of all respondents in the above-mentioned survey expect levels of China spend handled by an IPO to increase by 20 percent or more per year.

Another 20 percent anticipate annual growth of 50 percent or more. To reach these goals, talent management – attracting and retaining the best people – is critical. Organisations and 8

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their IPOs need to continuously recruit new and fresh sourcing talent, align the new recruits to international sourcing standards using a scalable and consistent training methodology; and develop a clear strategy for retaining IPO talent. But even then, it may not be possible to attract and keep enough qualified candidates. That’s where third parties come in: partnering with a third party is an extremely effective – if not essential – way to optimise speed to benefit by leveraging an existing “on the ground” IPO capability.

Exceptional IPOs also require superior governance and hands-on executive leadership. In addition to guiding the formulation of performance targets, senior executives must be intimately involved in the design and implementation of an IPO operating model, and in creating the right connections between the China IPO and the company’s home office. C-level participation also is needed to ensure the establishment and execution of regular process assessments using established metrics and realistic performance targets.

This last point – developing the right metrics – is particular relevant. That’s because high performers in procurement – companies that leverage China IPOs to achieve savings of 30 percent or more – have been shown to also have the tightest (and most tightly adhered to) performance measures.

The main metric usually is total landed cost: calculating and integrating costs associated with acquisition, logistics, customs/tariffs/duties, obsolescence, warranty/service, and lost sales resulting from poor-quality products or services.

However, leading IPOs further excel in supplier integration, quality management and the creation/ management of supplier development programs, all of which help bring about incremental savings and sustained long-term benefits.

Finally, IPOs are an excellent way to help minimise the risks associated with any fastgrowing, fast-changing, geographically distant economy. However, as IPOs become more established, they will become more aggressive about savings targets, and thus they must be particularly tenacious about managing risk.

Supplier qualification programs that emphasise quality control, order management, delivery continuity and continuous improvement are key.

Then again, the most important IPO behaviour might be the simple acknowledgment that change happens. High-performance businesses know that shifts in supply sources are inevitable, which is why they often differentiate themselves with agility and flexibility. In effect, they build into their IPOs the ability to anticipate and respond quickly and effectively to change, rather than simply react to it. www.chainamagazine.com

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LEGAL

China cuts export rebates to reduce trade surplus The central government has cut export rebates for about 37 percent of export categories, in a move that the finance ministry said was designed to reduce the nation's huge trade surplus. The government lowered export rebates from July 1 for 2,268 categories of goods which “easily cause trade friction,” including clothing, hats, shoes, bags and steel products, the ministry said in a statement posted on its website.

It cancelled export rebates for 553 categories of “high resource-consuming commodities” such as mineral products, fertilizer, wood, leather and cement.

The move comes amid China's continuing tensions with the United States and Europe over its trade surplus.

R&D

Schaeffler opens R&D centre in Shanghai Germany’s Schaeffler Group, the world's second-largest bearing producer, has inaugurated its largest Asian R&D centre in Anting in Shanghai. “We will ensure bilateral knowledge exchange between the new establishment in China and Schaeffler's other 30 R&D centres in the world,” Maria-Elizabeth Schaeffler,

partner of the family-owned company, said.

“Since this facility has just opened, we will transfer know-how from our established R&D centres in South Korea, Japan and Germany,” Juergen Geissinger, Schaeffler's president and chief executive officer, said.

Some 60 percent of Schaeffler's sales are from the automobile industry and in China Schaeffler's clients include not just multi-national companies, but also domestic brand names, such as Chery.

The company hopes to increase its China exports from 14 to 25 percent in the next five years.

SOURCING

AstraZeneca establishes China sourcing centre Anglo-Swedish pharmaceutical company Astra-Zeneca is planning to make its new China sourcing centre an important part of its global supply chain and hopes that the centre will account for 90 percent of all future global purchases, projected to be valued at US$100 million by 2010.

James Ward-Lilley, president of AstraZeneca China, said setting up the China sourcing centre would be just one step in the process to pushing forward AstraZeneca's current “In China for China” strategy to its next level: “In China for Global” strategy.

MANUFACTURING

Caterpillar opens new component manufacturing operations in Wuxi Caterpillar recently celebrated the opening of new component manufacturing operations in Wuxi which will cover almost 47 acres and will become home to Caterpillar (China) Machinery Components.

Chinese firms to supply parts for Boeing aircraft R&D

Microsoft expands R&D centre in Shanghai Microsoft will set up an expanded R&D centre in Shanghai which will focus on server, data management and Windows Live services. The expanded centre, located in Zizhu in Shanghai, will be Microsoft's biggest R&D facility in China when completed.

Microsoft also recently announced plans to manufacture secondgeneration models of its Zune media player in Doumen in China.

The company cited cost efficiencies, flexibility, and process control as reasons for investing in a proprietary facility having initially manufactured Zune products through a partnership with Toshiba.

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Chinese companies are to produce airplane components for Boeing. The deals include contracts to produce parts for both the B747-8 aircraft and and B787 and include suppliers based in Xi'an, Chengdu, Tianjin and Hafei.

“China's outstanding technological capabilities and resources make these suppliers ideal partners. China has an important role in all Boeing models,” said Carolyn Corvi, Boeing Commercial Airplanes vice-president and general manager of airplane programs.

With the new agreements, Boeing and its suppliers now hold contracts valued at $2.5 billion with Chinese companies.

Airbus' subcontract volume in China will exceed $60 million this year.

“While trying to become a world leading regional aircraft manufacturer, we are also working hard to become a world leading supplier for large aircraft

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MANUFACTURING

New factory sets China as Sony Ericsson’s strategic base

Imaginechina

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Chinafotopress

Boeing chief executive officer James McNerney

industry” which, he said, was thought of as impossible 10 years ago. The country could, conceivably, do the same thing for the aerospace industry, he said.

Deal for Airbus assembly plant in China European aircraft manufacturer Airbus will shift the final assembly of modern commercial airliners to China to secure itself a larger share of the country’s rapidly growing air traffic market.

The plant, currently being built in Tianjin, will be the first final assembly plant outside of Europe. Production in Tianjin is planned to start a little more than one year from now, in August 2008, and 120 European employees will temporarily move to China to facilitate that launch.

The plant, adjacent to Tianjin’s airport, will be an exact replica of Hamburg’s modern final assembly facility, which specialises in short- and medium-range aircraft. The first plane is not expected to roll off the assembly line until mid-2009.

Airbus parts will continue to be entirely produced in Hamburg, then shipped to China where only the final assembly will take place.

Nissan to buy parts from China, India to cut costs Nissan Motor, Japan's third-largest carmaker, will raise global component

Nissan chief executive officer Carlos Ghosn

Chinafotopress

manufacturing,” said Wang Yawei, vicepresident for commercial aircraft for China Aviation Industry Corp I. Boeing chief executive James McNerney recently said that he expects a third major aircraft manufacturer to emerge over the next decade and suggested that any new entrant in the market could come out of China.

“I think it's inevitable,” James McNerney said, referring to a possible new competitor to the current hegemony enjoyed by Boeing and its European rival, Airbus.

He noted that China had built a “supply chain capable for the automotive

Sony Ericsson, one of the world's major mobile phone manufacturers, has started construction on a new factory in Beijing in a move to make China its global manufacturing base. It will manufacture mobile handsets and assemble surface mounted circuit boards. China is the company's sole strategic development base covering design, manufacturing, sourcing, R&D, as well as global sales and marketing.

The new plant is located between the company's other two factories, Beijing Se Putian Mobile Communications (BMC), which covers 25,610 square meters and produces mobile handsets, and Beijing Suohong Electronics (BSE), which covers 12,000 square meters and manufactures printed circuit boards.

After raising its stake in BMC to 51 percent in 2004 and then acquiring BSE last November, the company's move to build a new factory is part of a drive to make Beijing the Sony Ericsson global manufacturing centre, said Roger Ericsson, president of BMC. A spokesperson for Sony Ericsson China said BMC represented roughly one-third of Sony Ericsson's global manufacturing volume with direct shipment to 119 countries and regions.

Sony Ericsson China has also recently appointed ex-Motorola executive Kinson Loo as head of region for China sales and marketing.

purchases from low-cost countries to as much as 24 percent of the total, from as much as 14 percent now, said Carlos Ghosn, Nissan's chief executive officer.

“Frankly, we have no choice,” Ghosn said. “If you don't transfer part of your supply to extremely competitive countries, then there is no way you are going to be competitive in the market.

When you reduce your purchasing cost, sourcing is one of the tools. The more sourcing toward low-cost countries, the more it's going to help you.”

Nissan missed earnings and sales forecasts last year because of a lack of new models in the United States and Japan, its two biggest markets. Nissan also delayed a goal of selling 4.2 million vehicles worldwide by one year, to the 12 months ending March 2010.

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Siemens Home and Office hands logistics contract to K+N Siemens Home and Office Communication Devices (Shanghai) has awarded Kuehne + Nagel China the contract to provide domestic warehousing and distribution services for its full range of Gigaset products, including cordless phones, home media devices and broadband products.

Kuehne + Nagel will provide a comprehensive range of logistics services, including inbound receipt, storage, pick and pack operations, as well as distribution to Siemens’ customers across China.

“We require a logistics provider who can meet our high demand for

operational flexibility, reliability and cost-effectiveness, particularly so with our ambitious expansion plan in China.

Kuehne + Nagel has demonstrated its capabilities with the ideal combination of logistics excellence and local market knowledge,” commented Johann Goettler, chief financial officer of Siemens Home and Office Devices (China).

Agility acquires ocean freight forwarder in south China Agility has strengthened its presence in China with the acquisition of Guangzhou Runtong International Transportation Co Ltd (GRITCL), which focuses primarily on ocean freight forwarding services in Guangdong. Agility has worked with

Geodis Wilson chief executive officer Jeff Hoosgesteger

LOGISTICS

TNT Freight changes to Geodis Wilson brand name TNT Freight Management has started using its new brand, Geodis Wilson, a name change that followed its merger with Geodis Overseas to be finalised by the end of this year.

Geodis Wilson is the freight management division of the Geodis Group, offering worldwide groupage, contract logistics and full truckload services, a company statement said.

“We take pride in developing pragmatic solutions to complex integrated logistics challenges. We believe in being consistent, efficient, honest and to the point,” said Geodis Wilson chief executive officer Jeff Hoogesteger.

LOGISTICS

China establishes terminal with CMA CGM, Deutsche Bahn and Zim China Railway Container Transport Corp., a state-owned company under the control of the Ministry of Railways, has established a joint venture that includes France's CMA CGM, German rail operator Deutsche Bahn and Israel's Zim Logistics to design, build and operate a network of 18 rail freight terminals across China.

The rail terminals will be dedicated to handling container freight and located in transport hubs such as Shanghai, Kunming in the southwest and Urumqi in the northwest. The terminals are scheduled to begin operations in 2010.

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Mainland official tells Hong Kong to abort container terminal expansion China’s deputy chairman of the National Development and Reform Commission (NDRC) Zhang Xiaoqiang has said Hong Kong should concentrate developing its high-end logistics and drop plans to expand container facilities and leave such projects to cities in Guangdong.

Zhang explained that there was a mounting sentiment among central government officials “that Hong Kong should re-evaluate and re-plan its direction towards attaining shipping hub status”. He said in the report that there was no need to transfer all export products made in Guangdong via Hong Kong port in order to retain Hong Kong's status as an international shipping centre. Zhang added that splitting up cargo throughput to Guangdong would be a “win-win situation” to both parties because not only has the province's economic growth exceeded that of Hong Kong, but its trade volume had also surged.

However, the senior official suggested that the overall management of the new terminals should be granted to Hong Kong-led consortiums so that “Hong Kong can also enjoy the benefit to ship the goods from Guangzhou and Shenzhen directly”.

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GRITCL for the last six years and the company is an established business partner.

GRITCL has branch offices inGuangxi, Sichuan, Fujian, Yunnan and Chongqing.

On completion of the acquisition, Agility will have fourteen offices in China, and operations will be directed from the company’s China head office in Guangzhou.

