2008 Mar-Apr Issue

RUSSIAN

Partners with China rail

SUPPLY CHAIN 101 Cycle Counting saves time

CSR EVENT

Are companies responsible?

HEILONGJIANG The rust belt revival

MARCH 2008 www.chainaonline.com AUS$7.50 EUR€5 HK$40 RMB40 SG$9 UK£3.50 US$6

THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

Mr. Cool Keeping the Heat off China’s Cold Chain Bill O’Brien President, Greater Asia Havi Food Services

Editor and Publisher Russel Beron russel@chainamagazine.com Contributing Writers Jack Buffington, Jamie Bolton, Chris Deans, Chris Horton, Melanie McGanney, Dick Yip

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

Is China losing its competitive edge?

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

Max Henry Founder and Executive Director, Global Supply Chain Council

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

Michiel Hijma Senior Manager, Bertelsmann Directgroup China

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

FROM THE EDITOR

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

CHaINA Sponsorship For information on sponsorship opportunities with CHaINA Magazine, please contact: Russel Beron russel@chainamagazine.com ADVERTISING SALES Kaman Cheng, Business Development Manager kaman@chainamagazine.com +86 1590 190 2664 DISTRIBUTION We distribute CHaINA free by direct mail to subscribers in China, Hong Kong and Singapore who are involved in all aspects of supply chain management, manufacturing and logistics. Our target subscribers are logistics, warehousing and transportation directors and managers; sourcing, procurement and purchasing directors and managers; and manufacturing executives at foreign and domestic Chinese companies.

This is what a lot of headlines would have us believe.

One of the key issues seems to be labour: shortages of both skilled and non-skilled labour, rising labour costs and new labour laws.

Other issues include increasing taxes as government tax rebates are cut and incentives for foreign companies are reduced in major economic areas on the Eastern seaboard. Coupled with that, material costs are also increasing as are electricity prices. This winter’s recordbreaking snowstorms, which clogged up China’s supply chain didn’t help either.

It’s not all doom and gloom though. On the plus side, as a response to the inevitable belt-tightening that is accompanying China’s economic maturation, the “experts” are telling us that value added services are on the rise and businesses are learning how to differentiate themselves through focusing on their core business, and improving their execution.

Both foreign and domestic companies are moving towards a level global playing field. Chinese manufacturers in the auto and other industries are growing their export markets in other developing countries, which should lessen the effect of a downturn in the United States economy.

The upcoming Olympics, which have brought China under even more scrutiny, have proved a positive catalyst, serving to raise the bar on both green and corporate social responsibility issues in China.

For subscription inquiries, please contact: subs@chainamagazine.com.

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

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

Comments and Feedback We welcome feedback and comments about our content or any issues relating to supply chain management or trade in China.

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

Of course there is a still a lot of work to be done, as our cover story on Havi Foods and China’s cold supply chain suggests. Chinese service providers still have some distance to cover to catch up to foreign companies in respect to certain services The role that India and Vietnam will play as a manufacturing alternative or partner to China is still a fuzzy question that should become clearer in the next year. We’ll keep you posted.

Russel Beron

Chaina magazine’s sponsors:

Editor and Publisher CHaINA Magazine

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

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THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

MARCH 2008

www.chainaonline.com

CONTENTS PAGE REGIONAL FOCUS

34 Rust belt revival

PAGE This issue our regional focus covers Heilongjiang, which is actively promoting itself as China’s gateway to the Russian market.

COMPANY PROFILE

Geerlofs

Cold storage gets a local flavour in Yunnan Province

24 KNOW HOW

PAGE

Cycle Counting

30

Supply Chain 101: PAGE

29

How to streamline your inventory management

SPECIAL FEATURE

Russian

multimodal transportation provider, JSC Trans-Container runs trains through China PAGE

32 4

MARCH 2008

www.chainaonline.com

COVER STORY

Mr. Cool

Meet the man and the company that has been entrusted with food storage, transportation and safety at the Beijing Olympics. Bill O’Brien explains how Havi Food Services is laying the groundwork for a safe food supply chain in China.

REGULAR FEATURES INSIDE VIEW

QUESTION & ANSWER

6

Distinctive capabilities are driving high preformance

38 In conversation with Jimmy Hexter

8

Clearing China’s logistics hurdles

41 Executive Insight: Nis-Peter Iwersen of Danfoss

9

What does a U.S. recession mean to China’s manufacturers?

10 Chinese Media Review

45 Blog Watch 46 Product Recalls 48 Classifieds 49 Events Calendar

11 Ups & Downs

13 Sponsored Feature: LowendalMasaï

12 SCM Gadgets

14 NEWS ROUNDUP

42 Event Update

www.chainaonline.com

44 Movers & Shakers

49 Index 50 China Numbers

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INSIDEVIEW

Distinctive capabilities are driving high performance

B

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

y any measure, China is a global Moutai Co. Ltd. has identified customer satisfaction success story. In fact, few economies as a primary differentiator. Its rationale is that more have ever come so far so fast. But than 60 percent of company revenues come from according to a seminal Accenture study, the great institutional customers with little price sensitivity. majority of Chinese businesses do not yet operate The company thus became one of the first domestic at the level we typically associate with global entities in its sector to set up a customer relationship high performers. The difference is not rate of management (CRM) database marketing system. The growth, but the ability to consistently generate system helps Kweichow Moutai collect, store, analyze profits that exceed the cost of and update customer information, capital. In effect, most Chinese and study the characteristics of “We distinguish companies have yet to become ourselves from what customer behavior. world-class when it comes to others are excelling creating value.

Focusing on

in, and when others

The aforementioned study the core catch up with our identified three critical actions with the potential to help Chinese distinctiveness, we find Chinese companies can further something new.” businesses build value. In the last advance the cause of distinctive issue, we focused on market focus capabilities by concentrating their and position. This month, we look at distinctive integration efforts on core processes. They don’t capabilities—using innovation to build hard-totry to connect everything to everything, but invest replicate sets of processes that capture customers disproportionately in integrating what matters most and create sustainable competitive advantages. to their business formulas. Consider a leading Chinese company in the meat industry. Its value formula is based on freshness, so maximizing speed from Innovation leads Companies develop distinctive capabilities by thinking and acting in distinctive ways. For example, they frequently excel at defining customer-focused business models: They investigate what consumers truly value (or will value) in each category, and which marketing capabilities do the most to help create and sustain demand.

Then they identify the most profitable configuration of resources to deliver the promised value. Take Wuhan Iron and Steel Co Ltd., whose rule on new product development is: “We have what others don’t have. What others do have, we excel at. We distinguish ourselves from what others are excelling in, and when others catch up with our distinctiveness, we find something new.” With an exceptionally deep understanding of what its customers need, Wuhan focuses product development on what it calls ”double-high” products—high in added value and high in technology content.

High Performance Business in China 2007

In Pursuit of Profitable Growth

Chinese high-performance businesses also achieve distinctive capabilities by aligning their capital deployment with their customer-focused business models.

The heart of this strategy is seeing that key sources of competitive advantage are given the financial and operational power they need. In the beverage sector, Kweichow 6

MARCH 2008

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INSIDEVIEW

This figure depicts high-performance businesses’ five-year TRS (total return to shareholders) relative to the size of the company.

Although most of the enterprises Accenture has identified as high performers show some measure of scale within a particular business segment, in only a few cases are they the absolute revenue leaders in their industries.

factory to store shelf is critical. Toward this end the company implemented a new logistics system with online ordering, a unified database and a centralized information-processing platform. This helps ensure accurate order information, enhances internal quality control mechanisms and automatically provides statistical analysis.

“The key is balance— knowing when a formula must evolve, versus when change must be more revolutionary.”

Chinese businesses must also balance evolutionary and revolutionary change. High performers are particularly good at adjusting and redefining their formulas as customer needs and internal and external circumstances warrant. The key is balance—knowing when a formula must evolve, versus when change must be more revolutionary. Yantai Changyu Pioneer

Wine Co. is a good example. As the wine market’s growth rate picked up at the beginning of this century, the company moved quickly to reform its distribution network and increase its national coverage. It formed a three-tier sales system broken into four regions, 26 distributors and 500 sales representatives’ offices supported by numerous retail franchisees. In 2005, Changyu’s sales in Beijing increased by 50 percent.

Perhaps most important is understanding and leveraging the fleeting nature of distinctiveness. In Chinese companies, distinctive capabilities can be particularly short-lived due to the country’s rapid growth, speed of innovation, relatively minimal intellectual property protections and the sheer number of companies vying for market position.

These characteristics actually make distinctive capabilities more important. In the next issue, we’ll discuss a somewhat more permanent supply chain building block that we call “performance anatomy.”

Visit http://www.accenture.com/Countries/China/ HPBChina2007_En.htm to view the complete report.

Chinese workers weld rolled steel at Wuhan Iron and Steel (Group) Corp

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MARCH 2008

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INSIDEVIEW

Clearing China’s logistical hurdles

T

Dick Yip is Regional Manager, Nor th China of BDP International a global logistics and transpor tation solutions company.

he snow storm that virtually crippled China last month brought into crystalline focus one of the biggest challenges confronting logistics providers. Moving goods within the country remains difficult, a situation that is all the more troubling as economic activity migrates inland from the eastern provinces.

Indeed, inadequate transportation and distribution infrastructure is making it difficult to service domestic markets and virtually impossible to tap the less expensive labor markets of outlying regions. This situation is not likely to improve significantly over the short term, notwithstanding enormous investment on the part of the Chinese government.

For example, recent completion of the second phase of the Yangshan deep water port added 2.1 million TEUs to Shanghai’s annual container capacity, bringing it to 46.5 million TEUs. However, by increasing the distance between the city and port, the project actually increased total logistics costs by as much as 20%, and customs clearance remains tedious and time-consuming. Even more recently, Beijing has announced plans to build nearly 100 regional airports, but analysts say congestion will remain chronic because of shortages of skilled personnel.

Approaching the hurdles Going forward, the market will move towards ocean forwarding and NVOCC services, as well as air freight and domestic trucking which are still largely dominated by local companies. Foreign 3PLs like BDP are still struggling to get a piece of the action, but special relationships with the airlines, the complexity of inland trucking and the cost of entry have effectively closed the door to many.

As a non-asset-based company, BDP is working on developing strong relationships with local transportation and warehousing companies.

Customers want a single point of contact and a single system to manage their supply chain issues, so we are building a confederation of companies with proven expertise in certain sectors, but lacking the infrastructure and experience to work for multinational corporations. By interconnecting them, we are in a position to offer process consistency and transparency, the core of our value proposition to customers.

Foreign companies are going domestic Driven by U.S.-based clients building their own facilities in China, BDP entered the market more than 10 years ago with a small presence in Shanghai and Guangzhou working primarily with Chinese agents and was initially focused on exports, predominately chemicals.

However, growth of the country’s domestic market has opened new opportunities. As China evolves from the world’s largest exporter into a more consumptionoriented economy, serving the domestic market will take on ever-increasing importance. Many foreign companies are looking for ways to capitalize on this phenomenon, if and when the Chinese government adopts more favorable policies.

Gradual reduction of import duties, combined with a strengthening currency, should provide the impetus for more imports of finished products and raw materials for domestic consumption. At present, about 90 percent of BDP’s business in China remains export-driven, but the 10 percent on the domestic side offers even greater upside potential. Traditionally the Chinese market has been dominated by local companies holding licenses not available to outsiders.

Over the past four years, however, foreign companies registered in Hong Kong have been permitted to perform Class A transportation and logistics activities by virtue of the special CEPA policy.

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Looking forward, it is not a question of whether the Chinese economy will continue to boom, but rather by how much and in which areas. The role of logistics will remain important, but the degree to which foreign companies like BDP will be permitted to participate remains uncertain.

Since entering the market in 1995, there has been considerable easing of the regulatory climate, reducing what were once obstacles into mere hurdles.

As the Chinese government continues to work on amelioration of obstacles, both regulatory- and infrastructure-related, opportunities should continue to present themselves. www.chainaonline.com

INSIDEVIEW

What does a U.S. recession mean to Chinese manufacturers?

I

n late January, the International Monetary Fund lowered its global growth rate forecast for 2008 to 4.1%, down 0.3% from the prior forecast. The primary reason for this slower growth forecast is the financial crisis now occurring in the United States, reducing the U.S. forecast for 2008 down to 1.5%, which is significantly lower than the 2.2% pace in 2007.

China is also predicted to have a slight slowdown to around 10% after having four consecutive quarters of growth of over 11%.

United States drops as fast as I have predicted that it will in my book An Easy Out (faster than is being measured/ predicted by U.S. economists), this will dramatically restrict the U.S. capacity to consume products manufactured by Chinese companies. Therefore, it is in China’s best interest as well as the U.S.’s to improve the “lost art of productivity” in the American economy in order to achieve the “economic equilibrium” needed for global growth to continue.

Strategic planning

Jack Buffington, a former Management Consultant is Director of Supply Chain Logistics for Molson Coors Brewing Company. He is also the author of a new book, Easy Out: Corporate America’s Addiction to Outsourcing.

