2006 Nov-Dec Issue

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THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

POWER 20 China’s supply chain leaders

GLOBAL ACCESS TO LOCAL EXPERTISE

ProLogis Park Yunpu for ST-Anda Logistics in Guangzhou

ProLogis offers comprehensive solutions to the world’s most dynamic manufacturers, retailers and supply chain companies.

ProLogis provides the right facilities and service at the right location and time to our clients.

ProLogis provides high quality distribution facilities in prime locations to thousands of customers we serve more than 4,000 of the world’s top companies, ProLogis is the world’s leading provider of industrial facilities and operates in over 81 markets in North America, Europe and Asia. In China, ProLogis is headquartered in Shanghai and focuses on high-growth regions across the Country.

ProLogis, 2708 Azia Center, 1233 Lujiazui Ring Road, Pudong, Shanghai, P.R. China 200121 Tel: +86 (21) 6105 3999 Fax: +86 (21) 6105 3900 chinainfo@prologis.com www.prologis.com.cn

CONTENTS NOVEMBER/DECEMBER 2006 www.chaina-online.com

THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

18 18

COVER STORY

POWER 20: China’s supply chain leaders Just who are the power players in supply chain management in China today?

REGULARFEATURES 9

28 28

SOURCING FEATURE

The challenges in Chinese procurement Companies that source goods from China must overcome several challenges to realise the opportunity in full.

34

13 NEWS ROUNDUP 31 REGIONAL FOCUS N Kunming’s connectivity convergence

CONSULTING FEATURE

38 CAREERS

Reverse logistics

40 CLASSIFIEDS

Strengthening the forgotten supply chain.

41 CALENDAR

34

36

COMMENTARY N Keeping a keen eye on key regulations N Building a global operations strategy for the “new” China N Location trends

41 COMPANY INDEX

CONSULTING FEATURE

The long and winding road Best practice supply chain management in China.

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CHaINA magazine’s founding sponsors: CHaINA MAGAZINE Publisher Michael Pennington editor@chaina-online.com Editorial Consultant Max Henry Contributing Writers Chris Horton, James Ian, Charles Wardroper Art Director Dian McLeod Graphic Designer How Xu

CHaINA MAGAZINE EDITORIAL ADVISORY COMMITTEE Amit Kumar Jamie Bolton Logistics Manager Asia Executive Partner Intercontinental Freight and Supply Chain Management Logistics Services North Asia Electrolux Group Accenture Mark Millar Director of Strategic Business Development UPS Supply Chain Solutions Eugene Lim Registered Foreign Lawyer Baker & McKenzie, Hong Kong

www.chaina-online.com offers more than just the great content that you see in the print edition of the magazine. In addition to being able to access electronic versions of all the articles in this month’s magazine (and the magazine available to download in PDF format), you’ll also find: N

Breaking news: read the China-related supply chain latest news as it happens

N

Exclusive online content not available in the print edition

We’d like to remind all visitors to www.chaina-online.com that the website is still in its development stage, but rest assured we have big things planned for the home of CHaINA magazine on the web! Over the next few months we will be launching many new features including: a supply chain management resource centre, RSS feeds, blogs, forums, webinars, podcasts and e-newsletters.

Henrik Anker Olesen Transport & Logistics Leader, Asia IBM Global Business Services Bee-Choo Lim Materials Director Asia and Latin America Intel

Jean-Luc Laboucheix Supply Chain Director Asia Pacific, Goodyear Sean Shao Logistics Manager NuSkin China Jeffrey Tew General Manager and Lab Group Manager General Motors R&D Center Ash Lim Market Development Director Supply Chain Management APAC Oracle

ADVERTISING SALES Publisher/Sales Michael Pennington michael@chaina-online.com +86 138 1897 6097 DISTRIBUTION By direct mail to subscribers in China, Hong Kong and Singapore who are involved in supply chain management, manufacturing and logistics including: supply chain directors and managers; logistics, warehousing and transportation directors and managers; sourcing, materials management, procurement and purchasing directors and managers; operations, manufacturing, import/export and trade managers; and chief executive officers, chairpersons, presidents, vice presidents, general managers, managing directors and country managers.