According to Wolfgang Hollermann, Agility’s chief executive officer, AsiaPacific, the company plans to invest in the expansion of GRITCL and its range of services to include airfreight and logistics solutions for customers in south China.

GRITCL’s principal, David Li, will become Agility’s general manager, South China, Ocean Freight.

AT&T China signs Werner Global Logistics contract AT&T Inc announced recently that the telecom company has signed a three-year contract with Werner Global Logistics to

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provide virtual private network (VPN) services connecting the company’s Asian headquarters in Shanghai with the United States to support its fastexpanding operations in China.

Werner Global Logistics is a wholly owned subsidiary of Werner Enterprises, a premier transportation and global logistics company and recently celebrated its official China opening.

Under the contract, AT&T will provide multi-protocol label switching-based (MPLS) network capabilities for VPN sites in the United States and China.

Besides using the network to deliver both voice and data applications, AT&T will also provide an internet protocol telephony (IPT) solution with capacity to support up to one thousand users.

“Premier providers of transportation and logistics services, such as Werner, rely heavily on their corporate networks for real-time information and communication. We are pleased to have been awarded this contract by Werner as it is testament to our ability to understand and meet complex requirements by

providing highly-effective customised solutions,“ said Sainti Li, general manager, AT&T greater China group.

YRC expands logistics presence in China In an effort to further develop its logistics presence in China, less-than-truckload (LTL) transportation services provider YRC Worldwide said recently it has entered into a preliminary agreement to acquire Shanghai Jiayu Logistics, a China-based provider of LTL ground transportation services.

Shanghai Jiayu Logistics has more than 30,000 customers, 1,600 employees, 300 tractors and a 3,000 vehicle network.

Bill Zollars, YRC president and chief executive officer, said in a statement that this acquisition will allow the company to build a service network that will provide greater flexibility for shippers moving freight for intra-China movements and also provide seamless, end-to-end service for international movement in the critical United StatesChina trade lane.

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Pudong. Three more deals, also logistics and distribution centres in suburban areas of the city, will be finalised in a few months. The investment value of the five projects totalled US$200 million.

GSE builds Gazeley logistics project Logistics real estate developer Gazeley has selected GSE to build its first China-based facaility to be based in Tianjin. Construction began on the facility in March 2007 and is expected to be completed in the autumn.

Free-trade harbour area in Dalian YRC Logistics chief executive officer Jim Ritchie

YRC recently completed the rebranding of its business in China from Meridian IQ. Jim Ritchie, president and chief executive officer of YRC Logistics, said in a recent interview that from a ground-transportation standpoint, the environment in China continues to be very limited. And because of this limited— and highly fragmented—transportation network, foreign transportation services providers are taking different approaches when contemplating how to best set up shop in China.

“What has happened in the last [15] months is that strategies are starting to form on how to develop cooperative agreements with [Chinese] transportation providers to create more synergy in the supply chain,” said Ritchie. “By linking together the same service providers along different segments of the supply chain, we are starting to get better dependability and visibility.”

REAL ESTATE

Aussie Property Giant Hot on China

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RETAIL

Dell expands retail plans overseas In a move that some analysts are describing as long overdue, Dell is continuing its expansion into the retail world and recently announced plans to start selling desktop and laptop computers in certain retail outlets in the Far East.

Paul-Henri Ferrand, the head of Dell's operations in the Asia-Pacific region, said Dell “is seeking different partners and chains to sell a range of computers, from low-end to high-end... We are working with partners to come up with the best way to connect with our customers.”

The Asia-Pacific market is considered one of the hotter emerging markets, particularly China and India, while the United States is viewed as a slowergrowing, mature market. Dell's direct

RETAIL

Five Star plans logistics Best Buy subsidiary Jiangsu Five Star Appliance plans to spend RMB300 million building three logistics centres to serve its stores and Best Buy outlets in east China. The centres will be located in Hangzhou, Nanjing and Suzhou and will cover 80,000 square meters.

Chinafotopress

Goodman Group, formerly known as Macquarie Goodman, recently launched its new global unified corporate identity. The Australia-based company also announced plans to bring another US$200 million to US$300 million to the Chinese mainland property market in the next 12 months and expand its business beyond Shanghai, possibly to Guangzhou and Beijing.

Goodman, which entered the China market in 2005, now has two properties in Shanghai - a distribution centre in Fengxian, leased for 10 years to Thailand's Lotus supermarket chain, and a logistics centre built for DHL-Exel in Kangqiao,

China recently inaugurated a harbour area with preferential tax rates in the northeastern city of Dalian, a major step towards forming a free trade zone between China, Japan and South Korea. The Dayaowan Bonded Harbour Area, located at the Dagushan Peninsula in the northeastern part of Dalian, enjoys preferential taxation and foreign exchange policies, said Zhang Shikun, director of the Dalian Bonded Area Administrative Committee. “It will remove tariffs for foreign cargo and offer tax rebates for domestic cargo.

It will also exempt businesses from value-added taxes and consumption taxes if they trade with each other,” Zhang said.

Analysts predict the efficiency of logistics will be raised by 20 percent after the port is put into operation. The first phase of the area covers 3.06 square kilometres and includes warehouses, cold

storage facilities, a container terminal and processing and logistics services. Dalian port is the seventh largest in China and handled 200 million tons of cargo and 30 million TEUs last year.

The Dayaowan Bonded Harbour Area is the second of its kind in China, following the establishment of the Shanghai-based Yangshan Bonded Harbour Area in December 2005.

The State Council has also approved a third such area, the Dongjiang Bonded Harbour Area which is under construction in Tianjin municipality.

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sales model has served it well in North America and Europe but has made little headway in emerging countries, where credit cards are far less common than in more developed economies.

Dell entered the United States retail market in May by partnering with WalMart to sell a single desktop, a low-end Dell Dimension. Dell is also going to the Sam's Club warehouse stores owned by Wal-Mart with the Dimension and an Inspiron laptop.

HP plays catch up with Lenovo in China Newly crowned world number PC manufacturer HP seeks to catch up with China's number one Lenovo by expanding in smaller cities in China.

In the first six months of this year HP usurped Dell's title as the world's biggest PC manufacturer.

HP's new mainland strategy targets at those less urban third-, fourth-, and fifth-tier cities in China in a bid to bridge the gap with Lenovo, the perennial top personal computer provider in China and across Asia said Adrian Koch, senior vice-president for HP's personal systems group in Asia-Pacific and Japan.

Koch backed up the company's move reasoning that consumers and businesses in the small markets of lower-tier cities wish for more alternatives other than local brands.

Last month, Lenovo chief executive, William Amelio, announced the company's plan to step up its marketing and retail initiatives in lower-tier cities.

Long-established retail distribution networks for HP printers, which currently covers about 420 cities, will help to expand HP's marketing coverage. China stands as HP's fastest-growing market in the Asia Pacific, contributing to 18 percent of second-quarter profit as compared to 16 percent a year ago. However, the company did not disclose specific sales figures for the mainland market.

IT

Germany's Metro tests Metro has expanded the use of smart tags from its stores in Europe to key producers in China as the German retail giant moves to optimise its global logistics chain.

A three-month test, launched recently in Hong Kong, will require boxes and www.chainamagazine.com

containers of products destined for Metro's distribution centre in Germany, to carry RFID tags.

The pilot is part of the company's Advanced Logistics Asia (ALA) program, which kicked off last October. The goal is to have more accurate, real-time data that will help the retailer improve control over its international supply chain, resulting in lower warehousing costs and fewer out-of-stock situations, according to a Metro spokesman.

For the Hong Kong pilot, Chinese suppliers can either fit passive RFID tags to their shipments themselves or allow a consolidator to manage this process.

The passive chips have no energy and a very short reading distance.

Containers loaded with the shipments consisting of boxes or pallets are fitted with active RFID chips. The active transponders have energy and a much larger reading distance. Product data stored in the chips, for instance, are registered by readers mounted to loading cranes in the ports and unloading docks at the distribution centre.

Products are tracked in real-time along their journey, from when they leave the port in Hong Kong to their arrival in Rotterdam, Netherlands, and their continued journey down the Rhine River to the port in Duisburg, Germany, and their final destination in Unna.

For the testing period, Metro is using RFID tags based on the Electronic Product Code Generation 2 standard, which offers much higher reading speeds and greater security over the previous generation.

Metro is collaborating with several IT companies, including IBM, Intel and SAP, and more than 40 additional consumer goods and technology suppliers to develop RFID systems for the retail sector. The retailer, which generated more than US$80.8 billion in sales last year through its 2,400 stores, operates Europe's largest RFID test bed.

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Still made in China?

China is the workshop of the world, but for how long?

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COVERSTORY

C

hina’s economic red carpet, now well trodden upon by countless fortune-seeking foreign companies over the last two decades, is starting to look a little threadbare. Which is just as well - all the tantalising tax breaks, cheap land deals and other incentives that were offered to woo foreign multinationals to the country are no longer quite so necessary, and Beijing has signalled this year that the carpet, whilst not being immediately pulled from under foreign firms’ feet, is in the process of being rolled up and tossed aside.

Once the great sleeping giant of the world, it’s been quite some time since China awoke from its slumber. Under astute leadership, the country has shaken off the shackles of the old planned economy system with considerable aplomb. But with success comes confidence and a change in economic posture. China realises it doesn’t need to bend over backwards anymore to get foreign investment, and is upping the stakes in its favour.

A change in economic policy Amidst a wave of economic policy change, export tax rebates were cut at the beginning of July this year. According to the People’s Daily newspaper, the new regulations affect over 2,800 items, in particular “high energy-consuming and resourceintensive” products, and those which “trigger trade frictions” easily. A wide range of products are affected, including chemicals, plastics, rubber products, textiles, paper-made articles, pottery and porcelain ware, furniture, iron and steel products, machinery and industrial components. Also, from the start of this year, Sino-foreign joint ventures and wholly foreign-owned companies must now pay land-use tax like everyone else.

On top of this, corporate tax reforms are also biting into profits. Previously, new foreign investors paid no income tax for two years, and only 50 percent of the normal rate for a further three years. Compare this to domestic firms who paid a 33 percent tax rate. New laws passed this year have now levelled the playing field to a rate of 25 percent for all companies, with the exception of some companies in the technology sector, and those able to benefit from new tax breaks aimed to promote environmentally friendly businesses. Previously granted tax breaks are being honoured for the next five years, but, nevertheless, these changes represent one of the biggest shifts in China’s economic policy since joining the WTO in 2001. This in turn has resulted in greater transparency on trade regulations which went hand in hand with the opening of post-WTO www.chainamagazine.com

markets, which has made the equalisation of taxes a necessary component for fair trade.

Robert Smith, a partner at Ernst & Young in Shanghai, feels the shifts in China’s fiscal direction had been building for some time. He said, “China is pulling back a lot of incentives that used to be given to foreign companies to locate here they are starting to say we don’t want all kinds of production here, we are past the stage of development for any reason, just to get foreign investment in.

“If I had to put a year on this change, I’d say the end of 2005 or the beginning of 2006. There was a lot of talk about, not so much as how China could incentivize foreign business to come here, but how it could optimise its macro economic growth in a way which was good for China’s long term growth.”

Smith says the changes have caused many of his clients to reconsider where they base their foreign operations, particularly in manufacturing.

Christian Faubert, chief executive officer of Shanghai-based sourcing company SVG, says the recent regulatory changes in the exporting environment have resulted in dramatic changes for his firm, others like it, and suppliers in China, thanks to export tax rebates being abolished.

He said, “I am nervous to be honest. My sales are about to take a serious hit - all of sudden everything is 17 percent more expensive.”

He has seen clients start to discuss moving contracts out of China, and some already have re-routed their supply chain into neighbouring Southeast Asian countries, in one case, Thailand.

Faubert recently lost a contract from a British company to supply industrial springs. “We had been supplying them for about two years, but they discovered that Thai quality was far superior to Chinese and in fact was often similar if not cheaper than in China.” Faubert's clients are “considering sourcing much closer to home and producing there.”

Additionally, tighter loading restrictions, higher fees and limited capacity have pushed shipping costs skyward. Faubert added “and as a protectionist effort, all EU-bound containers from China are subject to an additional US$300-plus landing tax.”