Nobody should be surprised to see what’s What should Chinese manufacturers do to prepare happening in the U.S. economy, and its impact on themselves for an inevitable recession in the U.S. global markets, particularly in China. For over six economy? With slower demand years, U.S. economic growth has been driven primarily through its “Chinese manufacturers coming from this 50% of its housing market, enabled through must be willing to forgo export market, and a lower dollar meaning lower labor costs in a looser monetary supply and deals that don’t make the U.S., Chinese manufacturers liberal lending regulations. Today, economic sense on both must forge outsourcing deals “Judgment Day” has arrived: bank lenders have massive losses on sides of the equation.” that promote greater productivity between the parties. Instead of their books, U.S. home values seeking to gain any business deal from the United have shown an annual contraction for the first States for growth, Chinese manufacturers must be time in seventy years, and the unsold inventory of willing to forgo deals that don’t make economic homes has reached an eleven year high. With China consuming only 50% of its economic production, sense on both sides of the equation. and all too willing to lend its excess to the U.S. in In return, the U.S. economy should take advantage order for us to live beyond our means, the U.S. has of a lower dollar and a more abundant labor market certainly been living on borrowed time. to build manufacturing growth on its own, which will create real productivity, and increase consumer With U.S. unemployment currently sitting at 5.0%, demand. If this happens, and America builds its and the U.S. economy needing a GDP growth of economic growth on real productivity versus artificial at least 2.5% to provide employment to everyone needing a job, it will not be surprising if the U.S. stimuli, Chinese manufacturers will continue to enjoy double digit growth as a function of healthy unemployment rate moves towards the 6.5% that consumer demand from the U.S. some economists are expecting in 2009, and that will continue to push a downward pressure on wages. We see the effects of higher unemployment in a greater supply of truckers as a function of fewer housing permits, and construction workers.

Potential slowdown in China All of these signs are obviously bad for China’s manufacturing sector. For the fourth quarter of 2007, China’s export growth was the lowest since the fourth quarter of 2002. To make matters worse for Chinese manufacturers, the rise of RMB to the dollar will hurt growth as well, even though it will likely curtail a very real concern of inflation. As much as China’s historical manufacturing growth has helped raised living standards (135 million were raised out of poverty between 1999 and 2004, a remarkable achievement), manufacturers in China should not expect this growth rate to continue forever, particularly when 50% of its current exports head to the United States. If real productivity in the www.chainaonline.com

Chinese factories need to prepare themselves for a U.S. recession

MARCH 2008

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CHINESEMEDIA Blizzard cuts off Wal-Mart and Carrefour’s Supply Chain

China Business Newspaper http://leadership.jrj. com.cn/news/2008-0216/000003292221.html Goods in Wal-Mart’s Shenzhen Distribution Center couldn’t be transported due to a surprise blizzard which cut off the retailers

supply chain, reported China Business Newspaper recently. Carrefour trucks were also blocked on the way to Wuhan, Kunming, and Chengdu, which left the two retailers short of a variety of goods.

From January 28, Wal-Mart’s Shenzhen Distribution Center faced severe difficulties.

“The key reason was the roads were covered with ice in Hunan, Hubei, Jiangxi etc. The traffic was very bad, and lots of cars blocked at the road.” said Dong Yuguo, Wal-Mart’s China PR Director.

MAKING BUSINESS FLOW

Prices of Hainan fruit and vegetables remain high

Hainan Daily http://www.china-logisticsnet. com/Zx_center/ShowInfo. aspx?id=128917 The department of commerce of Hainan Province commented in Hainan Daily that Hainan’s fruit and vegetable transportation industry was experiencing severe delays and rising costs due to the snow disaster.

Transportation from Hainan to Beijing took six to eight days, while from Hainan to Wuhan it took five to seven days compared to the former two days. At the same time, there were about 1,200 trucks delayed on route. Hainan’s Department of commerce advised that Beijing’s Ministry of Finance should subsidize the logistics links.

Russian Railway to invest $400.27 million on oil transport

http://www.china-logisticsnet. com/Zx_center/ShowInfo. aspx?id=128915 The Russian Railway Information Office released that the Russian Railway will invest 400.27 million dollars to improve the crude oil transportation between Russia and China.

The project includes the rebuilding of a part of Baycal railway, the aim is to improve the carrying capacity. Most of the project will be finished within 2008.

CHINA Shipping Group and Bao Steel Group built a new joint venture company.

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

http://info.jctrans.com/news/ cgs/2008222603638.shtm

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

The two sides signed a joint venture framework agreement to import iron ore under a long-term transport contract in Shanghai recently. This is the frst time that such cooperation has occurred between a major shipping company and a large steel enterprise in China.

www.cevalogistics.com

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China Shipping Group has a 51 percent shares, while Bao Steel Group has 49 percent shares. ”It is not only a winwin strategic item, will also make a great contributions to the domestic shipping and steel industries,” said Li Shaode, CEO of China Shipping Group. www.chainaonline.com

UPS&DOWNS

Who’s on the Up & Who’s out

It’s no question that competition in China is heating up. In this column CHaINA takes a look at a few companies and individuals connected with China’s supply chain that are winning and losing the battle.

China’s Top 100 Companies

DOWN

UP

To help investors get a better understanding of the corporate sector in China, Standard & Poor’s conducted a statistical survey of the Top 100 listed corporations in the country by revenue size. While many of the companies listed are state owned, a few other corporate brand names, like electronics giant, TCL (#12), computer brand, Lenovo (#23) and white goods company, Qingdao Haier (#44) represented strongly. Maybe the quest for a Chinese company to conquer the world is heating up.

a statement that they had received Mr Zumwinkel’s resignation as chairman of the board of management of Deutsche Post AG and as chairman of the supervisory board of Deutsche Postbank AG. Mr Zumwinkel, CEO of Deutsche Post since 1990, experienced dawn police raids on his home and office. He was taken in for questioning at the state prosecutor’s office in Bochum before being bailed.

Below are the top 10 companies in China, ranked by annual sales (in millions of RMB).

1 - China Petroleum & Chemical 590,632 2 - PetroChina 388,633 3 - China Mobile 192,381 4 - China Telecom 161,212 5 - China United Telecommunications 79,332 6 - China Netcom Group 64,922 7 - Minmetals Development 64,593 8 - Baoshan Iron & Steel 58,638 9 - CNOOC 55,222 10 - China Resources Enterprises 50,105

DPWN chief quits after police raid his home, office in million dollar tax evasion case German logistics giant Deutsche Post World Net (DPWN) CEO Klaus Zumwinkel has resigned in the face of tax evasion charges that he secreted EUR1 million (US$1.4 million) of taxable income into a Liechtenstein bank account.

The executive committee of Deutsche Post AG, the DHL parent company, issued www.chainaonline.com

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SCMGADGETS

Stainless Steel Forklift Raises the Food Hygiene Bar As a new CHaINA feature, we’re taking a look at some of the “gadgets” used by supply chain professionals. Designed by Noax Technologies, the Robusto Forklift Truck is intended for mobile in-house logistics and weighing applications in hygienic environments.

Specifications •Equipped with an integrated weighing system and touch panel PC •Unit has fork width of 21¼ inch and fork length of 46.85 in •Located directly on truck is a 12 inch waterproof stainless steel computer with heating system features •Made of electrolytic polished, stainless steel 1.4301 (304) •Hydraulic lift system is outfitted with soft damping and a quick-lift mechanism •For more features, see: http://www.noax.com

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SPONSOREDFEATURE

LowendalMasaï

Takes cost savings to new heights

A

s of late 2006, French based LowendalMasai is a newly melded company formed when Legal/ Taxes cost optimization specialist, Lowendal acquired the “Sourcings>Cost >Performance” specialist, MASAÏ in late 2006. The synergy created by the merger brings together the mutual strengths of both companies.

In 1996, when MASAÏ was founded by two former management consultants, “Purchasing was considered a dirty word and was mostly a low level function,” explained Clement Homolle, LowendalMasaï’s General Manager China. At the time, few other consultants offered outsourced purchasing strategy and sourcing optimization. Today, LowendalMasaï has over 435 employees in 18 offices worldwide, including 7 sourcing offices in developing countries. MASAÏ opened its Shanghai office in 2004.

“This is our mindset, as soon as you ask and answer the question, ‘why,’ then you can figure out where the cost savings lie,” says Clement Homolle.”

Success based compensation Another distinguishing feature of LowendalMasaï is the way the company is compensated. “From day one in the DNA of MASAÏ, we like to be paid in success fees.

Wherever possible, we choose variable over fixed fees.” This innovation helped LowendalMasaï win initial business over other major consulting shops and ensures that the value that MASAÏ offers to their clients is tangible.

As the Chinese economy matures and there is talk of an economic slowdown LowendalMasaï has a unique opportunity to offer greater value to their clients, who are looking for lower costs.

According to Clement Homolle, LowendalMasaï’s biggest challenge and opportunity going forward is the imperative to operate at a global level: “For us, we need to have the ability to synchronize all our offerings, which is at the same time a difficulty for LowendalMasaï’s clients.”

With manufacturers in China being squeezed at all sides to cut costs, which if current indicators are accurate, will only continue, the opportunity for LowendalMasaï in China appears endless.

Clement Homolle General Manager China

Value added solutions

Services and Solutions

“The value that LowendalMasaï offers goes far beyond purchasing,” says Clement Homolle. One of the key offerings the company offers is called, “redesign to cost” or “value analysis.” When a major train manufacturer approached MASAÏ with the need to reduce their cost on an expensive trolley/fridge designed to fit the aisles, MASAÏ analyzed the design of the fridge and figured out that the expensive -20 degree compressor was way beyond their cold needs; a +4 degree off the shelf compressor was sufficient.

The solution not only saved the cost of the compressor, but also enabled more space in the fridge, meaning higher potential sales.

In line with continuous efforts to achieve savings, the Purchasing function has a major role to play in implementing a company-wide cost optimization project. LowendalMasaï China brings together both consultancy and operational support in order to provide a tailor-made solution to the company’s needs.

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GLOBAL SOURCING • Global Sourcing Strategy / Diagnosis • Supplier Selection / Qualification / Development • Sourcing Operations Ramp-Up • International Purchasing Office Set-Up / Organisation / Coaching

COST OPTIMIZATION • Supply Chain Design / Optimization • Retail Life Cost Optimization • Design To Cost • Analytical Costing OFFSHORE PURCHASING OFFICE • Added-Value Hosting

1505-1506 Hai Tong Tower, 689 Guangdong Road, Shanghai, 200001 上海市黄浦区广东路689号海通证券大厦1505/1506室, 200001 ) +86 21 6341 1255 7 +86 21 6341 1253 8 www.LowendalMasaiChina.cn MARCH 2008

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NEWSROUNDUP

MACRO HR China’s demand for logistics professionals to exceed 300,000 by 2010 DEMAND in China for logistics professionals with university qualifications will be 300,000 to 400,000 by 2010, Xinhua reported. More than a million in the Chinese logistics industry will be required to obtain on-the-job training by 2010, the report said. Logistics professionals have been in short supply in China as Chinese universities have been lagging behind in logistics education, the report said. There are now 218 Chinese universities with logistics degree programmes, and this is far from enough to meet the market demand.

There is great potential for the development of degree programmes in logistics and universities in China should improve teaching and training capacity in this field to cultivate more qualified workers for the logistics companies, the report added.

pressures. Scads of enterprises in these areas are facing reduced numbers of workers and are in the meantime having to raise wages and increase welfare benefits to attract more and more skilled workers.

Matters have been made even worse at the start of this year by disastrous winter weather that centered itself on the Chinese New Year, a time when much of China is traditionally on the road to faraway homes. Blizzards and ice paralyzed the transportation system in southern and central China, stranding many thousands of would-be travelers. The government of Guangdong Province persuaded 3.2 million workers to stay in Guangdong during the holidays and a total of over 13 million workers spent new year’s holidays there. But millions more who made it out may not be returning to the Pearl River Delta until March or April. The delayed return of the migrant workers will inevitably affect the output of the area’s manufacturing in the spring.

“Made in China,” meet labor crunch The monster “Made in China” is discovering that the seemingly endless upside to the modern market place it’s been riding has at least one corresponding downside.

The Pearl River and Yangtze River Deltas, centers of China’s immense manufacturing machine, are confronting increasing labor

NIIT to train IT pros in China Aspiring to emerge as a major global service outsourcing hub, the Chinese city of Wuxi signed a memorandum of understanding (MoU) with Indian technology education firm, NIIT, to set up information technology training centres and create a talent pool of 200,000 IT professionals by 2010. This city presently trains 10,000 IT graduates on a yearly basis.

The MoU reiterates the moves being made by China to parallelly adopt the services-led economic development model from its traditional manufacturing sector-driven economy. Located in the Jiangsu province in the heart of Yangtze river delta in Southern China, Wuxi aims to house 100 international service outsourcing and software export enterprises with an annual export volume of over $30 million.

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LEGAL Bribery exposed for Chinese medical companies Beijing Municipal Health Department has published a blacklist for the pharmaceutical sector, and 18 companies have been included on the list for business bribery. BMHD asks medical institutions of various levels not to purchase medicines or instruments from these companies. The BMHD however has not yet provided a detailed list of penalties or punishments levied against these companies.