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© Copyright 2006, China Supply Chain Council Ltd. All rights reserved. CHaINA™ is published by the China Supply Chain Council Ltd., Room 813, Hollywood Plaza, 610 Nathan Road, Kowloon, Hong Kong. Telephone: +852 8199 9882. No charge for subscriptions to qualified individuals. Annual rates for subscriptions to nonqualified individuals differ depending upon the subscribers country or territory and can be found at www.chaina-online.com Send address changes to: subs@chaina-online.com The contents of the publication may not be reproduced in whole or part without the written consent of the publisher. The publisher is not responsible for product claims and representations.

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NOVEMBER/DECEMBER 2006

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Welcome to the first issue of CHaINA magazine...

As

you probably know by now, CHaINA is a magazine focussed upon covering global supply chain issues from a China perspective. Quite surprisingly, given the attention that China receives in the international media, it is the first magazine of its kind.

CHaINA is a magazine for global supply chain leaders. Many people have asked us how we can claim CHaINA to be dedicated to covering China issues if the magazine is aimed at global supply chain leaders. The answer is quite simple. No other country is driving the global supply chain to the same extent that China is. But if you’re sat in China reading this magazine, you probably already know that.

It’s a fact that nine out of ten midsize and large overseas manufacturers now do business in China. Furthermore 82 percent of these manufacturers cite China as their number one source for low-cost country sourcing and 94 percent said they will maintain or increase dependence on China in the future.

And so it’s because most companies’ global supply chains start in China – in the World’s factory – that we have decided to launch CHaINA magazine. There exists a tremendous need globally for accurate information and clear analysis on China supply chain issues. CHaINA magazine satisfies that need.

The majority of our writers are based in China, with the magazine’s editors based in Shanghai, China’s economic powerhouse and the world’s busiest port (see page 42). Being China-based enables us to be able to cover the end-to-end global supply chain from a perspective that is uniquely relevant.

All told, CHaINA magazine has one very simple goal, and that is to enable you to do your job better. We aim to do this by providing our readers with information on China’s supply chain that is both comprehensive and up-to-date, enabling them to stay one-step-ahead in the increasingly competitive and dynamic global supply chain. The cover story (see page 18) in this inaugural issue of CHaINA includes the first of what promises to be an annual rundown of the movers and shakers in supply chain management in China. You never know, if you follow the advice that we’ll be offering over the course of the next 12 months, you name might appear there next year!

We appreciate your comments and suggestions by email to: editor@chaina-online.com and look forward to CHaINA magazine becoming the key chain in your global supply chain.

Michael Pennington Publisher

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Max Henry Founding sponsor/Editorial consultant

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COMMENTARY

Keeping a keen eye on key regulations Eugene Lim is a Registered Foreign Lawyer with Baker & McKenzie, based in Hong Kong.

C

hina’s ascendance to become an economic powerhouse has been phenomenal and breath-taking. The government’s WTO commitments to liberalize foreign investment in the distribution and logistics sectors have been a major force in driving supply chain developments in China. This being the inaugural issue of CHaINA magazine, a summary of the key regulatory developments up to this point and some highlights of what to expect is in order.

Distribution big bang These days, foreign-invested commercial enterprises (FICEs) operating in China are often championed as the panacea for foreign investors’ distribution woes in China. This wasn’t always the case however, and it was the Measures on Foreign Investment in the Commercial Sector issued in 2004 that heralded the distribution sector’s big bang, allowing 100% wholly-owned FICEs to be set up.

Foreign investors are now permitted to establish enterprises engaged in import, export, wholesale, retail and related ancillary activities (such as storage, delivery and after-sales). On the surface this may seem like the perfect tool for unlocking China’s market of 1.3 billion people though given the regulations that apply to foreign companies operating in this area in China, such an approach does require some rethinking of your company’s supply chain operations.

Customs FICEs must directly deal with the customs authorities if they do not want to go through an import/export agent. But, Chinese customs regulations can be multifarious, complex and often counter-intuitive; compliance issues are complex and penalties can be onerous. And a customs audit by the authorities in China is to be avoided at all costs!