No longer a sure thing The upshot of all this is that China is no longer the undisputed first choice it once was for inclusion in many company’s supply chains. That is not to

China is pulling back a lot of incentives that used to be given to foreign companies to locate here Robert Smith, Ernst & Young

Cameron Wilson is a freelance journalist specialising in China business and trade issues based in Shanghai. He is a regular contributor to Chaina magazine.

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Robert Smith, Ernst & Young

Chinafotopress

Sectors which live on very small margins can benefit from moving to Vietnam – footwear, textiles, and low-tech assembly where you are accessing the country’s lowlabour cost for manual processes

say that there will be a mass exodus of companies leaving the country, but is China’s position as the workshop of the world under threat? If so, from where will such a challenge rise?

South East Asia is picking up some of the slack in the manual labour market, where unskilled low-tech assembly and textile contracts are beginning to go Vietnam’s way. Derek Leathers, senior executive vice president with Werner Global Logistics, believes such a movement is gathering pace. He said, “We have definitely seen heightened interest in Vietnam over the past year - multiple manufacturers that we do business with are either studying or already building alternative plant locations in Vietnam as we speak.”

His views are echoed by Ernst & Young's Robert Smith, whose observations point to increasing momentum in Vietnam’s favour for the low end of the market, over the last couple of years. He said, “From a business perspective, a lot of people have always looked at Vietnam as a place to use low labour and low costs but I wouldn’t say until last year was there a lot of noise concerning companies saying ‘are we not automatically going to go to China’ and looking at Vietnam as a possibility.

“Sectors which live on very small margins can benefit from moving to Vietnam – footwear, textiles, and low-tech assembly where you are accessing the country’s low-labour cost for manual processes.”

Sourcing from overseas is of course more than often not only about saving money. However,

recent policy changes indicate China thinks it is in its interests to make it more expensive for firms to do business within its borders. Comparatively speaking, despite the gains which Asian neighbours Vietnam, Thailand or even Indonesia might offer, total expenses incurred when establishing new operating bases are often not apparent until years down the line. Leathers says, “There are many costs associated with a greenfield start-up in a developing country,” he says, “many of those costs are amortised versus expensed but that does not make them any less real.

“My point is that companies invest millions in a China strategy and often define success as the moment they reach an operating profit from the new venture, and then begin the search for the next great labour find when their total invested costs are still far greater than the return they have experienced in the country where they already operate.”

He believes Vietnam to be a worthy contender for anyone pursuing a low-cost country sourcing approach but says “we still believe China has enormous untapped potential.”

A great deal of untapped opportunity

Ernst & Young customs and international trade partner Robert Smith

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China still has many tricks up its sleeve which its rivals are a long way from being able to provide, namely infrastructure, which will continue to be hugely upgraded over the next decade, and hightech industry support. Leathers says, “Vietnam has several other factors that I believe must be considered when comparing it to China - the port infrastructure and options are far less sophisticated and less abundant than in China.

“We are currently putting offices in Vietnam to help companies pursue their future there but remain very bullish on China as a low cost country with significant focus on infrastructure and logistics improvements in coming years.” www.chainamagazine.com

COVERSTORY

Companies remain very bullish on China as a low cost country with significant focus on infrastructure and logistics improvements in coming years Derek Leathers, Werner Global Logistics

It used to be the case that manufacturing was outsourced to low cost countries and then exported back to be sold on European markets or in the United States. Not so long ago, only Japan offered a convenient close market for high-value goods made in low cost Asian countries – but this has changed with the emergence of China and its much feted middle class. However, the jewel in China’s crown, and the one economic development which is moving the global economic ‘goalposts’ more than any other, is China’s ever-growing domestic market.

Leathers underlines the point, “Perhaps most importantly, a China operation always comes with the additional benefit of the world's largest population base right outside your plant's walls.

The developing Chinese middle class represents an untapped market potential for a multinational

companies' products that exceeds any other market in the world if properly pursued.”

More than any other factor, it is this growing mass of Chinese consumers who are cutting supply chains in half by providing a market for goods in China itself and eliminating the need for the added expense of exports.

Smith says, “China used to be an export market, but the domestic market is slowly shifting and what we are seeing from most of our clients now is that where it used to be 90 percent export and 10 percent domestic – it’s now 20 percent domestic and more, sometimes even 50 percent domestic.

“If you have got that huge domestic market as well as being able to export out, you’re going to be able to take advantage of that.”

Smith adds that due to a smaller population and corresponding middle class, other low cost countries such as Vietnam, have limited domestic markets. “Even although China is a relatively poor country on a per capital GDP basis, there are a lot of people out of the 1.3 billion who are very rich and spending a lot of money. Vietnam has a smaller population and is much more limited in terms of people with big spending power, and any change to that is going to take time.”

A strong and broad manufacturing platform L-R: Craig Stoffel, vice president global logistics, Werner Global Logistics; Derek Leathers, senior executive vice president, Werner Global Logistics; CL Werner, founder and chairman of the board, Werner Enterprises www.chainamagazine.com

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sheer volume and diversity of supplies available in the country have made for a very strong and broad manufacturing platform.

Many companies have come to China for a solid supplier base, says Smith, citing, the growth of the automotive industry in China over the last decade. “They are selling so many cars in China and there are so many manufacturers here that to supply the manufacturers almost all the tier one and tier two suppliers have had to relocate to China. That huge supplier base means that you can get goods relatively easily - China has a bigger pool to source from.”

Other destinations, such as Vietnam do offer advantages at the lower end of the market. But Smith says its potential is limited when compared to China. “Vietnam is still developing and their big base of suppliers isn’t there and isn’t likely to go

there because China has what everyone says is the Holy Grail – its domestic market.”

The promise of this would-be pot of gold at the end of the rainbow also poses a fascinating dilemma for boardrooms to ponder – China’s demands for technology transfers in return for access to the domestic market.

Smith said, “Many companies were willing to give up their foreign technology in these transfers solely for being here in China, to chase the dream of the Chinese market, but I don’t think this is going to be a draw for Vietnam.

“I really struggle to see companies saying ‘we really have to transfer our technology or there is no way we are going to tap into the Vietnamese market - I think a lot of executives will say ‘it’s not worth giving up our technology for that.’ “But in China – everybody wanted in.”

Is Vietnam a better bet than China?

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Chinafotopress

According to a new emerging-market index launched by consultancy firm PricewaterhouseCoopers, the world's most attractive location for manufacturing investment is Vietnam and not China. And the United Arab Emirates (UAE) beats India as a location for servicesector activities.

The index assesses 20 prominent emergingmarket locations on the basis of “reward” factors, including production costs, size of market, taxes, transportation costs and tariffs, and “risk” factors, largely defined by bond-market risk premiums.

It finds that the so-called 'Bric' economies, Brazil, Russia, India and China, do not come top as locations for either manufacturing or services.

In the case of manufacturing, where it is assumed that 50 percent of production will be sold in the domestic market and the rest exported, China comes second to Vietnam, and is followed

by Poland, Chile, Malaysia, Thailand, India, South Africa, Hungary and Saudi Arabia. Vietnam, according to the index, is highly cost-competitive, though risks are also relatively high.

“India and China are undoubtedly important markets but Vietnam and Malaysia are now serious rivals,” said Ian Coleman, Price Waterhouse’s head of emerging markets.

For services, the assumption Price Waterhouse made was that only 10 percent of output is exported.

This fits more closely the model for sectors such as financial services, rather than the outsourcing of back-office and call-centre work.

The UAE came top, followed by Saudi Arabia, South Korea, the Czech Republic, Hungary, Poland, Russia, Chile, Kazakhstan and Malaysia. India was in 18th place, due to the limited opportunities for selling services into India.

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The challenge from Vietnam There’s talk that Vietnam may be a better bet than China as the world’s most manufacturing desination for large-scale manufacturing Chris Horton is managing director of the Meridian Group of Hong Kong, a logisticsfocused consultancy with offices in Hong Kong and Kunming. He is a regular contributor to Chaina magazine.

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n recent years while the world has marvelled at the economic growth and foreign investment in China and India, Vietnam has emerged as one of Southeast Asia’s most dynamic economies.

Having obviously learned a thing or two about the transition from communism to a market economy from China’s development, Vietnam is positioning itself to compete with its neighbour to the north for foreign investment and overseas market shares.

Talk of Vietnam as ‘the next China’ is exaggerated as China has yet to realise its potential to serve external markets and Vietnam is not only trailing China in terms of development, but at 329,000 square kilometres and with a population of 85 million, is but the size of a Chinese province.

Nevertheless, there are indications that Vietnam could emerge as a regional economic powerhouse similar to Guangdong province in China.

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Vietnam follows China's lead Since launching the Doi Moi (‘renovation’) program – a series of economic reform initiatives similar to China’s ‘open and reform’ policy - in 1986, Vietnam has gone from an undeveloped and stagnant economy to an increasingly important economy. Prior to the 1997 Asian Financial Crisis, Vietnam’s economy had experienced 9 percent annual growth.

Vietnam’s economy weathered the regional economic crisis rather well - growth averaged 6.8 percent from 1997 to 2004 before heating up to 8 percent in 2005 and 7.8 percent in 2006. In the last ten years, Vietnam’s development has echoed that of China as it has become a strong producer of basic products including clothing, shoes, bicycles and wood products. With Vietnam’s accession to the WTO in January of this year there is also reason

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REGIONALFOCUS

to expect greater inflows of foreign investment just as joining the trade club has helped China attract greater FDI. With a rapidly developing manufacturing sector, convenient location, lower labour and land costs than China’s coastal region and an increasingly attractive domestic market, Vietnam has emerged as an attractive “hedge” for companies with operations in China. One prime example of this is Intel’s announcement in 2006 that it will invest US$1 billion in a new plant in Ho Chi Minh City Hi-Tech Park that will be the company’s largest production base. Intel’s investment also illustrates that Vietnam is gradually moving up the value chain.

According to Vietnam’s Ministry of Planning and Investment, foreign direct investment accounted for 16.6 percent of total investment from 2001 to 2005. In 2006, Vietnam attracted more than US$10 billion in FDI and in the coming years the government is hoping to bring in even more outside investment – as evidenced by President Nguyen Minh Triet’s June visit to the United States, much of which was focused on increasing American investment in the country.

“Vietnam offers a low-wage, moderately skilled workforce with a good education system relative to other low-wage countries in the region,” explained James Randolph, Supply Chain Director for a large global consumer goods company.

“Geographical proximity to the more developed Asian economies such as Taiwan, Japan, South Korea and now China, and direct access to the ocean along the entire length of its 2500-kilometre

coastline provide great potential for shipping efficiencies. Political stability and security are also pluses when compared to other options in Southeast Asia.”

The manufacturing sector in Vietnam has served as the main engine for the country’s economic expansion, accounting for a growing share of total GDP – 41 percent in 2005. The rise of Vietnam’s industrial sector has been fuelled by an increasingly diverse industrial base, upgrades to transport infrastructure, rising demand for Vietnamese products in overseas markets and a rapidly expanding domestic FMCG market.

Poor infrastructure

Vietnam offers a low-wage, moderately skilled workforce with a good education system relative to other lowwage countries in the region James Randolph

As manufacturing in Vietnam continues to drive the economy, development of the country’s supply chain and logistics infrastructure is becoming increasingly vital. As is the case with most fastdeveloping countries, both the ‘hardware’ and ‘software’ of its infrastructure are lagging behind the market’s needs.

“Port capacity is acute, roads and airports will require large investments and the telecommunications networks are undersized,” Randolph said. “The legal framework of the country is in its infancy stage and implementation of decrees is not uniform at the provincial level.

Transparency and intellectual property rights are also a concern.”

Randolph added that difficulties also exist on the manufacturing end of things. Vietnam currently has a two-tier minimum wage system that is set to

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The government recognises the needs for improvements and has watched China closely for a model Christophe Lefevbre, Arena Solutions

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be reconciled in 2009. Foreign-owned company employees are mandated a higher wage than local companies, creating a competitive issue for companies seeking to sell domestically and stress within the workforce that can affect exporters, especially if the foreign company is using a local contract manufacturer. Just as in China, the potential for labour unrest and negative publicity exists for foreign companies sourcing from Vietnam.