The companies are Beijing Yuandong De’er Medical Device Company; Shenahen Piji Bio-engineering Holding Company; Beijng Chengzhi Huajia Technology Company; Aonuo (Hebei) Pharmaceutical Company; Shanghai Yida Medical Instrument Company; Beijing Banbosi Trade Company; Beijing Hengsanjiang Instrument Sale Company; Beijing Hua’erjie Trade Center; Beijing Weili Xinshiji Technology Company; Beijing Yikang Yongjia Technology Company; Beijing Fuji Medical Instrument and Equipment Company; Beijing Wangfengda Medicine Company; Beijing Xinyang RongAn Trade Company; Beijing Asite Medical Instrument Company; Beijing Wei Ao Kang Medicine Company; Beijing Shiqikang Trade Company; Hong Kong Yaotao Company; and Beijing Xiehe Pharmaceutical Company.

FOOD & PRODUCT SAFETY 98,000 Chinese food companies received production licenses Pu Changcheng, the vice-director of China’s General Administration of Quality Supervision, Inspection and Quarantine, said in a State Council Information Office press conference that the special examination of product quality and food safety has been completed and all the goals have been achieved.

100% of the 98,000 food producing and processing companies received production licenses and all of the approved products will be attached with a QS label, said Mr. Changcheng. In addition, 100% of the 120,000 individual food workshops signed a letter of commitment for quality and safety. In the special examination, 16,000 raw material bases were examined; 168 www.chainaonline.com

NEWSROUNDUP news@chainamagazine.com

batches of illegal import meat, fruits and waste materials were returned or destroyed; inspection and quarantine labels were added to more than 120,000 batches of export food products.

CSR/GREEN Chery going green for sustainable development Chery Automobile started the year 2008 in “green”. Firstly, the company provided 50 Chery A5/BSG and A5/ISG as “Olympics Green Messengers” to serve the Beijing Olympic Games. Then with 8 models of its car passing National IV Emission Standards, Chery became the one independently owned brand that owns the most products that pass National IV Emission Standards.

After becoming the “National Engineering Technology Research Center for energy saving and Eco-friendly Automotive”, Chery was authorized to build a national laboratory of energy saving and eco-friendly engineering, which will be an important R&D platform and base for innovative and eco-friendly automotive technology in response to the needs of developing ecofriendly automotive technology.

-- Jiang Fan, www.ce.cn

R&D World Courier expands storage capabilities in India as clinical trials boom BANGALORE, India -- In response to increasing demand from global pharmaceutical companies that conduct clinical trials in India, World Courier

will almost triple the capacity of its ISOcertified, GMP-compliant investigational storage facility in Bangalore during 2008.

The expansion will be undertaken in two phases, with the first phase being completed by the end of January and the second phase set to get under way in April. The facility will remain open for business throughout the construction period.

FOOD & PRODUCT SAFETY China’s genetically altered food boom Greenpeace claims that genetically modified rice has found its way into products which have been imported from China into Great Britain. In the wake of poisonings in Japan linked to Chinese-made dumplings, last week brought a fresh wave of scrutiny to China’s control over its food industry.

In 2006 and 2007, European officials discovered an unauthorized variety of genetically modified (GM) rice made in China - illegal in both Europe and China - in processed food exported to European Union nations. Last Tuesday, the European Commission enacted an emergency regulation on Chinese food imports: Starting April 15, food products containing Chinese rice will require mandatory certification that they’ve been tested for the experimental GM variety called Bt63. -- Krista Mahr, TIME

China still first choice of multinationals for R&D Multinationals have set up 1,160 research institutions in China by the end of 2007, according to figures with the Ministry of Commerce. Given its huge market, large number of qualified staff and competitive costs, 62 percent of the global companies rated China as the most attractive location for prospective R&D, said a ministry official, citing a survey conducted by the UNCTAD (United Nations Conference on Trade and Development).

“China welcomes more international hi-tech companies to set up regional headquarters, R&D centers, procurement centers and training centers in China,” said Zhang Xiaoqiang, vice minister of the National Development and Reform Commission. -- Xinhua

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SUPPLY CHAIN MANAGEMENT SOURCING U.S. companies reassess China sourcing strategies China’s steamrolling of global apparel manufacturing may finally have hit a roadblock. American apparel importers aren’t making any sudden moves yet, but rising costs in China and potential punitive action by the U.S. are forcing companies to review the risks associated with sourcing billions of dollars in apparel from the manufacturing powerhouse. Rapid economic growth in China has sparked inflation in several sectors, driving up prices for energy, raw materials, transportation and labor.

and here to stay, production has begun to migrate to the western provinces and U.S. protectionist attitude is not diminishing. All speak to a more difficult market to navigate over the next few years. That said, there are significant opportunities to expand sourcing bases.” -- Kristi Ellis

“The overall climate in China has become difficult,” said Rick Darling, president of Li & Fung USA. “Price increases are real

SOURCING B2X.com helps revolutionize toy product importing

Trader Joe’s to exclude some food imports from China Trader Joe’s grocery stores are dropping foods from China to satisfy customers concerned about the quality of that country’s products after last year’s spate of problems. By April 1, Trader Joe’s will phase out single-ingredient Chinese imports such as garlic, frozen organic spinach, ginger and edamame, a green soybean, says spokeswoman Alison Mochizuki. The ban doesn’t include products with ingredients from China, a leading source of vitamins and minerals used in many processed foods.

With 285 stores in 23 states, Trader Joe’s is known for good prices on a wide selection of exotic items, from Australian licorice to Indian pilaf. Trader Joe’s says the products it bought from China were safe. But “our customers have voiced their concerns about products from this region, and we have listened,” Mochizuki said. Trader Joe’s stance isn’t likely to be widely copied though.

Major grocers depend on a global market to meet consumer demands for variety. Instead of relying upon blanket bans, retailers say they must choose product sources carefully and check that safety standards are met.

-- Julie Schmit, USA TODAY

Global importing pioneer B2X Corporation today announced the debut of a new kind of service that removes virtually all the key concerns preventing small-tomidsized toy retailers from sourcing products directly from Chinese manufacturers.

B2X Corporation has a unique business model and is based in part on its relationships with the Chinese government and authorized agencies. B2X works directly with its retail clientele throughout every step of the trading process, from helping source trend-setting toys and differentiating products to paying licensing and customs fees even to assuming title of shipped goods on behalf of the buyer.

B2X’s service, unveiled at the 2008 Toy Fair in New York, represents a powerful new option for toy retailers and others who purchase consumer toys in bulk container quantities. “Sourcing from China has become a necessity, but it also involves a substantial amount of risk,” said David Stephen, Vice President Toy Division for B2X Corporation. “B2X is focused on the SME market and has the platform, the process, and the people to meet their sourcing needs. We’re structured to remove risk, the reason more toy retailers don’t currently buy directly from Chinese manufacturers.”

Staples stops sourcing paper from APP Staples has joined retailers like Office Depot in no longer doing business with Asia Pulp & Paper due to environmental concerns, Reuters reports. Environmental groups say APP is involved in illegal logging in Indonesia and China and that the company’s forest-clearing endangers tigers and other animals.

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Until recently, Staples sourced about nine percent of its total paper supply from APP. The Wall Street Journal reports Mark Buckley, vice president for environmental issues at Staples, as saying that remaining a customer of APP was “at great peril to our brand.” Relationships with APP have been problematic for other retailers. Woolworths found itself in hot water last year after claiming that some of its home brand products made from APP-supplied pulp were environmentally sustainable.

MANUFACTURING Plenware opens another office in China Plenware’s new office in Chengdu, which focuses on embedded systems, is recruiting more than 100 employees before the summer, and intends to expand to more than 200 employees in 2009.

On 30 January, Paavo Vyrynen and Hannu Meskanen opened the new office.

Vyrynen is Finland’s Minister for Foreign Trade and Development, and Meskanen is the co-founder and Managing Director of Plenware. The operation’s expertise is embedded systems software.

“The Chengdu office is a continuation of our international expansion,” says Patrik Boman, president and CEO of the Cybercom Group. “The office is a natural part of our global sourcing proposition, in which we combine strong local presence with efficient global delivery capacity.”

Tire Group opens new office in Qingdao Tire Group International (TGI) recently opened a new office in Qingdao, China. Jing Dong Ling, formerly a quality and mixing engineer with Yellow Sea Tire Co., is overseeing all of TGI’s private label production coming out of China. Ling brings more than 10 years of experience and knowledge from the quality control side of the tire building process to TGI.

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“We are now building three private labels (Cosmo, Luna and Industar) in China,” says CEO Tony Gonzalez. “The addition of Mr. Ling will ensure that TGI’s quality standards are being met and that our supply chain is being supervised directly at the source.”

Is a Philips turnaround just beginning?

According to a recent article published in Barron’s, Philips’ turnaround began with a restructuring plan introduced by the Company’s President and CEO, Gerard Kleisterlee: Philips cut its business model mix from about 24 separate units to only 4 business units. At the same time, Kleisterlee began pushing Philips to get involved in emerging markets. Since 2006, shares of Philips have risen about 23% as a result of the clever changes.

Chinese manufacturing sector maintains momentum January’s survey data signaled that the Chinese manufacturing economy started 2008 on a solid footing, with growth moving broadly sideways following December’s partial rebound. The headline, CLSA China Purchasing Managers’ Index (PMI) - a composite indicator designed to provide a single-figure snapshot of manufacturing operating conditions recorded 53.2, down fractionally from 53.3 in December, but above the survey’s historical average of 52.7.

China Resources pursues beer, supermarket expansion SABMiller’s Chinese partner, China Resources Enterprises Ltd, expects to increase its capacity and beer sales by a fifth this year to meet rising consumption, and may make a major acquisition to strengthen its supermarket division.

Executive Director Francis Kwong conceded the sales target was conservative -- it would be a sharp slowdown from 2007 growth -- but reflected the increasing maturity of the world’s largest beer market by volume.

Barron’s said Philips’ most promising opportunity lies in emerging markets.

The article concludes by pointing out that the Company grew its personal products division last year by 50% in Russia, 42% in Brazil, 29% in India and 25% in China.

China’s largest brewer last year grew sales of its premium Snow and other brands by 30 percent to about 7 million kilolitres, easily outpacing the industry. Since 2004, the market has racked up 10 percent-plus annual growth.

OUTSOURCING Snow fooling - the supply chain risks of not asking the right questions Unlike weather forecasters, supply chain managers need to consider the worst case risks of their decisions even if they can’t predict when the risks might occur. If the Blizzard of ‘08 caught you off guard, it says something about your risk management assumptions.

China’s Midea, Toshiba unit to form compressor JV China’s Midea Electric Appliances will form a refrigeration compressor manufacturing venture with a unit of Toshiba Corp, with planned total investment of 492 million yuan ($68.7 million) by October.

The joint venture, based in the central Chinese province of Anhui, will be 95 percent owned by Midea and have annual production capacity of 5 million compressors, Midea said in a statement. Toshiba Carrier Corp will hold the remaining 5 percent.

Midea will inject 309 million yuan into the venture, which will secure loans to fund the remainder of the planned total investment, it added. Midea also said it planned to issue additional A-shares to raise 3.56 billion yuan to fund 10 investments, including the joint venture with Toshiba Carrier.

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first and foremost to international overseas logistics (sea and air freight) and to automotive logistics.

LOGISTICS Zhengzhou airport acquires licence to import fruit ZHENGZHOU airport became the first designated airport for fruit imports in Central China as it acquired a licence from the General Administration of Quality Supervision, Inspection and Quarantine of China, Xinhua reported.

The acquisition of the licence will make Zhengzhou airport an logistics and trading platform for import and export agricultural and perishable produce, the report said.

GEFCO opens a subsidiary in China A key area of development in this region is the export of new vehicles produced in China and their export China’s worst weather in 50 years tied the country’s infrastructure in knots, stranding millions of migrant workers who were traveling to visit their families to celebrate the lunar new year, shutting power plants due to delayed coal deliveries, and snarling a rail and highway system already on overload.

The implication for risk management is clear, says Jon Gilbert, a logistics consultant with the Gilbert Group: “When you outsource to a foreign country , you’re not just buying the capabilities of the plant, but the whole distribution network in that country, and the infrastructure that supports it. We should not be surprised when we hear about large-scale transportation interruptions in China from this snow storm because their infrastructure is challenged even under normal conditions.”

-- By Bill Robert, TFI Blog

The GEFCO Group has opened a new subsidiary in China, stating its intentions to manage its own development in this market. This move ends the joint venture founded in 2004 with the Chinese logistics group DTW, and positions GEFCO as a fully owned subsidiary, following the acquisition of DTW’s shares. It takes the name of GEFCO International Logistics (China) Company Limited.

The Beijing-based subsidiary will concentrate its activities on international flows to and from China. It will be dedicated

Tianjin to invest US$195 million in suburban logistics parks TIANJIN will invest CNY1.4 billion (US$195.01 million) in logistics facilities on its outskirts including the districts of Dongli, Xiqing, Tanggu, Beichen, Baodi, Dagang and Jinghai.

The logistics facilities, with annual logistics added value of CNY1.5 billion when completed, will be important parts of Tianjin’s international logistics network, the report said.

LOGISTICS FM Logistic Group invests in mega logistics facility in Jiangsu FRANCE’s FM Logistic Group, which is one of the five largest providers in Europe, has invested US$130 million on its largest facility in China, Logistics Week reported.