In May this year, the Measures for the Assessment of Dutiable Value of Import and Export Goods (Order 148) came into effect. Order 148 is based on the GATT Customs Valuation Code and consolidates previous piecemeal valuation regulations. The regulation re-emphasizes the customs authoritie’s increasing sophistication in valuing imports and exports.

More recently, Notice 43 was issued by the General Administration of Customs to enable companies to consolidate payment of customs duties for all imports with the customs authorities where they are established regardless of the port of entry. This could potentially mean greater certainty in classification and valuation for companies and a lesser reliance on customs brokers. This is certainly www.chaina-online.com

a development to keep an eye on.

Looking forward, the 2007 amendments to the World Customs Organization harmonised system will mean that China’s tariff classification regime will be revised accordingly. Tariff classification numbers for Chinese imports and exports will have to be reviewed to ensure compliance with the new classification system.

FTAs More free trade agreements (FTAs) are in the works. China is in the process of negotiating FTAs with Australia and New Zealand. This will strengthen China’s FTA network which currently includes Hong Kong, Macau, ASEAN and Chile (see page 31). While the current round of WTO negotiations remain deadlocked, FTAs provide alternative avenues to import goods at a lower (if not zero) duty rate.

Supply chain taxes Aside from customs duties, efficient supply chains require minimizing a plethora of taxes affecting supply chain structures in China. VAT, consumption tax and business tax are the main turnover taxes. Additionally, the enterprise income tax rates applicable to foreign-invested companies differ from region to region.

Enterprise income tax reforms have been talked about for some time. It appears that the Chinese authorities may have agreed on most of the outstanding issues and when implemented, companies will need to reassess their enterprise income tax exposure from their China business.

In September this year, Cai Shui [2006] No. 139 came into effect. This Notice adjusted the export VAT refund rates for certain products and increased the number of products prohibited from processing trade. It’s important that companies involved in manufacturing or purchasing goods for export should check to see whether they are affected by this Notice.

Regulatory Supply chain executives also need to be sensitive to China’s general regulatory framework and key developments. Some key issues include: foreign exchange controls, environmental regulations, import and export licensing requirements, export controls and restrictions on the use of hazardous materials. The full range of regulatory issues will be explored in future issues of CHaINA. Given the breadth and complexity of issues affecting supply chain structures in China, the launch of CHaINA is both timely and relevant. I am sure it will fast become a must-read for all supply chain executives with an interest in China.

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COMMENTARY

Building a global operations strategy for the “new” China Jamie Bolton is Executive Partner, Supply Chain Management, North Asia for Accenture, based in Shanghai.

I

t’s a well documented fact: China is the world’s fastest growing economy. And with average annual growth expected to exceed 8 percent over the next five years, it’s not surprising that by that time, China will ascend from the world’s fourth largest economy to become the world’s third largest. Many factors are behind this astonishing metamorphosis. However, the one event that most dramatically spurred China’s global integration was its admission to the WTO in 2001. WTO admission fuelled China’s rapid rise as a worldwide supplier of parts, materials and components, as well as its subsequent emergence as a key consumer market.

This duality—spectacular growth as a supplier and consumer nation—is the key to China’s economic stardom.

Sourcing and selling Naturally, business opportunities in the “new” China have drawn the attention of thousands of international companies. A recent Accenture survey quizzed more than 300 of these companies, and found that the percentage of materials sourced outside these companies’ traditional home markets will increase by 100 percent between 2002 and 2010. But are all these companies prepared to source and sell in China?

% of respondents

Entry Entry attractions Attractions

Do they know what it takes to operate successfully in a country whose technological, cultural, geographical and political characteristics are not only fundamentally different from most other places but also in a rapid state of flux? These questions will be explored in editorial columns throughout 2007. But for this inaugural issue of CHaINA, the obvious starting point is strategy— how companies can best “set the stage.”

With so many companies vying for Far East markets and supply sources, success cannot help but be determined by the timeliness, innovation and quality of their global operations strategies.