Vietnam’s newness to globalisation and the global supply chain is also a factor capable of creating headaches for early movers in the country. Christophe Lefevbre, Chief Representative for Arena Solutions in Vietnam, said that Vietnam’s development in terms of supply chain and sourcing closely mirrors China’s recent experiences. “There’s a lack of information about industries, a lack of infrastructure, lack of IT and lack of sourcing choices,” he said, adding that Vietnamese manufacturers’ unfamiliarity with international trade norms and the convertibility restrictions on the dong add to the challenges of doing business in Vietnam.

Changes are coming The government is taking proactive measures to address existing issues in Vietnam’s supply chain, Randolph said. “The government recognises the needs for improvements and has watched China closely for a model. Many projects are on paper or have been solicited for funding, and many are in progress in all areas of supply chain development.

Further work is required to reduce the length of study, authorizations and bureaucracy. The development of enabling commercial laws is a priority and underway with assistance of outside expert or model entities at the invitation of the government.”

Bill Manson, Director of Rossignol Sourcing, a sourcing solutions provider with offices in Ho

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Chi Minh City and San Diego, USA, said that from a sourcing perspective it is difficult to find the right factory to source from in Vietnam. He also included quality control and making sure orders are completed on schedule as some of the major challenges for companies with operations in Vietnam.

Working primarily in Vietnam’s home furnishing sector, Rossignol Sourcing offers a specialised service it calls Design Build Export.

It is used when faster product development cycles with localised production coordination are required. The service is a streamlined approach to design, build, and export from qualified factories using a variety of sourced materials. Rossignol Sourcing coordinates the entire process, which includes designer coordination, factory selection, quotations, sampling, quality inspections and shipping coordination. Prototype factories are utilised when necessary, which can reduce development time when experimenting with new materials or complicated designs.

Manson said the government’s efforts to improve the investment environment for foreign companies looking to establish operations in Vietnam should translate to improvements in the country’s supply chain.

“The government is encouraging foreign direct investment within all sectors of the manufacturing base,” he said. “Certain sectors will receive corporate tax incentives to reduce taxes below the standard 28 percent corporate tax rate. Supply chain development will improve as manufacturers continue to establish themselves in Vietnam.”

Aside from helping clients overseas, sourcing companies such as Rossignol are assisting Vietnam’s manufacturers with integration into the global supply chain. After working with foreign sourcing companies, factories typically enjoy greater exposure to overseas markets, better communication with suppliers and shorter design development and sourcing time plus reduced time-to-market cycles. Streamlining of administration processes, consistent pricing and repeat orders are also benefits that Vietnamese factories can get from working with experienced foreign partners.

Competition between China and Vietnam...

As local manufacturers adopt best practices and supply chain obstacles are overcome, Vietnam is expected to give China a run for its money in some sectors, one of the major examples being wood products. In 2006 Vietnam’s exports of wood products reached US$2.2 billion, up 38 percent from 2005, according to a report by the Vietnam Forest and Wood Products Association (VFWPA). The export value of Vietnamese wood products has grown tenfold in six years. VFWPA is predicting that wood processors could see an annual turnover of US$5.5 billion by 2010 and help the country surpass China as the largest wood furniture supplier to the United States.

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REGIONALFOCUS In order to better compete with China for investment and market shares in other countries, Vietnam is also investing more in education. A greater number of university students are focusing on sciences, engineering and IT – a trend that should surely assist the country as it tries to move up the value chain in terms of manufacturing, technology and services.

...but cooperation too Despite all of the talk of Vietnam competing with China, there is also considerable cooperation and integration taking place between the two neighbours. China and Vietnam are gearing up for the upcoming China-ASEAN Free Trade Area in 2010 by upgrading connectivity with several projects, most notably the Kunming-Haiphong Transport Corridor. This transport corridor will connect the port of Haiphong with the city of Kunming in south China's Yunnan province via Hanoi municipality and Lao Cai province in Vietnam, giving landlocked Kunming access to a port closer than Guangxi Autonomous Region’s Beihai, which it currently uses.

In April of this year the transportation ministries of China's Yunnan and Vietnam's Lao Cai provinces signed an agreement which will expedite bordercrossing procedures for vehicles carrying cargo between the neighbouring provinces. The agreement will benefit trucking firms, which will no longer be required to unload their cargo at the border for transport via other trucks.

China's Ministry of Communications and Vietnam's Ministry of Transport also signed a memorandum of understanding (MOU) earlier in the month paving the way for China to help

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Vietnam build four expressways that will further integrate the two countries' road networks. In addition to development of road links between northern Vietnam and Yunnan, roads extending into Guangxi will be built up to handle road transport from Vietnam to Hong Kong. In the MOU, China pledged technological support including feasibility studies and road design on a Hanoi Airport expressway as well as the HanoiLang Son, Hanoi-Haiphong and Hanoi-Lao Cai expressways.

Rossignol’s Manson sees both a complementary and a competitive dynamic emerging between Vietnam and China: “Their relationship will be complementary in that Vietnam follows China's lead,” he said, “And it will be competitive in that Vietnam learns from China's mistakes and therefore, will attract foreign investment away from China whenever possible.”

Vietnam will be competitive in that it will learn from China’s mistakes and attract foreign investment away from China whenever possible Bill Manson, Rossignol Sourcing

James Randolph sees a similar dynamic emerging. “Five years ago, Vietnam probably wasn't on China's radar screen as a competitor,” Randolph said, “But many companies have set up operations or sourcing in Vietnam since then as a hedge to China, notably Asian companies. Intel's fabrication and testing facility in Ho Chi Minh was seen as a testament to the rising competitiveness of Vietnamese capabilities.

“Yet, the similarities of the political structure, ancient cultural heritage and past close relationships will allow cooperation and opportunities for a complementary relationship as well. It is clear, though, that the relationship will become more complex as China's power grows and Vietnam acquires the capabilities to stand on its own – the future will be very exciting.”

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Q&A

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Glocal players

QA

Robert Timmerman has been the regional chief executive officer for Panalpina World Transport for the Greater China region since January this year. Prior to joining his current position, Timmerman has worked for Panalpina in the Middle East, Africa and Europe and previously served as the regional head of operations for the Asia Pacific region based in Hong Kong.

Robert Timmerman

: What are Panalpina's core competencies in China?

Robert Timmerman: Our core competencies in China are closely aligned with our global core competencies which include air freight, ocean freight and supply chain management, and those are the areas we pursue. Additionally we are looking to further improve our domestic trucking network because trucking is a very fragmented market in China so we're keen to see what we can do. The customers are requesting solutions. Obviously just providing air freight and ocean freight services is not enough, we need to provide additional value-added services in China such as warehousing and door-to-door distribution. : So how do you currently handle your door-to-door distribution service?

RT: Through various sub-contracts with trucking companies, airlines and express providers. Our sub-contractors

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go through a stringent checklist and we also have our own strict code of conduct which we enforce upon our partners. We will check the financial situation of the company and their standing in the market. We verify with our requirements and check if there's no conflict of interest with Panalpina’s business. We're also keen to know how flexible they can be in helping Panalpina's business to grow.

has an asset-light policy globally which gives us more flexibility. We don't believe in tying up all our resources into assets. We don't own any aircraft and only own a limited number of vessels.

And we don't really own warehouses.

Running an asset light business obviously goes hand-in-hand with properly managing our sub-contractors and having standardised processes.

: And you mentioned just now about the possibility of Panalpina setting up a domestic trucking network?

: Have you done any research into the financial viability of purchasing and owning a large fleet of trucks in China?

RT: Well, we already operate a domestic network in China, so it’s really more a question of how we can better control our network in China because of the fragmented nature of the market. We need to manage relationships with a multitude of companies across China and consequently we're looking at the possibility of setting up satellite stations across China based in Hong Kong/Shenzhen in the South, Shanghai, Nanjing and Ningbo in the East, Beijing, Tianjin and Dalian in the North and in the West of course Chengdu and Chongqing, with perhaps Wuhan in Central China. And then we would operate a radial trucking network in order to provide distribution to all the stations and from there we can use smaller distributors for the final stretch. : Are you considering investing in your own trucks?

RT: If need be, yes. We definitely don't refrain from investing, even though we are an asset light company. If the right subcontractor is not available in a particular location then obviously we will run things ourselves. Presently we only have a couple of small trucks in the region. Panalpina

Q&A

RT: It's in progress now. It's most likely that we'll look for a mix. I reckon we'll run our own trucks between the satellite stations and then depend on the local expertise for the final distribution. : There are a multitude of international logistics services providers in China, all offering similar services, how is Panalpina different?

RT: Well, if you just look at the core business these companies are involved in, you're right, many companies offer air freight, ocean freight and supply chain management services. The key advantage we have is that in addition to having operated in China since 1976 we also have the know-how we've built up outside of China. Furthermore we have built up that expertise in a limited number of key industries which include high-tech, automotive, oil and gas, telecommunications, fashion and retail, and healthcare and chemicals.

We have specific heads within the industry segments and they operate on a global level. This works very well

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because a one-stop shop or single point of contact is what the client is looking for. In each country and each region we have industry heads, in addition to the global leaders. They regularly exchange solutions and lessons learned within their particular pillar. : Panalpina is very well known for its capabilities in oil and gas distribution, is that a large growth area in China?

RT: The opportunities in this area in China are enormous. We do have some business already with rig manufacturers outside of China that have started manufacturing in China, a lot of them are going to the Middle East and to Africa, and CIS. Its obviously harder to access the Chinese companies but importantly for us they are starting to invest outside of China, particularly in Africa where Panalpina is traditionally very strong. We do see big developments in this area and have already started flying to Africa from China via the Middle East. We also have oil equipment and spares going back and forth between Central Asia and China, some of which is shipped by rail and truck, which is quite a challenge due to the fragmented market. : Is it possible for an international logistics service providers like Panalpina to apply the lessons learnt in other markets to a country like China?

RT: For sure you have your local rules and regulations and you have to build up your local know-how. For us its the local know-how related to the global network, we call that 'glocal'. That's the way we have to be. As I've said before, we have certain advantages because of our industry verticals and the industry requirements in different regions are not that different. China however is highly fragmented with the local governments having their rules and regulations within a set frame work of the central government which needs to be considered. : What are Panalpina's plans for the future in China?

RT: We have seen double digit growth in China year-on-year so obviously we want to continue this growth. In future

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we want to focus a lot more on our staff.

We are in the final stages of setting up a forwarding school in China and we may have close to 2,000 people in the next couple of years. We will organise forwarding and supply chain management initially for the China market. For us the people are key and I do believe we have a highly motivated and dedicated staff. : Do you struggle to find good people?

RT: Yes and no. To be honest I think because of our international character in the forwarding industry, dealing with so many countries and cultures, that creates an interesting atmosphere for people. In the bigger cities we do sometimes struggle to find and keep our good people, because some staff do have a tendency at a certain age to switch jobs for a small salary increase. And that's certainly typical here in Shanghai, but less so in Beijing and further West. We try to provide our staff with a clear career path and constant training. Getting back to the future plans for Panalpina, we're putting a lot of focus on Chengdu and Chongqing where we see the fastest growth and Shanghai will definitely keep on growing. There's already a big challenge for all the forwarders to sustain their growth due to the capacity constraints that we see from time to time. Achievement-wise its important for us to stay ahead of the market growth.

And I do believe that our access to our controlled capacity is a key element to us maintaining our high growth. : What projects are Panalpina currently working on?

RT: We are currently working on a couple of telecommunications projects for the radio-base stations which we deliver to some of the most remote places in China. We are also working with several high end fashion labels on warehousing, distribution and vendor management.

High-tech volumes overall is going through the roof. We play a very active role in the transportation of goods from China to Africa. We take materials to a distribution hub in Dubai and also directly into Africa, and then handle the final distribution of the goods to the consignee.

: What do you see as Panalpina's biggest achievement to date in China?

RT: To be honest its being ahead of the market growth and having a team of skilful people. Our growth in China year-on-year is well in double-digits. : How do you see the future demand of supply chain management in China?