The facility is located in Jiangsu province. The first phase covers 20,000 square metres and will be finished by September. After the entire project is completed in 2010, it will cover 100,000 square metres.

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API to warehouse Dassault Falcon spares in China Aerospace Products International, Inc. (“AP”), a wholly-owned subsidiary of First Aviation Services Inc. and Dassault Falcon Jet today announced the launch of a Logistics Services Program to support Dassault Falcon Jet customers operating in China. The Logistics Services Program will be based at API’s Shanghai, China facility operated by whollyowned subsidiary, Aerospace Products International (Shanghai) Ltd.

HHI sets up jv bulker firm with Grand China Logistics Seoul: South Korea’s Hyundai Heavy Industries on Feb. 4 came to an agreement with Grand China Logistics, a subsidiary of China’s Hainan Airlines Group (HNA Group), to establish a joint venture bulker owning/operating company in Hong Kong, according to a report by Xinhua News Agency. While details of the envisaged joint company are still unclear, joint-venture partner Grand China Logistics currently has plans to procure more than 200 bulkers.

Top executives of HNA Group and HHI entered into a cooperative agreement on Feb. 4. Both parties will cooperate with each other in the fields of logistics, finance, and strategic investments in the future.

LOGISTICS Volvo to double parts storage capacity in China According to local press reports, Volvo’s wholly-owned Volvo Parts (Shanghai) Co Ltd plans to add a further 1,800 m2 of warehouse space in Waigaoqiao area in northeast Shanghai from April, whilst another 5,000 m2 coverage is also under consideration.

At present, the Company has a 4,600 m2 warehouse in Shanghai Waigaoqiao Free Trade Zone, in addition to an adjacent 1,000 m2 area.

CUSTOMS Shanghai customs launches international LCL transit service SHANGHAI customs launched a new service called “International Less-thanContainer-Load Transit Programme” on February 5, which is said to be strongly supported by the government to speed Shanghai’s throughput toward its aim of becoming the world’s shipping centre.

According to the Shanghai customs, the service allows Chinese export cargo to be consolidated with transit cargo from other countries without having to declare customs on entering into Yangshan Bonded Port Area before it can be shipped abroad. Brilliance Cargo Management Co. Ltd is the authorised domestic provider of the new service.

Nanjing customs to provide convenience for law-abiding companies CUSTOMS at the Yangtze River Delta city of Nanjing has signed a cooperation agreement with 38 leading enterprises in Jiangsu province, Logistics Week reported.

The agreement aims to provide greater convenience for law-abiding and trustworthy companies to facilitate trade. For those companies that have signed the agreement, customs will relax control on their cargo.

The measure is expected to enhance customs operation efficiency and lower the cost of business, said the reported.

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Who reads the 2008 VENDORS DIRECTORY? The Directory is read and used by key decision-makers in companies that regularly buy and use supply chain and logistics services and facilities in China. These are the people that decide which supply chain and logistics service providers to use in China.

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Targeted at qualified decision-makers, the directory is distributed free-of-charge to subscribers of CHaINA Magazine and companies based in mainland China who request a copy (companies are only asked to cover the mailing cost). In 2008, we will print more than 10,000 copies, which will be given out at more than 100 supply chain and logistics-focused events each year.

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8 www.supplychain.cn

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“Being recognized once again as one of the world’s top outsourcing firms is an important distinction for us” said Bill Concannon, Vice Chairman of Global Corporate Services for CB Richard Ellis.

“This underscores our focus on continuing to provide our clients with best in class integrated, global commercial real estate and facilities services.”

IT RedPrairie unveils inbound freight tracking tool Supply chain software firm RedPrairie unveiled a new tool this week focused on managing inbound freight shipments as well as reverse logistics.

RETAIL China’s dairies milk the local advantages With a strong economy, a large population and relatively low per capita consumption of dairy products, the Chinese dairy market retains huge growth potential, despite the fact that Chinese consumption of dairy products is about 10 per cent, or less, than in developed western countries.

When Pan Gang, the chief executive of one of China’s largest dairy companies, attended a top-level meeting of the Communist party in Beijing in October, he complained about the growing role of foreigners in the industry. “Many of the foreign firms are only looking for short-term gain when they come here - they just take away the milk,” he says.

According to a press based Routing Portal collaboration required suppliers and carriers to delivery requests and scheduling with carriers.

release, the webemphasizes the between buyers, manage transport coordinate dock

Managing inbound freight effectively requires tight coordination among vendors, transportation providers, and customers, said Erv Bluemner, a RedPrairie spokesman.

The new tool also allows users to manage multiple shipment releases against a single purchase order and captures and validates inbound supplier shipment needs. It also lets carriers schedule appointments online and provides enterprise-wide dock scheduling visibility

SK Telecom enters China telematics market SK Telecom Co. Ltd said it has bought controlling stake in Shenzhen E-eye High Tech Co., paving the way for the South Korean telecom to advance into China’s telematics market, according to a report in Korea.net. The purchase was for a controlling 65.5-percent stake, and cost $14.7 million. Shenzhen E-eye High Tech manufactures GPS terminals and provides software platforms for logistics.

Hyundai Heavy Industries expands use of Siemens PLM into China HHI China Investment, a subsidiary of construction equipment manufacturer Hyundai Heavy Industries Group, says it has selected Siemens PLM Software to cut development costs, enhance product quality and reduce time to market.

HHI Electro Electric Systems Division, HHI Engine & Machinery Division and HHI Construction Equipment Division have all been using what was UGS PLM technology since 2004 in a collaborative arrangement with some 1,000 suppliers.

Manhattan Associates launches Flow Management Manhattan Associates has announced the release of Manhattan Associates Flow Management, a cross-suite solution that

REAL ESTATE IAOP again names CB Richard Ellis top outsourcing provider The International Association of Outsourcing Professionals (IAOP) has named CB Richard Ellis Group, Inc. to the 2008 Global Outsourcing 100 for the second straight year. The list recognizes the world’s best outsourcing providers across all industries, and is based on applications received and evaluated by an independent panel of judges.

CB Richard Ellis, the largest provider of outsourcing services in the commercial real estate industry, was first recognized with the IAOP award in 2007, following its acquisition of Trammell Crow Company.

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Chinese factories losing competitive edge Costs in China are climbing nationwide, but the greatest pain is being felt in the south, where about 14,000 Hong Kong-run factories could close in the next few months, said Polly Ko of the Economic and Trade Office in Guangdong, which neighbors Hong Kong.

Thousands of smaller Hong Kong, Taiwan or Chinese-run factories in south China’s traditional export hub of Guangdong are closing or moving out.”China needs to reprice its exports, and that has to be accepted by international buyers,” says Andy Xie, an independent economist based in Shanghai.

Prices for plastics and other materials have climbed 30 percent or more, and electricity rates are surging, too. The government has also slashed export tax rebates - originally given to promote exports - on more than 2,800 products accounting for nearly 40 percent of all Chinese exports. A new labor law requiring stronger employment contracts is expected to raise costs even more. The steady appreciation of China’s currency, the yuan, also contributes to the problem.

To adapt, many multinational manufacturers, including Intel Corp., iPod-maker Hon Hai Technology Group and Japanese companies like Canon Inc. and Sony Corp. are expanding operations in Vietnam. -- Associated Press

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Analysis: Dell struggles with supply-chain shift Michael Dell is on strange grounds.

Sometimes apologetic and at times blustery, the doyen of supply- chain efficiency and his chief financial officer stumbled to find the right words to explain why Dell Inc. missed its fiscal fourth quarter revenue target.

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Forget about the tortuous explanations that emerged from Dell’s conference call with analysts on February 28. What it boils down to is the difficulty Dell is having transitioning its business from a direct-sale system that relied on a single but highly efficient supply chain structure into a more diverse design, manufacturing and - direct and retail - sales system.

Until just two years ago, when HewlettPackard Inc. snatched its PC market leadership crown, Dell was content to market its product directly to customers, cutting out the complex layers of supply-chain partners that characterize such systems.

Forced to compete with HP, Apple, Lenovo and other technology OEMs on their turf, Dell is struggling to remake not just itself but also its entire product design system along with its new product introduction structure and all the components of its supply chain, including components procurement and supplier as well as contract manufacturer management.

“The first thing we’re doing is...creating effectively more than one supply chain alternative for how products reach their ultimate destination,” said Dell, chairman and CEO of the Round Rock, Texas, company during the analysts’ conference.

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23

Mr.Cool

Havi Food Services is keeping the

COVERSTORY

W

ith reports of tainted food and medical products manufactured in China becoming a daily occurrence, concern over the safety of everything Chinese has come under increasing international scrutiny, and cold chain is no exception. With the upcoming 2008 Olympics in Beijing further thrusting China in the spotlight, the Beijing Olympics Commitee has awarded a large contract to veteran cold-chain expert Havi Food Services to make sure that potentially embarrassing food-safety issues are kept to a minimum.

An unlikely candidate With his Hawaiian shirt, heavy chrome framed glasses and a PHD in Ancient Chinese History, Bill O’Brien, President, Greater Asia, Havi Food Sevices, seems out of place in a warehouse. We visited the long-time China resident at Shanghai’s Havi Foods cold storage centre in Jiading – a Northern suburb of Shanghai – just one of several Havi cold storage facilities that Bill oversees, which process, store and move food for clients such as McDonalds, Metro and Croissant de France. Havi Food Services, which was founded in 1974 to provide distribution and services to McDonalds in the Chicago area, has become the foremost cold supply chain provider in Asia.

As one of the few companies with the capability and the know-how to safely transport fresh fruit and vegetables, meats and dairy products in China, Havi Foods will handle all the food transportation for the upcoming Beijing Olympics, including all the concession stands and even the food flown in for the athletes. “All food going through the Olympics goes through us,” says O’Brien.

“Why Havi Foods? We deifnitely were not the government’s first choice,” says O’Brien. “Unfortunately no local company had the resources and the knowhow to do the job.”

Because of Havi’s competitive advantage, it may be the only local company delivering cold chain product during the 2008 Beijing Olympics. O’Brien says local companies just aren’t up to the challenge, and probably wont be anytime soon due to the enormity of the problem. “There is need to create a basic infrastructure for food inspection in hypermarkets”, says Bill, “Even international companies are selling product everyday that does not meet their own standards.”

Reforming cold-chain from the inside-out?

Although experts like Bill O’Brien aren’t expecting to see a fully developed cold-chain overnight, internal pressure from China’s growing middle class is helping to provide additional incentives to modernize.

According to A.T. Kearney consulting, “The Chinese middle class of approximately 500 million will spend more than US $650 billion on food by 2017.

A.T. Kearney reports, “More than 95% of Chinese consumers rank food safety as a ‘very important’ criteria for their purchase behavior. As a result, food safety is driving shoppers to modern retail formats and away from the traditional wet markets. Most middle class shoppers are willing to pay premium prices to ensure safe food.” Typically the needs of the customer play a key role in shaping markets, but as is usually the case, things in China aren’t always what they seem.

New methods face competition from traditional know-how While it’s likely that China’s new middle class wants freshness and variety in addition to safety, and that effective transportation throughout the country is a growing necessity, competition from traditional wet markets remains a significant obstacle to change.

Although wet markets have seen reduced market share, whether or not the wet markets will completely disappear is a matter for debate. Although safer food options generally coincide with a move away from

Melanie McGanney is a freelance editor and writer from New York based in Shanghai, China. Her work focuses on supply chain, business and the visual arts scene in China. She has been published in Newsweek Select, Visual Production, ALL Magazine, Huffington Post to name a few.

heat off China’s cold chain www.chainaonline.com

MARCH 2008

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COVERSTORY

Bill O’Brien and Fei Li, Havi’s Shanghai Manager in their Distribution Center traditional fresh food markets to modern, westernstyle supermarkets and hypermarkets, the Chinese wet market is a long-standing tradition that may adapt to consumer demands.

Steven Wolfe, of AllFresh Technologies, an industry leading refrigeration technology provider, believes that wet markets may be around for a while yet. “Farmers need additional outlets,” he says, “they cannot rely only on retail and food service buyers in the case where they have overly abundant harvests to move. I believe that there will still be some portion of the wet market that survives for a decade, at least. It will move toward specialty items and maybe will sink some roots in organic and green produce crops. It will adapt with better refrigeration practices to compete as the cold chain develops.”

Traditional distribution isn’t the only obstacle Fragmented infrastructure, underfunding, poor management training and lack of hygiene have plagued China’s infantile cold supply chain. At the same time, the rapid rise of the Chinese middle class, and the government’s concern about global opinion makes cold chain one of the most important sectors in China’s development as a country.

China’s supply chain is naturally more fragmented than those in the West. With 150 million farms, the challenges of organizing and maintaining temperature controlled line-haul trucking, warehousing, local 26

MARCH 2008

distribution and direct store delivery are far greater than in a place like the U.S. where there are only two million farms. A.T. Kearney has cited the cold chain as “One of China’s most pressing logistics concerns.” The size of the country demands an integrated chain to guarantee safety, yet China is the land of “one-function high-cost service providers.”

Despite the influx of companies, rise of middle class and increasing need, James Morehouse, Senior Partner at A.T. Kearney, has witnessed only slight improvements in the cold chain over the past five years and “anecdotally, stories are just as bad as they’ve always been.”