After all, doing business in China takes the word “new” to a whole new level: new markets; new types of customers and competitors; new forms and levels of competition from existing rivals; the likely need for new investments in plants and equipment; and a renewed need to consider mergers, acquisitions and alliances as a way to reach and supply customers.

New operating strategies are also needed to help companies navigate China’s challenging and complex supply chain environment, which is characterised by an underdeveloped transport infrastructure; insufficient technology (tools and expertise); confusing customs regulations; and a lingering reluctance by regional governments to

% of respondents 21

Low- cost labor New corporate market (B2B)

17

Entry challenges Challenges

Identifying good partners

16

Credit risk

12

Bureaucracy

New consumer market

14

Opportunities in outsourcing

14

Access to skilled workforce

9 8

Political stability 7

Acquisition opportunities

11

Intellectual property

8

Tax and regulatory burden

8

Unfair competition

7

Skills shortages

6

Undeveloped consumer market

5

Poor distribution network Supply-chain efficiencies

6

5 4

Immature financial markets Inadequate infrastructure

3

Source: 2005 Accenture China Market Entry Survey

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COMMENTARY eliminate favouritism and local protections. Small wonder then that supply chain costs in China are twice as high as in the United States and Europe.

A unique challenge Formulating a China-focussed global operations strategy is complex but necessary. The initial task should be to understand the attractive aspects of doing business in China and then balancing those features against China’s unique challenges (see graphs below left). After that, the strategy will need to articulate customer requirements by product and by channel. This information is used to specify landed-cost or “total cost of ownership” targets that address acquisition costs, logistics requirements, quality-management issues, obsolescence, lost sales due to poor service, and time-to-market considerations.

Global operations strategies also must address the need for an international “footprint” for choreographing and aligning product development, sourcing, manufacturing, transportation, storage, sales and operations planning, and provision of after-sale services, networks and capabilities. To make this happen,

the ability to assess demand and supply complexity is key. Some of the criteria for defining demand complexity are a company’s levels of product differentiation and assortment; the lifecycle or risk of obsolescence of its product portfolio; and the degree of required customisation. Criteria for defining supply complexity include production lead times; intricacy of bill-of-materials; average lotsizes or production runs; and relevant cost drivers (such as scale, labour requirements and skill levels, and enabling technology).

Subsequent stages in the development of a global operations strategy include designing information flows, organisational models, financial management capabilities, risk identification- and abatement approaches, and the specific sourcing, manufacturing and distribution capabilities needed to respond rapidly to changing customer demographics and characteristics. In future issues, I look forward to discussing these challenges – and alternative ways of responding – with readers of CHaINA. It is our view, after all, that the China marketplace is both penetrable and profitable and that companies committed to high performance will make it happen.

Location trends Trent Illife is the Regional Director, Head of Industrial for Jones Lang LaSalle, based in Shanghai.

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T

his is the first one of what will become a regular column in CHaINA on China’s logistics real estate market. Future columns will cover a wide range of topics including infrastructure and rents, the pros and cons of buying versus leasing, a comparison of different level government zones and how each impacts on your business, and how bonded and non-bonded free trade zones vary across China. I hope these columns will give you a better insight into this rapidly evolving market.

The development of an efficient distribution system has long been recognised as a key factor in the continued economic growth and modernisation of China, the world’s third largest trading nation.

Although some international logistics companies have been operating in China for as long as 25 years but it is only now that the industry is truly poised to enter a new phase of development.

Over the last few years we have seen how relationships that combine operational efficiency with legislative clarity and physical infrastructure have begun to transform supply chains in China from a costly, confused and uncoordinated patchwork to the smooth, effective and effortless systems needed to promote the country and

to consolidate the country’s position in the global economy.

The now familiar portrait of China’s growth trajectory, coupled with the vast potential in the logistics area for experienced property players in what is a relatively inexperienced market, is beginning to attract serious attention among a wider community of international investors, developers and third party logistics operators.

As China’s logistics real estate market continues to grow, understanding its dynamics remains a big challenge. A recent survey of the China logistics real estate market conducted by Jones Lang LaSalle and the China Supply Chain Council was part of an in-depth research project designed to uncover exactly where the geographic opportunities lie in this complex market and to help understand more about the specific dynamics of operating in certain locations. The survey of more than 135 Chinese and foreign companies involved in logistics provided some key insights into the current and likely future landscape of the logistics real estate market in China.