RT: For sure we will see more consolidation with the big providers consolidating more and more. We do see the big Chinese forwarders coming up and they can play the local card. They may miss out a little on the global network where maybe a global forwarder can jump in and assist them so we'll see more alliances. We'll see more mergers and acquisitions. : Does Panalpina have any acquisition plans in China?

RT: We are looking at opportunities.

We are growing now through organic growth but as soon an opportunity arises be it to gain entry into a particular industry or into a particular geographical region, then yes we would consider, but it needs to make sense, we won't buy just for the sake of buying. We do have the cash but it has to be right.

We haven’t done anything yet in China but we’re analyzing what possibilities there are. There are a lot of strong local companies in China. : Recently we're hearing more and more about green supply chains, to what extent are your clients pushing this?

RT: It’s coming up more and more. We have submitted several RFQs where its played a part and where we have to give statements declaring that we're an environmentally friendly organisation. We are continuously looking at what we can do here in China locally to try to support a further decline in the environment. : Is this trend in China being driven by your clients or by the 3PLs? Its both ways. We're aware we have to do something, but the push is coming from the clients.

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Plugging into retail

QA

Weimin Lu is chairman and general manager of Best Buy China and senior vice president of Best Buy, North America’s leading consumer electronics retailer. He was responsible for establishing and implementing the company’s global sourcing entry strategy for China, home of its first global sourcing office.

In December 2006, Best Buy formally opened its Xujiahui retail outlet, an 8,000 square metre, four-storey complex that is the company’s first in China and first outside North America. It acquired a controlling interest in Jiangsu Five Star Appliance in May 2006 with a total investment of US$300 million.

Lu graduated from the University of Science and Technology in Anhui province and received a master’s degree from the University of Illinois, Chicago. He joined Best Buy in 1995 and became vice president in 1999.

: Can you share with us some of the considerations before opening the first

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At the same time, we were leveraging our North American channels to bring Chinese-manufactured products into our supply chain over there. These are two steps that we continue to move forward.

We even started opening small non-branded test stores in China, including three in Shanghai, before we opened our true retail operations here. They provided important insight on Chinese consumers. If you look at our store now, much of the design combines our experience in North America and our learnings in China.

Furthermore, we studied six cities, from the customer, market and real estate aspects, as part of intensive studies in specialty retailing.

Weimin Lu

: It’s six months since Best Buy opened its first China outlet in Xujiahui. How have the customers responded?

Weimin Lu: Like any new retail format, you do all the preparations and wonder how the customers will accept it and how the market will feel about it. We’ve been in China for about four years [with sourcing operations] and every year we’ve been profitable, so the store’s a big test. We soft-opened in November, and, if you count from the December grand opening, it’ll be over six months. The customers really like it – the foot traffic, revenues, the margins, they all surpass our expectations. 80 percent of them say they will come back, and 86 percent think our prices are compatible. An overwhelming number of people think our shopping environment and our assortment of products are superior.

On the service side, we also have an overwhelming positive response.

Q&A

China retail outlet in January this year – three years after first entering the market?

WL: We came to China in June 2003. Right after SARS, we opened our procurement centre in China, and by 2006, we opened our store in Xujiahui. When we looked at the China marketplace, we realised there are a couple things we need to learn. This was the first time we stepped out of North America. We did not have the experience or the relationships here, and, at that time, we did very little business with domestic suppliers. Also, China is, by far, different – in culture and language – so we wanted to spend time to understand the Chinese marketplace and consumers.

By the end of 2004, we started the retail initiatives. Why did we take so long? In the preparation stage, we spent the longest time studying Chinese consumers. The first retail team we established was not in operations, not in logistics. It was the Customer Insight Team, which was created to try to understand what the Chinese consumers want – who they are, where they are and what they need.

: How are Chinese consumers for appliances and electronics different from those in North America?

WL: Of course, they are different – and there are similarities. One difference is that Chinese consumers come from various areas and regions, which are almost like different countries. You have to treat China like a continent, not as one country. The development, cultures and regionalities are so different, while in North America, it’s pretty much a unified marketplace.

One thing to look at is the segmentation. Some of the consumer groups come very close to what we see in North America, especially in China’s coastal cities.

We came to China kind of late; maybe ten or 12 years ago, it was different. But today, we see China probably with the largest potential.

Chinese consumers have much stronger demand in certain areas, although earning less than consumers elsewhere. By misunderstanding this as a developing country, you might believe that they have less emphasis

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on product and quality. Well, the Chinese consumer wants all of the above, and at a better price.

: What are the challenges of running a mass-scale electronics retail business in China – and are these challenges any different from those in North America?

WL: We have to be very honest with ourselves. This is a very challenging marketplace, no question. If anything we talk about here gives people the impression that the China market is easy to be successful in, then that’s wrong. The margin rate is almost less than half of that of our business in North America. Our competitors here are very strong. China is very fastgrowing and dynamic; there are a lot of influencing factors to consider.

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Imaginechina

: Can you talk briefly about Best Buy’s consumer-centric operating model and how that has been applied in Shanghai?

WL: The number one unmet demand

by Chinese consumers is a better shopping environment. They do not want a crowded environment; they want more product interaction, proper advice, and not a sales pitch. That is what we’re offering at our stores. We have a much larger, brighter, more comfortable shopping environment.

Products should not be hiding behind shelves; you do not have to ask them for it. You can go in, and what you see, what you play is what you get.

The Chinese consumers clearly tell us that is what they’re looking for.

Also, our shopping environment is solution-based. Consumers want to buy cellphones for music and pictures; they want to buy cameras so they can print them to share with their family. So, if you look at our store, we design a solution for them, and not just simply sell a product.

Another significant element we introduced is our non-commissioned employees. What they offer customers is objective opinion, based on what you need. We want the salesperson to focus more on customer satisfaction. If you simply want to watch DVDs, you want the cheapest DVD player, but, if you’re a salesperson on commission, you want to sell the most expensive DVD player you possibly can. The result is that you may not buy the most expensive product, but you’ll come back and buy more. Overall, the better the customer satisfaction, the better the sales.

One thing we have to learn is in the supply chain. In North America, the retailer’s job is retail – take the product from the manufacturer and run the logistics, run the store, run the sales, and provide the best service to the consumers. In China, that’s not entirely the case. Manufacturers actually control half of retail: most of the retail employees come from the manufacturers. Also, manufacturers don’t just manufacture the product; they provide the logistics, but that’s not their specialty. If you think about the value chain, a retailer’s specialty is to run the store and to cater to the customer. We’ve had to learn to work with suppliers in a new environment. For some suppliers, we’ve had to introduce an entirely new model. This is our first Best Buy store outside North America. For our company, learning how to be global is a challenge. A company as good as Best Buy is, we take the challenge, leverage what we’re good at, and study what we’re not good at.

: What are some ways Best Buy and Jiangsu Five Star will cooperate in the consumer electronics retail business?

WL: When we look for a partner in a new marketplace, the most important factor is the cultural fit as a base to work with in the future. Five Star is a very successful company, with about 130 outlets throughout China. In the market today, it is the best in second- and thirdtier cities – some of the fastest growing areas. We kept Five Star’s management team in tact and have a lot of respect for Wang Jianguo [Five Star’s chairman and president] and his team. Our strategy now and going forward is running the dual-brand strategy, which we employ in Canada successfully.

We’re offering something like a buffet to Five Star. You run your business, keep your brand name, and this is what Best Buy can offer – our expertise in systems management, logistics, HR and procurement – and you pick what can help your company the most. So far, the partnership has been extremely successful. It’s helped us understand the China market, with regard to suppliers and logistics. : What are some of the ways Best Buy will compete with locally established retailers such as Gome and Suning?

WL: It’s corporate policy that we don’t comment on our competitors. But, if you think about competition, the most important thing is not the competitors, it’s actually the customers. The byproduct of that is that you’re making money, but you can’t lose focus. If you focus too much on beating the competition, then you forget the reason why we’re in the business.

We actually learn more by studying our competitors; that allows us to build on who we are. The most important thing is to focus on the customers, see what they need. If we can meet those demands, we can be successful. We are learning through our colleagues, our peers, our customers. Overall, market competition is good, and the consumer benefits. At the same time, Best Buy will continue to innovate and do a better job. : What are some of the long-term objectives and can we expect to see more stores in Shanghai, or in other cities?

WL: We are working to open two more stores under the Best Buy brand in Shanghai before year-end. Five Star will open about another 25 stores in China. We are committed to China, and we want to serve the Chinese consumers. We want them to have a similar experience to what we offer in North America. In the long term, we will continue to open new stores, while growing the China business. We have all the ambition to be number one in China – but number one, not only in revenue and profit, but also to be number one according to Chinese consumers. When you do that, the rest will be simple. We will have corrections, we’ll run into problems, and we will continue to learn. We’re not thinking that this will be easy.

This article is re-printed with permission from Shanghai Business Review.

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Integrating your China and North American supply chain A myriad of fresh ideas into how to increase the leverage of your transpacific supply chain

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lobal trade has dramatically changed the profile of North American transportation management strategies. From the board room to the loading docks, today’s supply chain managers can no longer work in the silos of “domestic” and “international” transportation management. The integration of the two is inevitable for those organisations at the leading edge of their industries.

Effectively managing a transpacific supply chain from China, the world’s largest producing market, to the United States, the world’s largest consuming market, requires an integration of best transportation and information management practices in each market. Too often the rapid growth in the international buying and sourcing activities out-runs the domestic freight management systems personnel and processes. The result is a stand alone international solution that is often disconnected with a company’s domestic supply chain.

After the dust settles from the rapid changes, many companies face the daunting challenge of integrating their international and domestic networks. Long-standing carrier relationships, existing distribution and warehouse locations, multiple order management and legacy systems, personnel and business processes are significant obstacles in integrating the domestic and international. www.chainamagazine.com

East meets west in supply chains Supply Chain professionals with interests in the United States, Canada and Mexico today are faced with the dynamics of integrating domestic North American transportation management with their international transportation. This is easier said than done and the real opportunity relies on designing the network on the “ends”. Many large shippers, particularly companies with multiple subsidiaries or diverse business units, are still struggling to consolidate and leverage their domestic “end” supply chain or the overseas “end” and have not yet addressed the integration of both.

This separation has led to transportation departments facing numerous challenges as their business processes come together to coordinate overseas shipments to integrate with the domestic delivery network. As domestic transportation managers evaluate their networks, many discover that DC locations and carrier networks designed over the years to leverage the location of their domestic supplier base and their end customers are no longer optimal. Bringing overseas freight into, for example, the United States Midwest to reship back to their customers on the coast is inefficient and costly in both transportation cost and time. Designing the optimal network requires you to work it from both ends. Optimal loading practices, consolidation and packing on the origin

Juan Bautista is the general manager of Werner Global Logistics (Shanghai) and has over 15 years experience in international logistics. Having started and managed operations in North America and now Shanghai, China, he leads Werner’s freight forwarding and logistics business within the greater Asia area.

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Managers must reconsider their entire supply chain design and identify the limiting factors to implementing an optimal design

side couple with landing the product in the right locations and in the right quantities.

Before preparing and going to market with a supply chain RFQ, it is critical that you are solving the right problem. Be prepared to challenge your potential supply chain partners to bring their engineering solutions as well as their pricing solutions to bear on your network. Origin valueadded services, consolidation and customer direct shipping from overseas are easy examples of shifting services to lower costs, and when combined with the proper final mile network delivery design, you maximise your savings in time and transportation spend.

Domestic managers must reconsider their entire supply chain design and identify the limiting factors to implementing an optimal design. Limiting factors such as brick and mortar investments, long term leases, labour contracts and other assets can be an asset or a liability depending on the degree of change needed to reach an optimal design.

Relationships carry the day As American production shifted to Mexico in the 1990s many traffic managers in the United States were faced with learning how to establish and manage new vendor and factory relationships in a foreign country. Lessons learned in Mexico will serve importers well in China. As much as anything, relationships carry the day in successful local logistics in foreign countries.

For many first time American importers, consultants and trading companies play an integral role in the setup and first round of identifying local partners. For many Chinese exporters, small agents referred by word of mouth represent

their delivery network in North America. The aim is to align yourself with a company that has representation in both the origin and destination markets and can execute on one IT platform.