His team reported that, “widespread food safety processes have not yet been adopted by China’s food supply chain. In a recent case study in China, only 28 of 375 food supplier applicants completely met global standards for food safety.”

Does it pay to play it safe?

Although some companies have managed to overcome the obstacle imposed by a reliance on traditional food distribution networks and underdeveloped infrastructure, not all of them are sure it has paid off. www.chainaonline.com

COVERSTORY James Rice, Vice President and Country Manager of Tyson Foods, believes that the current market actually places companies with compliant cold chain practices and high standards at a disadvantage.

“Because the development of the cold chain system in China has been slow,” says Rice, “we are limited to specific areas in China where we can sell our product (we do not sell to regions without cold chain support). Tyson has had difficulties locating good third party storage and distribution facilities because we do not want to invest and own ourselves.”

It is a major frustration to companies like Tyson that “local competitors choose to save money and ship products outside the cold chain.” The message about safety has yet to pervade China.

“Unfortunately,” Rice notes, “many Chinese consumers are motivated to purchase on price alone. When Chinese consumers begin to demand and pay for safe food, then manufacturers and retailers will have to deliver quality products with a good cold chain system.”

Although the problems are clear, solutions are not While it is clear that the Chinese consumer and foreign purchasers alike are not satisfied with China’s cold-chain, it is unlikely that demand alone will solve China’s massive infrastructure problems.

According to A.T. Kearney, “China needs to expand its existing capabilities of 30,000 refrigerated trucks and 250 million cubic feet of cold storage in 2007 to 365,000 refrigerated trucks and 5 billion square feet of cold storage by 2017.” Major financial investments are the only way to affect this extreme expansion of capabilities.

www.chainaonline.com

It is likely that the decisive factor will be a national standard of safety for all food in the cold supply chain. Should this standard be on par with those in the west? Or would it be more pragmatic to set the bar a little lower; should China set a standard that more of its companies could realistically meet?

According to O’Brien, “The standards set by the government for the Olympics are far above anything ever set or met before in China. The majority of the meat will have to be imported because no Chinese logistics company will be able to deal with the Olympics situation.”

Morehouse agrees that government intervention may likely play a part in changes to China’s cold chain, with foreign companies playing a larger role. “There needs to be an international minimum threshold for all product and a joint industry-government enforcement process will be necessary to ensure the standards.”

Despite the tremendous obstacles, Morehouse believes this international standard is achievable over the next decade. With China’s formidable track record in tackling some of the countries other obstacles, it’s likely China has the capability. The larger question is whether the political and economic will exists. In the words of Steven Wolfe, “China can do it, but will it?”

Definitely companies like Havi will help to push for change. Havi’s Shanghai facility is state of the art, much like anything you’ll see in Europe or the United States. It doesn’t rely on cheap labour; only 16 workers manage the distribution for 200 Mcdonalds stores. Their service level rating for Metro is higher than 99.7%.

“Hopefully the Olympics will result in an improvement in the overall environment of food safety in China,” said O’Brien.

Once the limelight post-games has faded, it will be interesting to watch what happens.

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27

KNOWHOW

Suppy Chain 101 Back to the Basics!

Chris R Deans is a seasoned supply chain executive, with over 25 years of experience in the Energy, Forest Products, Government and Consulting Industries. He has provided leadership and supply chain consulting and training for Fortune 100 corporations such as AT&T, Lucent and Kraft.

Cycle Counting Cycle counting—counting a few items or a few locations in the warehouse every day—is far superior to periodic wall-to-wall physical inventories. It is a process; you do not need a Warehouse Management System to do it. We will look at some of the reasons why cycle counting is so much better than periodic physical inventories in this edition of ‘Supply Chain 101—Back to the Basics.’

Costs of Inaccuracy How much time is wasted in the warehouse by operators walking up and down the aisles searching for ‘lost’ items? Are orders sent out incomplete because on-hand quantities are not really known or understood? Are safety stock levels unreasonably large to cover for inaccuracies in on-hand quantities of key items, materials or components? Besides these costs, what are the costs of reorders, re-ships, re-planning, additional set-ups, and the hidden costs of lost sales and lost customers?

To perform the count as quickly as possible, overtime is usually authorized and often labor is brought in from outside the warehouse to “help out”. This can be in the form of non-warehouse employees who are conscripted for the effort or worse yet, hiring temporary contractors.

Either way, people unfamiliar with the warehouse and the items in it are now responsible for accurately recording counts of SKUs in the proper units-ofmeasure. Counting is extremely tedious work, especially in a pencil-and-paper environment. As time passes and as

Once weaknesses are identified, steps must be taken to permanently correct them. This is one reason why a good cycle counting program is a cross-functional collaborative effort. All stakeholders in the Supply Chain must be informed and involved in the success of the program.

Not only is waste driven from the Supply Chain, but a Six-Sigma level of accuracy in inventory is generated.

The Benefits Cycle counting is a value-add process which must be performed every day. It is part of the daily discipline in the warehouse, just like receiving or put-away or picking. It is also part of the warehouse’s continuous process improvement initiative. An employee specifically dedicated to Inventory Management can do it, or it can be done by the warehouse operators as part of their daily responsibilities, without a WMS. Time spent performing daily cycle counts will be more than offset by time currently spent searching warehouse locations for lost items. Periodic physical inventories will no longer be needed. The accountants usually object to this, but they can be convinced that accurate inventory valuation corresponds directly to accurate on-hand quantities.

Cost savings can be expected from the following areas:

Many believe that performing a wall-towall physical inventory will correct these problems. Taking a physical inventory is a non-value add activity—neither your customers nor your shareholders want to pay for it, and a full blown physical inventory is usually a fairly expensive undertaking. Typically, to accommodate cut-offs for the accountants, a warehouse is shut down for the duration of the counting.

This creates a huge disruption that is felt upstream and downstream in the Supply Chain, affecting inbound and outbound delivery lead times, straining relationships with customers, vendors and transportation contractors, creating even more waste and resulting in lost sales. www.chainaonline.com

people reach the end of their shifts or their count assignments, accuracy is often sacrificed for expediency. As a result, inaccuracy in the warehouse, rather than being eliminated, is exacerbated.

Shift Your Thinking For cycle counting to be effective the real reasons why it is performed must be understood. Cycle counting is done primarily as a technique for continuous process improvement to uncover weaknesses in business processes within your Supply Chain. The weaknesses that are uncovered will not all be in the warehouse. Most of them will be found upstream, in ordering and delivery.

• • • •

Increased warehouse productivity Reduced safety stock inventory Elimination of periodic physical inventory Reduced set-ups

There will also be intangible benefits that will drive increased profitability from the following: • • • • •

Shorter delivery lead times Increased complete order fill rates Better information Driving waste from the Supply Chain Increased customer service levels leading to increased sales

Stay tuned for the next edition of ‘Supply Chain 101—Back to the Basics,’ where we’ll continue to look at ways to streamline your operations.

MARCH 2008

29

COMPANYPROFILE

Yunnan’s cold market goes local Everyone knows the Dutch love tulips – who knew they grew them in China?

A region strong in flower production, Yunnan province in Western China has a resulting big demand for cold storage Formerly handled in Holland or other countries, cold storage capacity has gradually become localized.

I

n addition to supplying major domestic markets, flowers grown around the provincial capital Kunming are flown daily to Hong Kong and Bangkok, from where they reach markets in the Middle East, Europe and North America. Fruit, vegetables such as fresh matsutake mushrooms grown near Dali are loaded onto planes to Japan just hours after harvest. Reductions in tariffs for fruit imports from Southeast Asia have made the province a main port of entry for tropical produce heading to other markets in China.

Part and parcel with the increased transport of perishable goods out of Yunnan is a growing need for quality cold storage facilities. Cold storage facilities in Yunnan’s major cities including Kunming, Yuxi, Qujing and Chuxiong have traditionally been few in number and low in quality.

Looking to capitalize on the growing market for cold storage facilities in Yunnan as well as elsewhere in China, Netherlands-based Geerlofs Refrigeration established its China headquarters in Kunming last year, making it the only manufacturer of internationalstandard cold store facilities located in Yunnan.

Developing a local market According to Geerlofs China General Manager Henk Vaandrager, the company first came to China 15 years ago when it was approached by a China-based client to build a cold store complex in China. After building the complex, other cold store facilities for the same client followed. Recognizing the sales potential for cold storage facilities in China, Geerlofs Refrigeration signed an agreement with a Shanghai based company to become their agent for China.

Over the years to follow various cold store projects for the storage of fruit, lily bulbs and flowers were built. Despite having successful projects in China, it became more difficult for Geerlofs to remain competitive on the mainland, as all projects were designed, engineered and assembled in the Netherlands, and constructed at the project site by Geerlofs’ own engineers. www.chainaonline.com

COMPANYPROFILE

storage “This left us with two options,” Vaandrager said.

“Either leave the Chinese market for cold storage facilities, or transfer all activities which were previously performed in the Netherlands to China and try to regain competitiveness.”

said that despite lagging behind more developed parts of China, companies in Yunnan are quickly realizing the need to upgrade their facilities in order to satisfy international norms.

“In the past, issues such as food safety and HACCP were not yet relevant in this region, and the average company didn’t have much of a budget to set up its own cold store facility,” Vaandrager said.

Rather than setting up in China’s coastal region, Geerlofs decided to establish its mainland operations in Kunming, which is being groomed as a transport and trade hub for the upcoming FTA between China and ASEAN, scheduled to launch in 2010. In anticipation of the FTA, Kunming is building what will be China’s fourth-largest airport plus a new container rail terminal that will be integral to a national network connecting 18 cities.

Why establish one’s China headquarters in Kunming? A large Dutch clientele comprised of companies involved in the flower business was a major factor, Vaandrager said.

“Yunnan is the center of the flower industry within China due to its favorable climatic conditions which enable several harvests per year - more and more Dutch floricultural companies consider Yunnan as a promising province to either start production activities in young plants for the Chinese domestic market, or to produce cut flowers for the Asian export market,” he said.

Standards are becoming international In addition to the design and manufacturing of cold stores, Geerlofs’ Kunming office is also responsible for coordinating sales throughout China. Vaandrager

“More and more local companies are now facing stricter demands from their foreign customers regarding product quality and food safety. This results in cold store facilities having to satisfy higher quality standards.”

“More and more local companies are now facing stricter demands from their foreign customers regarding product quality and food safety.”

Vaandrager said Geerlofs’ biggest challenge is to educate local companies on how a cold store installation operates, and how they can recognize the differences between a ‘local’ cold store and a ‘Geerlofs’ cold store. Despite this need for market education Geerlofs is anticipating strong future demand in Yunnan for international-standard cold stores, especially as the China-ASEAN FTA draws nearer.

“Because of its location, Yunnan is working to become the logistical hub between China and neighboring countries such as Laos, Vietnam and Myanmar. The China-ASEAN FTA will stimulate this development. Where logistical centers are established, especially for perishable products, cold store facilities need to be erected. Therefore the FTA should have a positive overall effect on the demand and availability of cold stores in Yunnan.”

www.chainaonline.com

Chris Horton is managing director of the Meridian Group of Hong Kong, a research firm with offices in Hong Kong and Kunming. He is also the editor of GoKunming.com and is a regular contributor t o C h a i n a magazine.

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SPECIALFEATURE

The Russians

are coming

by Russel Beron

CHaINA spoke with JSC Transcontainer, a major Russian multimodal transportation service provider at the Shanghai International Transport Logistics (SITL) tradeshow about their plans for China and wider Asia.

China’s Cherry Automobile rolls out a new car assembled in Russia

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n January 24th, JSC Transcontainer completed a trial run of the first international container train from Beijing to Hamburg, a journey of 9,954 kilometers in only 15 days. This is just one of many multimodal routes that JSC is testing and running as part of a strong drive to move goods – including a sizeable amount of auto parts -- between Russia, Europe and Asia.

CJSC SeverstalAvtoIsuzu, 30 40 ft containers carrying auto parts for Isuzu cars were transported from the Japanese port of Yokohama to the Russian Port of Vostochny and then on to the Ulyanovsk III three station through the Trans-Siberian rail line. The total transit time of this journey is 18 days and the company will offer a similar service from Yokohama to Elabuga in the first quarter of 2008.

The train left Dahongmen, Beijing’s railway station on January 9 and arrived in Hamburg with 20 40-ft and 58 20-ft containers (98 TEU in total) loaded with different types of cargo.

“It is the first time for JSC TransContainer to work with SeverStalAuto-Isuzu,” said Mr. Baskakov, “But SeverstalAuto is one of the most reliable long-term partners of TransContainer and in the near future, we are planning to open a representative office in Elabuga, the location of the SeverStalAuto plant, where we will undertake all the transport and logistics tasks for the company.”

According to Peter Baskakov, Director General of JSC TransContainer, the run should attract consignors from China to the Trans-Siberian mainline, to use it as an alternative to sea trade routes for transportation from the Asia Pacific region to Europe.

“Russia and China traditionally are the most important trade partners for each other,” said Mr. Baskakov. “China plays a vital role in Russia’s foreign economic relations – it ranks number six among Russia’s largest global trade partners and number one in the Asia-Pacific region.