Companies must be aware not to be completely insulated from their core supply chain providers through consulting and trading company partners.

As the sourcing process matures for both product and transportation, most companies consider the move to eliminate layers by sourcing direct to manufacturers and controlling the transportation providers directly. Although the benefits appear obvious, materialising these benefits can be risky and difficult for the inexperienced.

Moving upstream to direct sourcing and contracting can reduce costs if managed properly.

Underestimating the resources, experience and time needed to reduce the middle men in overseas sourcing of transportation is common-place. One example is an American company who strategically placed a successful domestic logistics manager in China as their own “in-country manager” to administer and direct overseas suppliers and manage their transportation providers directly.

The initial perceived associated cost saving quickly evaporated because the company focused on price versus relationship and value, and the expatriate manager, overwhelmed by the complexities of the culture and compliance regulations, was unable to effectively work through local obstacles.

In the end, the company did not achieve the degree of control and savings they were after. They were forced to start over with a new approach leveraging 3PLs and their local partner’s experience to bring the process back under control. This company completely underestimated the value of the 3PL’s experience and ability to manage the local providers and suppliers.

Final mile challenges in North America: truck and rail As the saying goes, “you are only as strong as your weakest link”. The final mile delivery link in North America in recent years has proved to be one of the most challenging links in the global supply chain. Port congestion, rail service, truck capacity, inland IPI service restructuring and other 32

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factors mean you can’t take smooth transportation in North America for granted.

Rising costs for fuel, insurance and driver recruiting and retention, coupled with increased environmental legislation are taxing the driver market in the United States and making it more difficult to bank on adequate carrier capacity there for the final mile delivery. This makes upstream visibility and pre-planning even more critical to ensure there is a truck waiting to receive and deliver the freight to the customer’s door.

The Q1 and Q2 2007 slowdown of domestic truckload tonnage in the United States has caused many fleet owners to downsize the one-way truck counts and shift that capacity to engineered dedicated fleets with less freight volume volatility.

Where domestic capacity planning is not connected to international load planning, many customers are forced to expedited freight options because the normal truckload capacity and transit options are booked far in advance. When domestic fleet capacity planning doesn’t start until vessels arrive, you have will capacity problems especially during peak times of year.

2007 has proved to be one of the most dynamic pricing years in recent history. Where many lines have a port- or inland port-to-door option there are fewer lines that can offer multiple service options inside the United States. Strategic alignments between ocean liners and domestic over-the-road companies are a part of the solution and are making it easier for many shippers to identify service options beyond the traditional model. Ocean lines are aligning themselves with large American, truckload, IMC, and LTL carriers to provide more transit options to their customers.

New logistics entrants in China For many 3PLs entering the China market, there is fierce competition from long established local

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freight forwarders, customs providers and local trucking companies, each cemented in place by long standing relationships. To break into this market space and provide value, 3PLs need to employ the best practices of cooperation with local providers to take advantage of their relationships and actually bring benefits to these providers through complimentary capabilities they do not have. Good examples of these capabilities include strong IT systems, a broad customer base outside of China and strong service capabilities in other countries.

New entrants into the Chinese logistics market with a limited service offering outside of the Chinese market face an uphill battle to win market share.

So why China versus other Asia markets? Few, if any multinational companies operating in China today have fully leveraged the potential China offers both for low cost manufacturing but also the country’s developing domestic market. The growing Chinese consumer market potential for most manufacturers remains the most compelling reason to stay the course in maintaining and expanding their production in China. A growing middle class and a huge boon in millionaires in the big cities is changing the consumer landscape within China. Pursuing lower cost labour in other developing Asian markets may have disadvantages for those multinational companies looking to produce, distribute, and develop brand identity and loyalty in the local Chinese markets where consumer demand is increasing rapidly.

Juan Bautista, General Manager, Werner Global Logistics (Shanghai), has over 15 years experience in international logistics. Having started and managed operations in North America and now Shanghai, China, he leads Werner’s freight forwarding and logistics business within the greater Asia area.

2007 has proved to be one of the most dynamic pricing years in the United States recent history

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The local challenger

QA

Eric Laborie joined SITC Logistics in October 2006 as vice president, business development. SITC Logistics, part of the SITC Group is a privately-owned Chinese logistics management provider, based in Shanghai.

Prior to joining SITC Logistics, Laborie was the business development director of United Asia Transport in Shanghai, which later became a part of New Times International, a company that was subsequently bought out by SITC Logistics in 2006.

Prior to that, Laborie has worked in several capacities, including Regional Director Paris, France Airfreight Director, North Asia Regional Manager, Route Development Manager Hong Kong, to name a few, with several leading international companies in charge of international freight forwarding and overseas network development.

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: What are your main responsibilities and your role in SITC Logistics?

Eric Laborie: SITC Logistics is involved in different products where air freight and sea freight make up our core business, and the combination of the two for the logistics business. I’m covering sales and marketing for the domestic and international market. I co-ordinate the various managers who are developing business for the company, as well as utilize my contacts and network to develop even more business for SITC Logistics. : In China there are thousands of logistics service providers offering very similar services. How is SITC Logistics different?

EL: Each company has its own specific advantages, be it regional or productor niche-based. So it is not necessarily always appropriate to say one company is the leader in a particular industry.

Where we have an advantage is that we are using our current strength in forwarding and our relations with the airlines. While most companies claim to be involved in supply chain management in China, I would say the large majority of them are foreign companies. But in China it’s a different story for supply chain management, as we have certain constraints here.

Most of the foreign companies coming into China are doing a kind of copy and paste of what they are doing in foreign markets. But this is not a guarantee of success. Even among the big companies, there’s no one company that can handle everything themselves. We are in a different situation as we already have our own network. We have around 19 hubs across China, and 38 services centres to back our operations. By definition, these are transit points where the first 34

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Eric Laborie

leg is handled by air, the second leg by road or air, each to a centre which handles the final stretch. Next to each service centre, we have our own centres to handle sales, customer service and vendor management. But we don’t invest directly into the vendors: instead, we rent and we manage. SITC Logistics is an “asset light” company focusing on providing solutions to customers, rather than investing in costly warehousing and trucking. All of this is backed up by a very sophisticated IT system. : How do you evaluate the vendors that you work with?

EL: We go through a process of evaluation, and no vendor comes on board before a very thorough screening. There are very specific profiles that we are looking for.

We try to encourage our vendors to grow with us which helps our relationships grow into real partnerships. Many of our vendors pull their own local sales teams into our network. But the relationship has to start with a clear understanding of the service level we’re looking for from our vendors. The industries we target are very demanding, high-tech,

pharmaceutical and auto. Take the mobile phone industry for example, it’s a fairly time sensitive product which loses value quickly. : What kind of management does SITC have in place?

EL: We have a nice mix of foreigners with international background, local staff with good local know-how and local staff with international background as well. We do whatever we can to bring in the best talent. We don’t find it hard to find good people in China but we do believe its hard to find the right person for a particular job. : How extensive is your coverage across China?

EL: Currently we are able to deliver to around 400 cities across China. : Who are your main customers?

EL: We target industries with high-end products and companies looking for an added-value in their transportation with a guarantee of service. We have a lot of companies that need us to service their after-market service.

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Q&A

We handle some refrigerated trucks for one client, but we don’t use our own trucks. There’s still a lot of work to be done in terms of the facilities on offer in China for cold chain and pharmaceutical. One of the issues is to make sure the refrigerated trucks are run properly mechanically and maintenance is a key issue. We also serve many of the global logistics services providers who are operating in China. : How do you think SITC Logistics approaches your client’s problems differently from international logistics services providers?

EL: Many logistics service providers are facing the same problems. Being a Chinese company, I think the way we solve those problems is slightly different from the way an international company might handle that problem.

For example, we are working in an industry where information is vital and we need to offer not only a simple tracking system, but also one that is able to analyze information to handle inventory problems or even a sales issue. Many foreign companies have their own tracking systems from overseas. And as a Chinese company, we have local information that many foreign companies don’t have. We are in the process of implementing probably the most advanced system, not just in China, but in Asia as well.

The system is itself comprehensive enough so that our customer can get value-added services in additional to standard Track and Trace . SITC Logistics plans to invest over RMB200 million over the next three years on IT systems. : Who do you see as the main players in logistics services in China?

EL: We classify the market into four: the local state-owned companies, the international companies, the logistics arms of manufacturers and the emerging companies. We fall into the last category. Why? Because we come from a background where originally value-added logistics used to be a side line of our core business but now our focus has shifted towards the supply chain. We don’t want to be a follower though, we want to do things our own way and be recognised as such. We try not to concern ourselves with the competition. : Can you name some of the main challenges faced by supply chain management providers?

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EL: Well, from a customer’s point of view the two main challenges are infrastructure and access to information. There’s a third challenge which is close behind which is effective money collection. We have solutions to overcome these challenges, and we’ve already talked about IT and communication. Infrastructure – obviously, the solution is in the hands of the vendors. Many customers are disappointed with their vendors because the standard of the facilities on offer don’t meet their expectations. : Do you think the government is aware of this problem and is taking steps to remedy it?

EL: Yes. Absolutely! The government is putting a great deal of effort into this and they are well aware that it needs to be improved. It’s clear that the quality of the facilities are improving. The average warehouse is improving but it is still quite a long way from the facilities we might see in Europe. : What kinds of volume of airfreight and sea freight does your company handle?

EL: Airfreight-wise we dealt with over 110,000 tonnes in 2006, which places us among the top 10 international freight forwarding companies dealing with airfreight and seafreight in China,as well as one of the biggest international air forwarders in export terms. Our sea freight throughput is expected to rise to over 210,000 TEUs in 2007, up from 180,000 TEUs in 2006. We do also handle river freight as a liner, more in the feeder concept where we drag containers into the ports, so some of our direct customers are the forwarders, along the Yangtze, for example. But this is part of our parent company’s business rather than SITC Logistics’. We do have plans for train transportation which will

be an excellent solution to solve some of the problems in China, but the rail business is still very centralised in Beijing. If you’re moving raw materials or empty containers, then fine, but if you need a guaranteed lead time, then very few companies can make a guarantee by rail. : Customs clearance is usually a huge headache for most logistics providers?

Do you face such problems? Can you comment please?

EL: In this industry, it is a well known fact that each provincial custom department is autonomous, so they have the right to detain and inspect any cargo if they suspect involves contraband. However, the situation in China is vastly improving at all the gateways through air, sea and land.

For example, recently China Shipping Gazette reported that Customs in Wuhan, Shenzhen and Guangzhou have signed an agreement on cooperation on offering one-stop transregional customs clearance service.

From now on, enterprises in Wuhan only have to go through necessary procedures at the local customs before their cargoes can be released at the Shenzhen and Guangzhou customs.

Besides Shenzhen and Guangzhou, the Wuhan customs has already been collaborating with customs in Qingdao, Nanjing, Shanghai, Ningbo, Fuzhou and Xiamen on trans-regional clearance. : What is SITC Logistics’ future plan and goal?

SITC Logistics intends to become a market leader in the domestic China market and eventually we plan to become a global logistics services provider. I’d like to see SITC Logistics become the first Chinese multinational 3PL.

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Imaginechina

Delivering the goods Value-added sales and marketing for 3PLs in China

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anagers in China are all familiar with the concept of “adding value” in production and manufacturing. Nokia’s cutting-edge mobile phones and Sony’s trend-setting laptops are made from raw materials worth just a few renminbi. It is only after processing the plastic, metal and chemicals – and combining them with design skills, software, and IP – that we end up with a product worth thousands of times the value of its basic materials. We often refer to Chinese manufacturers as “climbing the value chain” by improving technology both in their products and in their production processes.

The logistics business has its own value chain that we all must climb. China-based third-party logistics service providers (or 3PL) marketing and sales professionals are learning how to deliver more value by offering proactive, innovative solutions – and changing the basic nature of their relationships with clients and partners.

What is value-added sales?

Value-added sales is about solving problems. In the 3PL world, that means helping clients reach new markets, track shipments, integrate innovative technologies, deal with customs regulations and still cut costs to the bone. What many 3PL providers in China often lose sight of is that their single greatest resource is the experience and knowledge of their sales and marketing teams.

International 3PL sales teams are becoming their company’s main competitive advantage – actively advising clients on innovative strategies and tactics

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to cut costs and boost sales. Value-adding sales representatives are experts, not just in the field of logistics and supply chain management, but also in their clients’ industries. They have to be able to offer high-level advice about how to improve their client’s business in specific, actionable ways.

3PLs must be proactive about offering solutions.

What can you do to be recognised as a valueadding professional? Start by banning buzzwords like “global networks”, “end-to-end logistics solutions” and “wide range of carriers” from the conversation. They are killing you in the marketplace, since every representative at every 3PL or forwarder uses the same empty phrases.

They have become the ‘have a nice day’ of the logistics industry.

Successful 3PL sales is a two-part process. Step one: figure out what your client’s biggest, most frightening, most frustrating business problems are. And step two: offer innovative, comprehensive solutions that leverage your organisation’s resources and competencies.

Clients won’t open up to you, though, until you demonstrate to them that you have the expertise and ability to provide answers that they couldn’t come up with on their own. Reading from the company brochure isn’t going to give logistics managers the confidence to tell you what’s really happening in his supply chain. Instead of saying, “we have a global network and have been in the business for 100 years”, you need to reframe the discussion to be, “We have been solving problems just like yours for companies

Andrew Hupert is an independent management consultant and trainer based in Shanghai. He regularly lectures at the China Supply Chain Council training sessions.

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SALES&MARKETINGFEATURE

It is your responsibility to stay upto-date on new developments, business methods, technologies and regulations that may impact on your clients and prospects

around the world for over 100 years.” Then back that up with concrete cases and ideas about how you plan on helping him.

If you are just handing out business cards and talking about “unparalleled global networks”, and then waiting for the client to outline an integrated solution for your firm to execute, you are in for a long wait. The big contracts for highmargin services are going to teams that can offer innovative, integrated solutions to clients’ most pressing business problems.

Three lanes to adding value 3PL sales professionals add value to the service they are offering through their own intelligence, experience and creativity. There are three basic ways that a resourceful salesman can add value to a client’s business.

Consulting: Effective business consulting is about two things – increasing sales and lowering costs. If you are like most 3PL sales and marketing people you tend to assume that your only value is in reducing transport and warehousing costs.

You might be right – but don’t jump to any conclusions. Plenty of Chinese clients want to access European and American markets, but don’t have the basic knowledge and contacts to make informed decisions. Likewise, many western manufacturers and marketers have only the vaguest notion about what China is like beyond the three major business centres. You may be able to offer powerful knowledge to prospects about both sides of the profit equation. Find out how they see the problem before you offer any solutions.

Information and resources: 3PL sales people have to know what is happening in the industry and in the marketplace. It is your responsibility to stay up-to-date on new developments, business methods, technologies and regulations that may impact on your clients and prospects. The good news is that technology, industry trends and regulations are constantly changing, so your clients will always need your input. The bad news is that it takes a lot of time and effort to stay current.

Turn the situation to your advantage by making regular “industry update” calls that inform clients about new developments – and offer advice about which services your firm offers to capitalise on the trend.

Services: Sales people have resources at their disposal that can help build relationships with clients. You will not want to do in-depth research projects for every client every day, but this is the kind of special treatment that can make a big difference in negotiations. The key is to make sure you are getting paid for the services you provide.

Who are you really selling to?

Some 3PL salespeople spend so much time practicing a standard sales pitch that they lose 38

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sight of the fact that every buyer has a unique perspective and viewpoint. It’s important to know your client’s specific point of view. The good news for 3PL industry professionals is that there are two broad categories of buyer mindsets that you’ll encounter over and over. Owners, and those that think like them, care about the bottom-line profitability of the company. Logistics managers and technical buyers, on the other hand, are more concerned with doing their job well – so are concerned with details, schedules, and trackrecords.

Owner-types care about how your product or service will contribute to their organisation’s profits. Managing directors and other senior managers, entrepreneurs, partners, owners and managers who are compensated based on company performance fall into this category. When you sell to them, you have to be very clear how your transport or supply chain services will boost his company’s revenue or lower costs. Choose one or the other – they won’t believe you if you say you can do both at the same time. Be careful not to assume anything. Logistics people always feel that transport and time-to-market are cost issues, but an owner with a marketing-orientation may view them as sales and profit issues. When a shipment is late, an owner sees lost sales – not higher costs.

Logistics managers and operational specialists don’t focus on bottom line profits – they focus on doing their job well. They want the shipment to leave the factory when it is supposed to and arrive at the right place at the right time. They want everything to go right – from the first meeting to the final details about schedules, pick-ups, deliveries, insurance, customs and so on. They will judge your company’s offering – and you – by how few problems or difficulties they encounter.

These are the people who care about budgets, rates, transparency, ease of use, company reputation and customer base. The real issue is that they are not paid more when they make a good buying decision – but they suffer if they choose the wrong supplier. Simply put, these people want to get home in time for dinner and avoid getting reprimanded or criticised on the job.

The key to selling to these people is make your company and your 3PL solution seem reliable and low risk.

The key to value-added sales is being able to forge a new kind of relationship between 3PL sales professionals and their clients. It is a win-win partnership, where the client acknowledges the expertise of the sales professional, and is willing to accept his advice and recommendations. But in order to make this a reality, 3PL providers must build a sales team made up of highly skilled, well trained professionals who really are experts in their field. The value-adding sales person is not just delivering a message – he or she is an integral part of the company’s competitive advantage. www.chainamagazine.com

BLOGWATCH All blog entries are reprinted with permission. Written something interested that you’d like share with us? news@chainamagazine.com

Wal-Mart bites China back www.evolvingexcellence.com In April we had a post titled China Bites Wal-Mart, describing how long supply chains coupled with fickle customers created serious inventory problems for Wal-Mart: Wal-Mart failed to order enough of these China-made T-shirts last year, and so they and other George-brand basics will remain in short supply in most of its 3,443 United States stores until 2007's second half, depriving the retailer of tens of millions of dollars a week it sorely needs. “The issue with apparel is long lead times,” says the quietly intense [chief merchandising officer John] Fleming.

We followed up in May with a post on how those same long supply chains and fickle customers created the reverse situation - excess inventory - on other fashion apparel items: Wal-Mart's inventories jumped 10.3 percent in the fiscal first quarter, ended April 30, to US$35.2 billion from a year earlier, driven by unsold apparel, home decor, and outdoor products. About $2 billion of the increase represents unsold spring clothing and home goods that are expected to depress profit through the summer, analysts estimate.

I then went into the usual rant on total supply chain cost including the risk of poor planning, obsolescence, demand quakes, quality, cash tied up and so on.

Funny thing about supply chains: they have two ends. Wal-Mart was at one end, and China at the other. China effectively “bit” Wal-Mart by suckering them into a long supply chain with all the inherent problems. But when WalMart choked, it then rippled all the way back to China, and now manufacturers in that country are feeling the pain.

From the Wall Street Journal: Several months ago, Chinese clothing executive Shao Zhuliang got bad news from his American agent: Wal-Mart Stores, his biggest customer, wouldn't be placing any orders for the spring 2008 season.

The concept that orders for the spring 2008 season are being placed “several months ago” in early 2007 is mindboggling to most of us. Some guy buried in the bowels of Wal-Mart headquarters in Arkansas, probably with an electronic crystal ball, is trying to predict fashion and customer demand over a year in advance. I'm sure there's some kind of science behind it, backed up with lengthy algorithms from dozens of PhDs, but after the two stories I mentioned earlier Wal-Mart's batting www.chainamagazine.com

average isn't exactly very good.

The codependency is rather interesting. Wal-Mart is dependent on Chinese manufacturers for miniscule savings, which are blown out of the water every time the demand chain hiccups. Chinese manufacturers are dependent on Wal-Mart for a lot of volume that makes very little profit.

Wal-Mart “said they had inventory piled up over there,” says Shao, who heads Boshan's [Linar Garments in Shandong province] sales department. “It's always hard to make money from Wal-Mart orders, but without them, we are finished.”

Supply chains are complex animals, with costs and impact not very understood by most companies.

The fallout from Wal-Mart's problems shows how difficulties at one end of the global supply chain can ripple through to the other with the potential for significant economic disruptions.

Are you really sure you understand your total supply chain cost and risk?

Trade war looming? www.allroadsleadtochina.com The last few weeks have certainly been the rockiest for United States-China trade relations in a long time. Adding to the normal news cycles of a ballooning trade deficit and a renminbi that just won’t revalue, recently we have seen stories on pet food manufacturers cutting corners, tire manufacturers cutting corners, toy train manufacturers cutting corners, and a whole host of products that are unsafe for the American market.

In the words of Senator Durbin “'Made in China’ is rapidly becoming a warning label for American consumers”.

But is it? I mean: is it really?

Were I basing my judgment on MSNBC’s coverage, I would not only answer yes, I would be writing this from tPudong International airport as the last three relevant articles were Tainted Chinese goods could lead to trade war, What to do when everything is ‘Made in China?’, and (my personal favourite) AllAmerican: Top 10 most patriotic cars Starting to wonder if Wal-Mart is going to change its slogan back to that of the mid-80s “Made in America”?

Well, there are defiantly more and more calls for it, and groups like Wake Up Wal-Mart are certainly taking WalMart to task recently on the amount of goods they purchase in China, but I would not expect there to be a renewed “Buy American” out of Wal MArt’s Bentonville

headquarters campaign anytime soon.

And here are a few reasons why: 1. While there have been a number of severe cases lately of tainted supply chains, the Chinese are doing a much better job of showing that while there are problems that they are anomalies not the norm, and that on the whole, goods made in China are safe. 2. With the recent cut in VAT rebates, China now has a strong macroeconomic peg to stand on, and will do so to cool off the pressure from the Bush administration.

3. There are too many American owned factories in China , producing too many goods for the United States market, and they are not coming back. In reality, a trade war would impact them more than any Chinese manufacturer as their goods would also be considered Chinese.

4. Finally, and most importantly, nearly every economist I have read lately has said that a trade war would result in higher inflation and higher interest rates for Americans: and that is something no politician wants before an election.

Political mud may be slung, but the gloves will stay on to ensure re-election campaigns go smoothly.

A few things I would personally really like to see at this point: 1. More media attention on the responsibility importers have to perform quality control on goods manufactured outside of their own supply chains. 2. A study done of the impact American investments in China have on the trade deficit. 3. A study showing what the American recession would have looked like were China not able to provide low cost manufacturing (Could the United States come out so quickly were it not for China? ) To date, all of the recent scandals could have been avoided if American buyers had put in the proper quality procedures and teams in place to ensure that their supply chain integrity has protected. And I think that the recent Foreign Trade Sales case is a perfect example of that.

So, is a trade war looming? Will the U.S. congress pass protective measures that will no doubt result in a Chinese response? I don’t think so. I think that the pressure over the last few weeks has catalyzed everyone to take steps that improve the overall integrity of the system, and that was what was really needed. However, media being media, politicians being politicians, and people being people, I am sure anything can happen, and it is now my responsibility to ensure I am prepared for whatever happens.

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

Pilar Dieter

Alaris Consulting expands leadership team in Asia Alaris Consulting has hired Pilar Dieter as Director of Consulting Services in their Shanghai office. In this newly created position Ms. Dieter will be responsible for further developing Alaris’ supply chain management services in China with a focus on logistics, strategic sourcing, technology and import/export strategies.

Pilar Dieter has served in the logistics and supply chain industry for 10 years.

Following her time at Accenture Consulting, she led Professional Services and Product Management divisions at TradeBeam and Embarcadero Systems Corporation where she worked with clients on streamlining supply chain practices through process re-engineering and technology implementations.

of its Chinese flagship venture, Shanghai General Motors. Socia replaces Chris Gubbey, who will be the new chairman and managing director of GM Holden, GM’s Australian subsidiary.

powerful woman in Swedish trade and industry in 2006 – has been appointed the new head of Electrolux Major Appliances Asia Pacific region succeeding Peter Birch, who will retire.