Auto parts on the move

MARCH 2008

JSC Transcontainer’s rail routes are an alternative to sea routes and dramatically reduce delivery times. For example, Mr. Baskakov noted, “Delivery from Korean ports to Moscow and St. Petersburg by sea will take about 40-45 day whereas the same delivery via TransSiberian railway will take about 14-15 days.”

JSC Transcontainer is an affiliate of JSC Russian railways and offers a full range of logistics services including rail, road and sea cargo handling as well as customs clearance. A good part of their new routes are designed to carry auto parts and cars between Russia, South Korea and Europe as well as across China and into Mongoloa.

The company also provides through services on delivery of cargo such as electronics components from the Chinese ports of Tianjin, Dalian, Qingdao, Xingang and Shanghai to Moscow’s Rizhskaya Station and Kuntsevo-2 Station. In future, JSC plans to deliver components from China and Korea directly to LG’s plant at the Tuchkovo Station.

“We move 500 40 ft containers a month filled with auto parts between South Korea and Uzbekistan,” said Yuri Morya, JSC’s Director of Sales and Intermodal Transportation at the SITL tradeshow.

“We are also in the process of testing service from South Korea to St. Petersburg, which would cut transportation time from 60 days to two weeks.”

Most of the auto parts JSC are shipping will be used in the production of new cars, though the future could also see transportation of spare parts.

In December, marking the beginning of a longterm collaboration between JSC TransContainer and 32

Trains versus ships

“The biggest challenge for JSC,” said Mr. Morya, “is to keep up with the fast development and to grow with the market, particularly in China.” As such JSC is cooperating with Chinese rail companies, who are undergoing their own transformation to offer more comprehensive services. www.chainaonline.com

REGIONALFOCUS

Heilongjiang:

Rust Belt Revival

Friendlier relations with neighbors and substantial growth in consumer demand among second- and third-tier markets in recent years has transformed what were some of China’s most isolated regions into emerging international trade hubs.

Harbin, famous for the annual ice festival, is the largest cty in Heilongjiang province.

by Chris Horton

A

dministrative regions that are benefiting from these shifting dynamics include Xinjiang, which is becoming China’s gateway to Central Asia, and Yunnan and Guangxi, which connect China with the resources and markets of Southeast Asia.

The northeastern province of Heilongjiang is also well-positioned to grow as a center of trade with China’s massive neighbor to the north - Russia. Heilongjiang is actively promoting itself as China’s gateway to the Russian market, with the provincial government encouraging the development of core competitiveness among enterprises focused on trade with China’s largest neighbor.

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MARCH 2008

Gateway to Russia Increased trade with Russia – which itself had previously administered Heilongjiang less than a century ago - is the dominant force driving Heilongjiang’s rapidly growing foreign trade. Trade with Russia constituted 94.6 percent of the province’s total foreign trade in 2007.

Heilongjiang’s trade relationship with Russia continued to be highly imbalanced, however, with exports growing more than 25 percent to reach US$5.77 billion, compared to only US$1.54 billion in imports, which were up by 20.1 percent. Provincial www.chainaonline.com

REGIONALFOCUS authorities predict that in 2010, Heilongjiang’s trade with Russia will reach $14 billion.

The importance of trade with Russia has not been lost on provincial or municipal officials in Heilongjiang. Last year the provincial capital of Harbin accelerated construction of the Harbin International Science and Technology Park.

The park will primarily focus on projects involving technological cooperation between Heilongjiang and Russia with the goal of getting more Russian companies to establish research and development operations in Harbin. Throughout Heilongjiang a total of 10 logistics parks and 15 logistics centers are being constructed with an eye on increasing China’s trade with Russia via the province.

Heilongjiang’s trade imbalance with Russia is not likely to improve anytime soon, as the

at the east end of the Eurasian land bridge offers unique advantages in terms of importing from and exporting to Russia.”

But geographical proximity alone does not a trade hub make. Liu cited an immature trading environment, a major trade imbalance with Russia and underdeveloped road and rail logistics as major challenges facing Heilongjiang’s desire to increase its international trade.

Emerging from economic decline In 2007 Heilongjiang’s provincial GDP totaled 707.72 billion yuan (US$98.78 billion) a year-onyear increase of 12.1 percent – the sixth consecutive year of double-digit GDP growth for the province.

Heilongjiang’s recent economic growth comes as the province begins to recover from the shift of attention away from the northeast and central provinces to China’s coastal regions.

Heilongjiang is one of China’s largest administrative regions, covering a total area of 454,000 square kilometers and boasting a population of 38 million – roughly similar to the population of California. It is also China’s coldest province, with snow on the ground for most of the winter and temperatures as low as -30 degrees Celsius. In the last half-century, Heilongjiang’s economy has primarily focused on coal, petroleum, lumber, machinery, and grain.

“Heilongjiang has some advantages not found in other parts of the country” In the PRC’s early days of industrialization, Heilongjiang was one of the country’s northeastern powerhouses. The city of Daqing is home to China’s largest oil field, which was first tapped in 1959.

The urban boom that followed led Mao Zedong to urge Chinese everywhere to “learn from Daqing”, a popular slogan for promoting industrialization during the 1960s and 70s. Coal mines at Jixi and Hegang and industrial centers in Qiqihar, Jiamusi and Mudanjiang solidified Heilongjiang’s status as an important center of industry and energy resources for the country.

province is rich in resources and is located adjacent to the Russian Far East, which lacks the major production centers and markets of the country’s west. Furthermore, Heilongjiang is constructing several export processing zones specifically targeting Russia. Chinese enterprises from beyond Heilongjiang are being encouraged by the provincial government to use these zones as a launching pad into the Russian market.

“Heilongjiang has some advantages not found in other parts of the country,” said Ivan Liu, manager of Maersk Logistics’ Harbin office said. “Its location www.chainaonline.com

During these decades of industrialization the provincial economy was buoyed by the growth of massive state-owned enterprises (SOEs), which served as the “iron rice bowl” for a large percentage of the people living in the province.

At the end of the 1970s, as Deng Xiaoping launched his “reform and open” policies that moved the country away from a centrally planned economy, Heilongjiang and the other northeastern provinces of Liaoning and Jilin suffered from an economic decline similar to the decline of American industrial cities such as Detroit, Cleveland and Pittsburgh.

Having made major contributions to new China’s economic development, Heilongjiang seemed to have been left out in the cold.

MARCH 2008

35

REGIONALFOCUS By the late 1990’s Heilongjiang was suffering heavily from massive layoffs at SOEs under Premier Zhu Rongji. The province was generally viewed as a hasbeen, with high unemployment, growing social unrest and major difficulties in competing with China’s new hot zones – the Pearl River Delta, Yangtze River Delta and Bohai Rim areas – for the foreign investment that had begun to pour into the country.

“Private SMEs are the dynamos of China’s economy, and the 200 companies on the list represent the fastest growing group in the Chinese corporate sector,” Yang said, citing his company’s solid recent growth. “Between 2004 and 2006 we had average sales growth of 168 percent, profit growth of 160 percent and a return on total assets of 33 percent.”

A few years later the government headed by President Hu Jintao and Premier Wen Jiabao began to focus on addressing the stagnant northeastern provinces. In late 2003, the State Council – China’s Cabinet - created a special office for the purpose of stimulating a revival of the northeastern provinces via infrastructure investment, preferential policies and other measures. Revitalization of northeast China is a stated goal of China’s 11th Five-Year Plan.

Once forgotten, Heilongjiang – and Harbin in particular – are witnessing growing interest by domestic and international logistics providers, according to Leon Wang, GM at Liaoning Air Sea Worldwide in Harbin.

Wang told CHaINA that this growing interest, fuelled by relatively low costs and high margins, is making the local market increasingly competitive.

“The Harbin-Daqing-Qiqihar industrial corridor will benefit Heilongjiang and Harbin’s economic development,” Wang said. “It will help Heilongjiang and Harbin leverage their competitive strengths when “The Harbin-Daqing-Qiqihar compared to other regions industrial corridor will benefit in China.”

Manufacturing in Heilongjiang, especially Harbin, is gradually moving away from the cumbersome Heilongjiang and Harbin’s SOE model of decades past, The jury is still out on with Harbin Electric serving economic development” how much of an effect as a prime example of how Beijing’s attempt to to leverage the province’s manufacturing legacy, revitalize the northeast has had on Heilongjiang’s research and development resources and cost economy. In addition to increased trade with advantages to compete in the global marketplace.

Russia, Heilongjiang stands to benefit in the shortHarbin Electric is a market leader in linear motors, to medium-term from a planned industrial corridor motor/controller automation systems and specialty linking Harbin – China’s tenth-largest city – with the micro-motors. Harbin Electric was selected by industrial cities of Daqing and Qiqihar.

Forbes Magazine as number three among a recently released list of China’s top SMEs. Connectivity is crucial Responding to Harbin’s inclusion on the Forbes list, Harbin Electric Chairman and CEO Yang Tianfu acknowledged the importance of the emergence of SOEs’ nimbler and more transparent rivals in Harbin and elsewhere in the country.

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MARCH 2008

The 300-kilometer Harbin-Daqing-Qiqihar industrial corridor, which lies along the Number 301 National Highway and also includes the smaller cities of Anda and Zhaodong, accounts for nearly half of

www.chainaonline.com

REGIONALFOCUS

China is revamping its entire rail system China is revamping its entire rail system Heilongjiang’s GDP despite being home to only five percent of the province’s population.

Preferential policies for investors combined with investment in infrastructure projects aimed at integrating the five cities are expected to increase productivity and efficiency as well as playing upon the unique strengths of each city such as petrochemicals (Daqing) or heavy machinery (Harbin). The planned industrial corridor is of prime importance to the provincial government, which organized a conference last year seeking investment in the region.

Harbin and the Bohai Rim area. To address this growing logistical bottleneck, a new high-speed rail line is being built.

In August of last year, construction began on the Harbin-Dalian Express Railway, which is scheduled to be completed in 2013 and will be able to transport passengers at speeds of up to 300 kilometers per hour. Once completed, the high-speed rail line will be used exclusively for passenger transport, with the existing Harbin-Dalian rail line being used for cargo transport.

Harbin Taiping International Airport, located at the nexus of the Harbin-Daqing-Qiqihar industrial corridor and the Harbin-Dalian rail line, is preparing for increased cargo traffic as transport integration improves in Heilongjiang and northeast China.

The Taiping Airport Economic Zone is building the Harbin International Airport Industrial Town, a high-tech industrial zone focused on five main sectors: biomedicine, logistics, high-tech, new materials and energy. The project is expected to cost nearly US$60 million.

A provincial highway project in Heilongjiang, partly funded by a US$200 million loan by the Asian Development Bank, is expected to provide much-needed improvements to the major roads crisscrossing the province. Despite their importance, many of these roads are in a state of disrepair that hampers road transport within the province. One of the main roads in the project, which is expected to be completed by 2011, will connect Nehe in western Heilongjiang with Jixi in the province’s east.

In addition to increasing trade with Russia and upgrading its own internal connectivity, Heilongjiang is also looking south for economic opportunities. The 900-kilometer rail line linking Harbin – northeast China’s biggest city – with Dalian – northeast China’s busiest port – is no longer able to meet demand for transport of goods between www.chainaonline.com

The planned improvement of air, rail and road infrastructure will do much to boost Heilongjiang’s economic fortunes and its appeal to international logistics providers and investors. Expect the next five years to be pivotal as the province attempts to brush off the rust and grow into its envisioned role as an engine for increased trade with Russia and regional economic growth.

MARCH 2008

37

QUESTION&ANSWER

Jimmy Hexter

In Conversation with Jimmy Hexter is a director in McKinsey’s Beijing Office and the leader of its Operation Practice in Asia. He recently coauthored a book, Operation China: From Strategy to Execution, with fellow McKinsey consultant, Jonathan Woetzel, a leader of the company’s Energy and Materials practice in Asia. Jimmy Hexter spoke with CHaINA in Shanghai about the book. : What is your background and role at McKinsey?

Jimmy Hexter: I joined McKinsey in Taiwan in 1990 and have been with McKinsey in greater China since then. About 4 years ago I began to lead our operations practice in Asia which at the time was very small as we were just starting to develop the practice. It’s now grown to be roughly 30% of our practice in Asia. It covers sourcing and procurement, manufacturing and supply chain. We work with leading multinational companies seeking to grow and improve their performance in Asia. We also work with leading Chinese and Asian companies both on their domestic strategy and operations and on their efforts to globalize.

: There have been a lot of business books offering advice on a “China strategy,” what makes this one different?

JH: We like to think of this as the first book of a new era in China. A lot of books written about strategy in China focus on the importance of China, the need to be there and advice on ensuring that when you get there you are well positioned.

We believe that most executives have already made those moves and are in some fashion in the process of executing their China strategy on what is now largely a level playing field.

What is really going to differentiate people in this next era is execution. Who is really marketing the best? Who is really running their supply chain the best? Who is really running their R&D centre the best? So this book is designed to talk to executives about what it takes, function by function, and in an integrated way to execute well in China.

: Can you talk more specifically about the importance of execution?

JH: We have been working with a number of companies, both Chinese and multinational, for example in manufacturing. Historically it was just let me get in, take advantage of the low cost of labour and if I can just do that I will be far ahead of my competition.