GM is targeting one million sales this year in China, the world’s second-largest auto market with a 25 percent growth last year. Sales of GM expanded 31 percent to 876,747 units in China last year through two joint ventures, Shanghai GM and SAIC-GM-Wuling.

Nordström is currently president of Sony Ericsson Mobile Communications (China) and corporate vice president of Sony Ericsson Mobile Communications AB, having served in a number of senior management positions during her 24 years with the company throughout Asia, Europe, and Latin America.

“Shanghai GM will be in good hands with Bob (Socia),” said Kevin Wale, president and managing director of the GM China Group. “Bob has distinguished himself throughout his 30-year GM career, which began in the United States and has included assignments in Brazil, Germany and South Africa.”

Eaton announces new appointment for AP Eaton has named Uday Yadav vice president and general manager of the company's Hydraulics Operations in the Asia-Pacific region. Yadav will be based in Shanghai and will oversee sales, marketing and operations infrastructure.

General Motors has appointed Robert Socia, currently head of its GM South Africa unit, to be the executive vice president

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Nordström will be based in the Electrolux regional head office in Singapore as a member of group management, reporting to Electrolux president and chief executive officer, Hans Stråberg.

B2X Names Chairman and CEO B2X announced it has named Ron K. Glover as chairman of the board of directors and chief executive officer. B2X offers technologies that smooth trade with a company mission to revolutionise international trade with the world’s most comprehensive global e-commerce platform.

Alaris Consulting is a leader in helping clients develop and implement innovative cost reduction strategies and gain successful entry in the China market, and specialises in the assessment of China manufacturing and sourcing feasibility as well as facilitation of focus groups and research to qualify and quantify market potential.

Shanghai GM appoints new executive VP

As of August this year, Nordström, will oversee the appliance maker’s Asia Pacific operation including product development, production, sales, and marketing of refrigerators, ovens, hobs, hoods, dishwashers, washing machines, and dryers in Australia, New Zealand, China, India, Thailand, Malaysia, Singapore, Vietnam, Philippines, Indonesia, and Japan.

Gunilla Nordström

“I am very excited with B2X’s broad and innovative technology and its exclusive 5 year partnership with China Internet Information Centre (China.cn). The combined strengths of B2X’s management, product offerings and above state-ofthe art platform present a very exciting opportunity. I look forward to working with B2X’s talented executives to make B2X the leader in on-line global trading,” commented Glover.

Electrolux appoints new head of AP region

China well behind the west in logistics savvy: FIATA

Gunilla Nordström – chosen by a leading Swedish financial weekly as the most

The gap in logistics know-how between China and the West remains large in man-

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

agement, training and IT applications, says Luo Kaifu, vice president of FIATA (Federation Internationale des Associations de Transitaires et Assimilies, also known as the International Federation of Freight Forwarders Associations).

Speaking at a press conference during the recent 4th Annual Sino-International Freight Forwarders Conference in Guangzhou, Mr Luo said: “If we take the logistics

development level of western countries as 100 per cent, then that of China would be 40 - which means that the gap is still very big.”

Luo said the industry in the West has been at the forefront of logistics management, IT, conceptual understanding as well as professional training, which led to higher efficiency and lower costs.

Although the management and IT level of Chinese logistics industry has been developing fast, most firms in this country still lack efficient networks and this results in higher costs, he said.

But Luo said the logistics market of China has great potential, and as communications between the Chinese and foreign logistics companies improves, local firms will soon come to grasp advanced techniques.

What's it like to work for...

Maersk Logistics?

Steffen Schiottz-Christensen, managing director, Maersk Logistics, Greater China Area

Who’s the boss?

I lead Maersk Logistics in the Greater China Area. Based in Shanghai, I oversee activities in Mainland China, Taiwan, Hong Kong, Macau and Mongolia.

Maersk Logistics is part of the A.P. Moller - Maersk Group, an international group of companies represented in more than 125 countries around the world.

How many staff?

Globally, Maersk Logistics has more than 200 offices with more than 5,500 office staff. We employ 2,200 employees in the Greater China Area. The head office of Maersk Logistics in the Greater China Area is located in Shanghai, with more than 20 branch offices in major coastal and inland cities.

Major business areas?

Maersk Logistics offers customised and integrated solutions for supply chain management, warehousing, and distribution, as well as landside services, ocean freight and airfreight transportation. Our specialists in over 90 countries assist customers in engineering and optimising entire supply chains.

Who are your customers?

Maersk Logistics in the Greater China Area is privileged to count a wide group of local and international companies 42

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among its business partners. Our customers include established Fortune 500 multinational corporations, as well as young and ambitious companies based in Greater China with aspirations to enter global markets. We are proud of our many long-standing business relationships and we look forward to joining hands with new partners.

How to get a job at Maersk Logistics?

All employment-related information for Maersk Logistics can be viewed at the JOBS & CAREERS page of www.maersk. com. We also post most vacancies for Mainland China positions at www.51job. com, and www.zhaopin.com, and vacancies for South China and Hong Kong at www.JobsDB.com. Meanwhile we work closely with quality executive search firms to locate talents for senior management positions. All applicants to Maersk Logistics go through the same recruitment procedures in line with global A.P. Moller - Maersk practice.

Any training offered?

There is a strong learning culture at Maersk Logistics. The company recognises the value and importance of providing training and development opportunities

to employees with different functions at all levels. We have a global management trainee program and a local talent development program in place to support leadership growth. At Maersk Logistics, training is considered to be an important investment.

How’s the pay and benefits?

We pay our employees competitively.

We have well-structured compensation packages providing salary and benefits for employees benchmarked against competitors within our industry as well as other companies within the service industry.

Long hours?

At Maersk Logistics, we promote “worklife” balance and we do not encourage working long hours. However, as you can understand, our business has clear peak and slack seasons. During peak season, working overtime is often unavoidable.

Business travel?

Both within and outside the Greater China Area, our staff at all levels travel for business with different frequencies and for different purposes. For most positions business travel, to various degrees, is a part of the job. www.chainamagazine.com

www.chainamagazine.com

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Aberdeen Research............................... 6 Accenture ........................................ 8, 41 Agility .................................................. 12 Airbus ............................................ 10, 11 Alaris Consulting............................. 5, 41 Aquent ................................................. 44 Arena Solutions................................... 24 AstraZeneca ........................................ 10 AT&T ................................................... 13 AXS ...................................................... 46 B2X ...................................................... 41 Baker & McKenzie ................................ 7 Best Buy ........................................ 13, 29 Boeing ................................................. 10 Boshan Linar Garments ...................... 39 Caterpillar............................................ 10 CBRE ................................................... 13 China International Electronic Commerce Centre ................................. 6 China Railway Container Transport ... 12 China Supply Chain Council .. 21, 37, 47 CMA CGM ........................................... 12 Dell ................................................ 14, 15 Deutsche Bahn ................................... 12 Eaton ................................................... 41 Electrolux ............................................ 41 Embarcadero Systems......................... 41 Ernst & Young .................................... 17 FIATA ................................................... 41 Five Star Appliance............................. 14 Gazeley ................................................. 2 Geodis Wilson .................................... 12 GM....................................................... 41 GoKunming.com ................................ 44 Goodman Group ................................ 14 GSE ...................................................... 14 Guangzhou Runtong International Transportation .................................... 12 HMG Logistics..................................... 15 HP........................................................ 15 IBM ...................................................... 15 In-Stat .................................................. 46 Intel ..................................................... 15 Jones Lang LaSalle ................................ 9 JPMorgan ...................................44, Back Keuhne + Nagel .................................. 12 Lenovo ................................................ 15 Maersk Logistics............................ 42, 43 Metro ................................................... 15 Michael Page ....................................... 40 Microsoft ............................................. 10 Motorola .............................................. 11 MSNBC ................................................ 39 New City Corporation ........................ 13 Nissan .................................................. 11 Panalpina ...................................... 26, 27 Rossignol Sourcing ............................. 24 SAP ...................................................... 15 Schaefer ............................................ 10 Siemens ............................................... 12 SITC Logistics ...................................... 34 Sony Ericsson...................................... 11 Sony Ericsson...................................... 41 SVG ..................................................... 17 The Meridian Group of Hong Kong ....................................................... 22, 44 Toshiba ................................................ 10 TradeBeam ............................................ 6 Wal-Mart ........................................ 15, 39 Werner Global Logistics ......... 13, 18, 31 YRC Worldwide .................................. 13 Zim ...................................................... 12 JULY/AUGUST 2007

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CHINA SUPPLY CHAIN IN NUMBERS China accounts for 76% of Asian EMS market 2011 Asia is expected to maintain its dominance in the electronics manufacturing services/original design manufacturing (EMS/ODM) markets for the next several years. And with its lowcost advantage and burgeoning demand, China will account for nearly 76 percent of the Asian EMS/ODM market in 2011.

Consumer electronics will experience the fastest growth rates, followed by the communications segment.

“OEMs continue to leverage the cost structure of EMS players and outsource their manufacturing to low-cost centres in Asia”, says Mayank Jain, an analyst with In-Stat. “In key Asian markets, OEMs have persuaded EMS players to establish their local operations so they can capitalise on the domestic demand well.”

The Asia Contract Electronics Manufacturing (CEM) market will grow from US$121.5 billion in 2006 to US$281.8 billion in 2011. Asia will capture 55.1% of the global EMS market in 2011, up from 45% in 2006. Though China will dominate the EMS/ODM market, India, Thailand, and Vietnam will emerge as new dominant players.

China trade surplus up 73% in May China announced plans in May to buy US$4.3 billion of American technology as a way to show how serious it is about reducing the ballooning trade gap with the United States.

So it must have come as a mixed blessing in Beijing to see that China's ‘antigravity’ trade surplus soared again

China manufacturing PMI watch The CFLP China Manufacturing Purchasing Managers’ Index (PMI) provides a monthly indication of economic activity in the manufacturing sector, compiled each month from data about their purchasing activities and supply situations from more than 700 manufacturing companies.

% 60 58 56 54 54.1

52 50 JUN 07

JUL 06

Source: China Federation of Logistics and Purchasing

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Great Silk Road freight volumes booming Freight transport volume between China and Kazakhstan is forecast to increase from 12 million tonnes in 2006 to 25 million tonnes in 2009, following a US$1 billion investment in infrastructure by the Kazakhstan government. The investment covered a new railway line and freight station at the border city of Khorgos.

“There is significant investment in infrastructure connecting China to Central Asia and the CIS countries,” said Erlan Dikhanbayev, managing director of Soyuztranslink (STL). “Kazakhstan provides the shortest and most efficient gateway rail and road connections linking Asia to Europe.

The Kazakhstan government also plans to modernise the Russian border station, Ozinki, in order to meet the growing demand for rail services through to Western Russia and Ukraine. in May to the third-highest monthly level on record, according to Chinese government figures released last month.

The surplus hit US$22.5 billion, up 73 percent from May 2006, the Chinese customs agency said on its website.

Exports jumped 28.7 percent to US$94 billion, while imports rose 19.1 percent to US$71.6 billion. China has promised to narrow its yawning trade gap under pressure from Washington and other governments, but economists say multibillion-dollar surpluses are likely to continue.

The European Union was China's biggest trading partner in the first five months of the year, with total two-way commerce rising 29 percent to US$129.9 billion, according to the customs agency.

It gave no breakdown of imports and exports.

The United States was in second place, with two-way trade rising 18.2 percent to US$115.2 billion from January to May. Japan was number three, with trade up

15.5 percent at US$91.2 billion.

The Chinese government is trying to reduce dependence on exports by encouraging China's consumers to spend more, which would increase imports and narrow the trade gap. But that has had only limited success, with exports still growing much faster than domestic retail sales.

Survey shows world containerships can carry 11 million TEU The world liner fleet, that is all the ships regularly engaged in liner services, reached the 11 million TEU capacity, amounting to 154.1 million tonnes at the end of May 2007, according to an AXSAlphaLiner News survey.

Surveying 5,823 ships, the AXS researchers found that 92 percent were cellular ships and the remaining eight per cent were split between non-celled containerships, multi-purpose tonnage and roll-on/roll-off vessels. www.chainamagazine.com

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