Well now in a time when it is extremely competitive everybody has access to low cost labour, so you really have to be very lean, you have to deliver on time, reduce your waste and scrap, improve your quality and get the most out of your labour or you will be behind your competition.

Jimmy Hexter 38

MARCH 2008

Not only is execution important to winning today it’s more and more the person who executes best that gets chosen by the

best customer to be their supplier and it is also the platform for winning in the future. So five years from now whoever executed best in China today will be in a much better position to win.

For example if you are in an industry where R&D is important you have already started to put world class R&D into China, taking advantage not just of low cost people here, but built into it a number of things such as market responsiveness, so you’ve got market research that feeds back into your R&D, so you are designing to the market.

: We are hearing a lot about localization of R&D and local innovation in China, is this accurate?

JH: Yes, one of the things we think is really important and one of the reasons we wrote the book is that winning in China is more and more about excellence in execution. And more and more that means taking global best practices and bringing them to China and adapting them to the local environment.

That’s different from what a lot of companies did in the past where they tried to make an approach to China that was unique because China was unique. What is becoming clearer now is that global best practices adapted to China and executed effectively is the way to win. www.chainaonline.com

QUESTION&ANSWER there was an over swing where there was extreme localization. What people found was that it is very hard to keep your Chinese subsidiary connected to your global entity operationally, culturally.

: So China is officially in a maturation phase then?

JH: It is in a maturation phase. And that’s why we use the phrase, “from strategy to execution.” It used to be that strategy differentiated. It was an era where privileged access made a difference. Now it is much more of a level playing field in most industries.

: There has been a lot of talk about Vietnam and companies moving their manufacturing there. Is this something McKinsey is involved in as well?

JH: Yes, we are involved in helping companies think through their manufacturing footprint and their supply chain footprint.

There is a lot of dialogue about what to do with the challenges in China, the rising labour cost, increasing inflation. Vietnam is an often discussed alternative.

: What do you think about the viability of Vietnam?

JH: Over time Vietnam is going to be an important economy both as a manufacturing base as well as a market. In the near term what we are seeing is that apart from the most labor intensive industries with the more elementary raw materials it’s a challenging environment because the supply base into the manufacturer just isn’t there.

If all of your raw materials and components suppliers aren’t there, how can you go there?

Some of the people that we know that are going to Vietnam are still shipping all of the raw materials and components there from China and just doing assembly more as a learning process. I think 5 years from now it will be much more balanced and you will see more things moving there.

Jonathan Woetzel Chinese consumer highly values their consumer electronics.

Once you realize that if you are somebody who is selling mid to high-end consumer electronics all of a sudden your perceived market opportunity grows dramatically and it is worth investing money in a whole different way to go after the market because the market is bigger.

: Human Resource issues are an ongoing issue in China. How do you see localization progressing?

JH: I would say it is globalization, not localization. We went through a period in the mid 90’s where everybody was a bit expat heavy because they were building their local teams so they needed it. Then

Now I think we are back to a natural and appropriate ground, which has two cornerstones. One is you need a mix in order to make sure that all of your corporate processes are applied appropriately here and that your China entity is connected. But the other thing is that talent is becoming global. The best Chinese talent does not want to just have an opportunity to be the number two guy in China. They want an opportunity to become part of your global talent pool. At the top level talent is going to be increasing global.

: What are some of the biggest challenges in going forward?

JH: One of the challenges in China and one of the reasons execution is so important is if you think about it, Chinese companies have an enormous advantage in terms of already accessing all of the resources in China. They have low cost suppliers, low cost manufacturing, broad distribution; they’ve got a big pool of talent. They are in the process of learning world class processes, world class marketing and world class procurement.

Western multinationals on average are probably a bit more sophisticated in marketing and manufacturing. Their challenge is, how do I bring that to execute in china? It’s a bit of a race. Whoever is going to learn how to execute in China better and faster is going to win.

: In the book, you talk about “operating innovations,” what does this mean for China?

For example we worked with one global consumer electronics company who was just beginning to look at China. It is a higher end product and initially the impression was that the market might be limited and therefore the approach to the market had a certain limitation. The breakthrough in building the approach to China is we took the senior executive team in pairs into the homes of average Chinese consumers and what became clear is that the average www.chainaonline.com

Imagine China

JH: Operating innovations is the adoptation of global best practices into China.

Companies that are doing the most exciting product innovation in China are making exactly the same types of investments in understanding the consumer that you would see elsewhere.

R&D is on the rise: Chinese workers at a large R&D facility in Shanghai MARCH 2008

39

QA

QUESTION&ANSWER

Insight

Executive

&

Global recruitment firm Michael Page International asks Nis-Peter Iwersen, Vice President of International Purchasing Offices in China at Danfoss Group, for his advice on career development.

Nis-Peter Iwersen is in charge of the China procurement function at Danfoss where he is responsible for managing three international procurement offices in China. He also played a key role in setting up the company’s first international sourcing offices.

He has worked in the manufacturing industry for over 20 years and has extensive management experience working for large multinationals across several countries including the UK, Germany, China and Denmark.

Mr Iwersen, who comes from a finance background originally, says the most rewarding aspect of working in the procurement and supply chain profession is the opportunity to improve processes and be directly involved in delivering cost efficiencies to the business.

In this article on career development, he provides some useful insight into what it takes to get to the top.

What advice do you have for young procurement & supply chain professionals?

What are some of the critical success factors for career progression?

Nis-Peter Iwersen: Aside from having the appropriate qualifications and theoretical background, I think it’s important for young professionals to gain exposure to other functions within the supply chain early on in their career, such as sales or production.

Moving outside your comfort zone and getting involved in other functions can improve your understanding of the links from the supplier to the customer and help fast-track your career.

NPI: One of the things procurement and supply chain professionals need to focus on to progress to the senior level is process improvement. You need to be able to drive change and implement improvements to be recognised. Showing initiative and delivering results will ensure you are visible and that management recognises your talent and potential. Try to do more than merely what’s required of you.

Keeping up-to-date with industry best practice and market trends is another excellent way to differentiate yourself from your peers. As the work environment becomes more global, you need to know what’s going on in other countries and the opportunities that exist for expansion into new markets and regions. If you are recognised as a leading practitioner in your field, you are more likely be included in major projects which will give you the experience you need to progress to the top.

What do you consider your greatest learning experience?

NPI: My greatest learning experience has been employing and developing a talented young local workforce in China. In Europe or America the companies would typically employ experienced professionals over 40 years of age for senior management positions, but in China the workforce is younger and employees require more training and development. At Danfoss, I have been responsible for employing a high performing and qualified local Chinese team and training them in world-class processes and tools. I have found it very rewarding teaching and coaching them and watching their careers develop. www.chainaonline.com

Another important factor is to surround yourself with high performing people.

Wherever possible, be involved in training and developing the right people for your team. Having quality people in place will determine your organisation’s overall effectiveness and influence your capacity to reach your potential.

what strategic direction China will take as the next step. There is a trend in the China manufacturing industry to encourage more high-tech categories such as electronics, cars and wind energy and move away from exporting raw materials and energy consuming or environmentally harmful industries. The challenge for the profession will be adapting to the changing emphasis on the types of categories that we can source successfully in different parts of the word.

For further advice on career development or for general information on current employment opportunities, please contact Olly Riches at Michael Page International on +8621 3222 4758 or email ollyriches@ michaelpage.com.cn.

Finally, remember that qualifications will only get you so far. When I’m hiring new staff, I look at their personality and profile.

While technical skills are important, they can be learned. However, soft skills like attention to detail, interpersonal skills and management potential can not be learned.

What are some of the biggest challenges in the procurement & supply chain profession?

NPI: I think one of the challenges for the procurement and supply chain profession in China is the lack of skilled people.

Increased external investment in the region is driving demand for quality people to support business growth yet there is a real shortage of qualified local procurement and supply chain professionals.

The growing emphasis on reducing China’s trade balance is also a challenge and I think it will be interesting to see

Nis-Peter Iwersen MARCH 2008

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EVENTUPDATE

Supply Chain

Meets CSR

by Melanie McGanney

O

n January 23rd the Global Supply Chain Council held the first CSR (Corporate Social Responsibility) conference at the Millennium Hotel in Shanghai. The conference drew members of established western businesses with operations in China as well as smaller Chinese firms, logistics and consulting companies. This was the first time representatives from every step along the supply chain in China had congregated to discuss achieving better social practices.

The strong turnout at the conference, which included representatives from Nike, The Home Depot and Tyco Electronics, suggests that corporate social responsibility is at the forefront of everyone’s minds.

One real question however, is whether companies are sincerely interested in cleaning up the less reputable aspects of the supply chain or if all this talk is just a lot of marketing smoke and mirrors.

The format of the conference was four sets of presentations followed by question and answer periods mediated by Max Henry, founder of the Global Supply Chain Council.

Questionable practices Michael Zhou, Head of Strategic Sourcing at BT Group, a private company “Tries to engage companies and encourage them to assess themselves.” Zhou cited a series of examples of non-compliance that his company had encountered. Photographs of electric appliances directly exposed to water and chemicals stored in an employee bathroom served as a reminder of common practice in China.

Another problem Zhou cited is that occasionally suppliers will prearrange discussions with workers before inspections as an attempt to have employees keep quiet about bad practices.

However, Zhou maintains it is generally easy to gauge employee’s real attitudes despite what they may say.

Nigel Topping, a Client Partner of the Carbon Disclosure Project, a non-profit initiative to reduce emissions, addressed the carbon

footprints that China leaves behind. Topping insists it is extremely complicated for China to provide accurate carbon footprint data because the infrastructure to manage this information simply is not yet in place. Port, airport and trucking businesses do not currently have the ability to assess their own emissions. Topping further noted, “There is a perverse incentive to estimate on the low side” when a company assesses its own carbon footprints. And generally the real figures stay “in the boardroom.”

In response to a question about how small to mid-sized companies should collect accurate carbon footprint data, Topping replied, “In order to understand your own carbon footprint it is wise to seek help from an NGO.”

Show me the money The barriers to CSR mentioned by Zhou and Topping are very real.

However, the biggest issue is that very few companies stand to see any sort of financial benefit to socially responsible practices.

Currently, 40 % of companies in China have no CSR requirements in their contracts, do not assist suppliers to develop or maintain good practices, and all the while insist that they are compliant with socially perceived standards.

So how can major change be effected?

Bayer’s representative, Dittmar Nerger, suggested that it is the media that keeps Bayer in line. “It would be very difficult to explain to a German newspaper that we are buying from a dirty company in China,” says Nerger.”

Dragon Sourcing’s Managing Director, Olivier Levy says that even if CSR is just about a company’s image “image can create real change.”

Clearly, with representatives from dozens of companies showing up at this summit, image is already an important issue when it comes to CSR. However, drastic demands from the consumer end will be needed before pervasive change takes place.

Some companies are not even concerned with providing an illusory image. Grace, the director of JP Sexton says she doesn’t “need any more convincing that corporate responsibility is a nice idea.” But, in her opinion “it’s not going to happen in China.”

“Summits like this are nice,” says Grace, “but I wish they would provide some practical information for implementation.”

So do these companies really care? The answer produced by the summit is yes, they do care, to some extent. However, concern about public opinion is the salient issue. In terms of corporate responsibility public perception will be the driving force behind the ways companies operate. And until public opinion mandates CSR, good practices will not be the standard.

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

Movers & Shakers Mark Welles

Lufthansa Cargo names Ruediger Helm in HK THE LUFTHANSA Cargo executive board has appointed six new regional managers for Delhi, Hong Kong, New York, Dubai, Madrid and Amsterdam.

Carsten Hernig is the new regional manager in India and the Middle East. Currently in charge of the Lufthansa Cargo station in Hong Kong, Mr Hernig is assuming his new position in New Delhi on March 1. He succeeds David Keary, who retires after acting as caretaker regional manager in Delhi, a company statement said. Mr Hernig will be succeeded in Hong Kong by Ruediger Helm who was previously Lufthansa Cargo regional manager for the Benelux countries, based in Amsterdam.

Navis, a Zebra Technologies company (NASDAQ: ZBRA) and the world’s first company to automate marine terminal operating systems (TOS), announced recently that Mark Welles will lead Navis’ sales efforts in Japan and Asia Pacific. He brings more than 22 years of experience working for U.S.-based and regional software companies in Asia. Welles will oversee the Asia Pacific sales team, helping expand the regional sales pipeline and keep pace with demand for Navis’ Terminal Operating Systems and Transport Node solutions.

Albert Weichun Xiang Albert Weichun Xiang is the newly appointed Eastern China SEnior Logistics Manager in Yatfai Logistics group. Over the past 15 years, Mr. Xiang has worked with China Logistics, decathlon and MAersk Logistics.

am ZihifY

am WUfYYf à A]W\UY` DU[Y Let Michael Page assist you in achieving your career goals. As market leading specialists, we can give you access to exceptional opportunities with the world’s best employers.

Supply Chain Director

Head of Client Management

Trading Controller – China

This role is responsible for managing the national distribution and warehousing, manufacturing operations, inventory management and import/export operations for a global MNC in Greater China. You will also run the manufacturing facilities and assist in regional global sourcing activities. Extensive supply chain management experience and a strong track record of strategy development is essential. ref: H168010

A world leading third party Logistics Company require a Key Account Management GM to provide commercial and operational leadership. You will be responsible for providing logistic services to retail customers, building up the operations team and maintaining key accounts.

You must have a proven track record in key account or client management across mainland China from a 3PL or retail background. ref: H172570

A leading health and beauty retailer is currently looking for a Trading Controller to be based in Shanghai. To be considered for this role you must have proven experience in coaching and developing a team to achieve sales, margin, income and stock targets. You must also have good knowledge and insights into the FMCG market, excellent project delivery and multi-task management skills. ref: H180150

For further information on any opportunities or to submit your cv, please contact Olly Riches or Josh Hollway, on +86 21 3222 4758 or email ollyriches@michaelpage.com.cn or joshhollway@michaelpage.com.cn To browse our full range of supply chain positions visit www.michaelpage.com.cn Shanghai Tian Cai Network Co. Ltd., under license from Michael Page International Group PLC.

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BLOG

BLOGWATCH

All Roads is written

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

Factory Closing: Why Is Anyone Shocked? This Was Coming…

FEBRUARY 9, 2008 In the last couple of weeks there has been an absolute flurry of reports and posts on the factory closings in the south, and I am a bit surprised by the coverage.

It has been linked to snow, labor shortages, to the RMB effect on trade, and a move to new low costs bases, and so on… and what makes me laugh a bit is that this is something that could not only be seen coming from a long way off, but where I think many reports are actually off is that they have failed to take into account a MAJOR cause of these closures.

I have not seen any announcement by Nike that they are moving. I have not seen any announcement that Adidas is moving. I have not seen an announcement that any other foreign brand is moving. So, my first conclusion/ assumption is that the organizations being referenced in these article are the those

who have been consistently the lowest on the wage scale… and have only survived because they have exploited workers, and were dodging a host of other things.

Take all the above, put that together, and where I am leading this horse cart is that while there are surely some factories who are moving to other areas of China, and there are surely some who will make it to other markets like Vietnam, the fact is that a large percentage of these organizations were losers and closed because their industry simply did not require them anymore.

They were unable to scale, they were unable to add value, and after VAT/ RMB/ rising costs were calculated they were no longer profitable. It is a trend that many in China have been watching, and hoping for, for a long time, and it is simply a process that every mature economy goes through...

China Law Blog focuses on business law in China. It is written by Dan Harris, an international lawyer based in the United States and Steve Dickinson, an international lawyer based in China.

Top Ten Reasons for China Business Failure FEBRUARY 9, 2008 ThinkChina Blog did a very interesting two part series recently detailing why US internet companies are having problems in China. The first post, entitled, “US Internet Companies’ Top 10 Mistakes,” sets out the ten mistakes US internet companies are making in China, according to Yeeyan.

The top 10 list is as follows: 1. Chinese companies focus on a Chinese consumer, not an American one.

2. Chinese companies fail to realize that one reputationdamaging mistake in the United States could doom them forever here.

3. Chinese companies fail to realize it will take time for them to make an impact in the United States and they are unwilling to spend the time and money necessary to do so.

4. Chinese companies focus too much on the end result (making money), and by doing so, they sacrifice the professionalism that would allow them to achieve long- term success.

5. Chinese companies tell users what they want instead of listening to users.

6. Chinese companies focus too much on making money in the short term, rather than on building the quality necessary to sustain themselves in the long term.

7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.

8. Chinese companies rely too much on phone calls and faceto-face meetings instead of e-mail.

9. Chinese companies fail to use “simple and elegant designs.”

10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.

WATCH www.chainaonline.com

MARCH 2008

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PRODUCTRECALLS

Danger!

Danger!

The U.S. Consumer Product Safety Commission is charged with protecting the public from unreasonable risks of serious injury or death from more than 15,000 types of consumer products. Below are just a few of those products.

Family Dollar recalls magnetic dart boards

Trek recalls girls bicycles due to frame failure

Family Dollar, of Charlotte, N.C., is voluntarily recalling about 250,000 FUN ‘N SAFE Magnetic Dart Boards. Small magnets at the ends of the darts can detach.

Magnets found by young children can be swallowed or aspirated. If more than one magnet is swallowed, the magnets

Trek Bicycle Corp., of Waterloo, Wis., is voluntarily recalling about 49,000 Trek MT220 Girls Bicycles. The bicycle’s frame can break during use, causing the rider to lose control and suffer injuries.

can attract each other and cause intestinal perforations or blockages, which can be fatal.

Childrens metal jewelry recalled by Pecoware

RE CA LLE D

Pecoware Co. Inc., of Chino, Calif., is voluntarily recalling about 2,900 Children’s Metal Necklaces. The children’s necklaces contain high levels of lead. Lead is toxic if ingested by young children and can cause adverse health effects.

Portable electric heaters recalled

by Aloha Housewares

Aloha Housewares Inc., of Arlington, Texas, is voluntarily recalling about 152,000 Portable Electric Heaters.

The portable electric heater can overheat and melt plastic parts, posing a fire hazard to consumers.

Children’s Hooded Sweatshirts Recalled

by Seventy Two Inc. Due to Strangulation Hazard

Remote controled helicopter toys recalled by Soft Air USA Soft Air USA Inc., of Grapevine, Texas, is voluntarily recalling about 30,000 Remote-Controlled Helicopter Toys. The rechargeable battery contained inside the helicopter can catch fire during charging, igniting the helicopter and nearby combustible materials.

This poses a burn or fire hazard to consumers.

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Seventy Two Inc., of La Puente, Calif., is voluntarily recalling about 1,800 Bonafide Love Hooded Children’s Sweatshirts. The garments have a drawstring through the hood, which can pose a strangulation hazard to children. In February 1996, CPSC issued guidelines to help prevent children from strangling or getting entangled on the neck and waist by drawstrings in upper garments, such as jackets and sweatshirts.

www.chainaonline.com

CLASSIFIEDS/ENTERTAINMENT

Dear Editor, I read with interest Andy Mukerjee’s article about Vietnam as a new manufacturing haven in Chaina’s January February edition. I have to say, I’m not sure I agree with all this hype about Vietnam. A lot of what I read, hear and see tells me that Vietnam is a long way from catching up to China for too many reasons to mention.

I will mention just a few reasons. The country has outdated ships and inadequate ports, which means that Vietnamese exports rely on foreign ships. The ports also do not have deepwater capacity to allow larger ships to berth. This means that cargo has to be double-handled at other ports such as Shanghai and Singapore. Infrastructure in Vietnam is also a problem which will likely take quite a few years to get to a workable level. It’s going to be some time (if ever) before Vietnam is ready to get into the ring with China. – Laurence Fornier, Ningbo

New labor laws have some companies worried.

Correction: In the January/February edition, CHaINA mistakenly referred to Chunmei Han as a Seeburger Project Manager. Actually she is an EDI Project Support Engineer at BBDC.

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

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

www.GoKunming.com

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EVENTCALENDAR 2008

March

Real WED Logistics Estate Workgroup

5

Shanghai Venue: To be confirmed Organizer: Council

COMPANYINDEX 2008

March

WED

5

Beijing IT day 2008 March Luncheon Beijing Venue: The Capital Club Organizer: German Chamber

THU

6

2008

2008

Supply Chain March SAT-WED Roadshow To Vietnam Roadshow Ho Chi Minh Venue: Various Organizer: Council

2008

2008

15thru 19

18thru 20

19thru 21

5thru 7

2008

March

TUE

25 March

26 2008

March

FRI

28

12 13

TUE

25

Venue: To be confirmed Organizer: Council

2008

March

THU

27

Supply Chain 2008 April Networking Mixer Shanghai Venue: To be confirmed Organizer: Council

www.chainaonline.com

14

Terminal March TUE-THU Operations Conference Shanghai Venue: International Convention Center Organizer: TOC Events

French Logistics 2008 March Luncheon Shanghai Venue: To be confirmed Organizer: Council

Decent Factory WED AScreening Shanghai

2008

China Sourcing 2008 March WED-THU Summit March Shanghai Venue: Le Meridien Hotel Organizer: Council, German Chamber, SMI

FRI

China Industrial March WED-FRI Real Estate Summit Tianjin Venue: Renaissance Hotel Organizer: China Decision Makers 2008

1

TUE-WED

2

Nanjing Customs Seminar Nanjing Venue: Softel Galaxy Organizer: European Chamber

Sourcing Service Providers Luncheon Shanghai Venue: To be confirmed Organizer: Council

High-effect Logistics & Enterprise Competition Guangzhou Venue: To be confirmed Organizer: Guangdong Logistics Industry Institute

China Ports March WED-FRI Conference Shanghai Venue: Jinjiang Hotel Organizer: MastersWise

5th China Air Cargo March WED-THU Summit Guangzhou Venue: Novotel Baiyun Organizer: China Southern Airlines 2008

26 27

Affordable, effective 2008 Sourcing for SMEs March WED-THU Workgroup Shanghai Venue: TMF, 5th floor, Pltinum Building Organizer: BritCham

Basics of Supply Chain Management Conference Shanghai Venue: Rich Garden Hotel Organizer: Council

Teade & Financing 2008 Conference April Hong Kong Venue: Renaissance Harbor View Hotel Organizer: Euromoney

AUTOMOTIVE LOGISTICS ASIA CONFERENCE Beijing Venue: Sheraton Organizer: Ultima

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THU-SAT

27thru 29

A.T Kearney Consulting.............................. 25 Accenture....................................................... 8 Aerospace Products Int. Inc........................ 19 AllFresh Technologies................................. 25 Aramark....................................................... 26 Asia Pulp and Paper.................................... 16 B2X Corporation.......................................... 16 Bao Steel...................................................... 10 BDP................................................................ 7 Blogis............................................................. 2 BT Group..................................................... 22 Carrefour...................................................... 10 CB Richard Ellis........................................... 22 Ceva............................................................. 10 Chery Automobile....................................... 15 China Resources Enterprises....................... 18 China Shipping Group................................ 10 China Strategic Development Partners....... 45 Croissant de France..................................... 25 Danfoss Group............................................ 41 Dassault Falcon jet...................................... 21 Dell............................................................... 23 Deutsche Post World Nets........................... 11 First Aviation Services................................. 20 FM Logistics Group..................................... 19 Gazeley........................................................ 52 Geerlofs........................................................ 30 GEFCO Group............................................. 19 Greenpeace.................................................. 15 Hainan Airlines Group................................ 10 Harbin Electric............................................. 37 Harris & Moure............................................ 45 Havi Foods................................................... 25 HMG Logistics.............................................. 48 Hyundai Heavy Industries Grp................... 22 IBM............................................................... 21 Internation Monetary Fund........................... 9 JSC Transcontainer...................................... 32 Knight Frank................................................ 28 Kweichow Moutai Co. Ltd............................. 8 Lenovo......................................................... 11 Liaoning Air Sea Worldwide....................... 38 LowendalMasai............................................ 13 Luftansa Cargo............................................. 44 Mapletree..................................................... 33 McDonalds................................................... 27 McKinsey...................................................... 38 Metro............................................................ 25 Michael Page International......................... 41 Midea........................................................... 18 Modus Link.................................................. 22 NIIT.............................................................. 14 Nike.............................................................. 42 Noax Technologies...................................... 12 Philips.......................................................... 18 Plenware...................................................... 17 Qingdao Haier............................................. 11 Red Prarie.................................................... 22 Russian Railway........................................... 10 SAB Miller.................................................... 18 SK Telecom Co. Ltd..................................... 21 Staples.......................................................... 17 The Home Depot........................................ 42 Tire Group International............................. 22 Toshiba......................................................... 18 Trader Joe’s.................................................. 17 Tyco electronics........................................... 42 Tyson Foods................................................ 27 UNCTAD...................................................... 15 Volvo Parts Co. Ltd...................................... 20 Wal-mart....................................................... 10 World Courier.............................................. 15 Wuhan Iron & Steel Co. Ltd......................... 8 Yangtai Changyu Pioneer Wine Co.............. 9

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CHINANUMBERS

5

Numbers

In the

Beijing’s new and highly publicised terminal 3 opened this past month. We dug up some of the numbers that went into the project, and they are as big as the building itself!

• The cost of the newly finished terminal in Beijing...

$3.6 billion

• The terminal 3 with its runway and most of the related infrastructure, were built in just under four years. At its peak, the construction site had 50,000 workers toiling around the clock.

3 km long. The floor space is 17% bigger than all the terminals at London’s Heathrow combined (including the about-to-open Terminal Five). The terminal has 64 restaurants, 175 escalators, 173 elevators and 437 moving sidewalks.

• The terminal is

C

M

Y

CM

MY

• One of the 10 busiest airports in the world, CY

Beijing’s airport handled 53.5 million passengers last year, far above its capacity of 35 million. With the new terminal, the airport can handle 96 million passengers a year and 1,590 flights a day.

CMY

K

• By 2012, the airport will become one of the five busiest in the world, after London’s Heathrow, Atlanta’s Hartsfield-Jackson, Chicago’s O’Hare and Tokyo’s Haneda.

• China’s domestic air cargo market has become the second largest in the world with an annual growth rate forecast of 10.8% over the next two decades.

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