The survey indicated that future logistics activity is still geographically concentrated in the NOVEMBER/DECEMBER 2006

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COMMENTARY China warehousing and DC facilities: Plans for next two years

Other 15%

Greater Bohai Bay 23%

out (11 per cent) with other notable mentions including Qingdao and Wuhan (both more than one per cent).

Pearl River Delta 35%

Yangtze River Delta 27%

Other 9%

Beijing 13%

Chengdu 12%

Tianjin 8%

Shenzhen 15%

Shanghai 23% Guangzhou 19%

Suzhou 2%

three traditional regional clusters of the Yangtze River Delta (YRD) (including Shanghai and cities westwards up the Yangtze River), the Pearl River Delta (PRD) (which includes the cities of Shenzhen, Guangzhou and Dongguan) and the Greater Bohai Bay (GBB) (centred around Beijing and Tianjin). Although we see a relative shift in focus away from Shanghai and Beijing, future plans over the next two years point to continued focus on these three main clusters (stable at 85 percent of respondents planning to open new facilities within the next two years). These regions represent China’s major consumer markets and manufacturing hubs, and have by far the most developed transport and logistics infrastructure.

There is a shift away from Shanghai and the YRD region (27 percent), and an increasing focus on the PRD (35 percent), notably in Guangzhou (19 percent) and Shenzhen (15 percent) where there have been significant investments recently in road, rail and port infrastructure. The GBB region sees attention from an increasing number of companies. This growth however is refocused toward the port city of Tianjin (8 per cent) and away from landlocked Beijing (13 percent).

Outside the three main clusters, Chengdu stands

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Some of the driving factors behind this significant market growth include: China’s status as the manufacturing hub of the world. Manufactured goods account for over 90 percent of exports from China with manufacturers capitalising on low costs and an expanding domestic market. The automobile industry, which accounts for 15 percent of supply chain activity, has seen massive expansion, with the sector gearing up to respond to massive growth in domestic car ownership.

Retailer expansion. Retailing accounts for around three-quarters of supply chain activity and the retail sector tells a similar story to the one seen in manufacturing with both domestic and foreign retailers announcing aggressive expansion plans in order to secure their market position in key cities.

Maintaining cost competitiveness.

The rising prices of labour and land in China and the appreciation of the currency means that its cost advantage will gradually decline, and companies will be seeking other ways to create efficiencies in their supply chains. It is estimated that China fails to leverage as much as an extra 10 percent of its GDP due to its logistics inefficiencies.

Real estate developers will respond to the increasing demand from logistics operators for higher building specifications in their drive for greater efficiencies. The above mentioned survey also revealed a shift away from warehousing for storage purposes towards other higher value services, notably transhipment and consolidation.

Furthermore, while most logistics opportunities will be in the core coastal cities, rising prices, increased competition and often the greater complexity of doing business in the high profile locations is pushing businesses to consider the option of new, cheaper and potentially more rewarding markets further west (see page 31).

So what does this mean for the end-user?

In short, higher rents. Rising land prices, more efficient buildings and competition for limited supply of existing warehouse facilities will all have a part to play in increasing rents. And these are all factors that need to be taken into account when making the decision to buy or lease, reviewing and negotiating rents and lease terms and committing to the length of time in a new facility.

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R&D

Motorola opens new R&D centre

Imagine China

MANUFACTURING

Airbus plans China factory Airbus is setting up an assembly plant in China to cash in on soaring demand for air travel in the region. The factory in Tianjin will produce as many as four A320 planes a month, beginning in 2009, said Louis Gallois, Airbus’ chief executive officer. Airbus has also signed a general agreement with the China Aviation Supplies Import and Export Group for 150 A320 planes. The deal is the biggest single order ever placed with Airbus in China.

Economic growth is spurring travel demand in China, the second-largest air travel market after the US. Passenger numbers are expcted to rise 17 percent in 2006, from 138.3 million last year, China’s aviation regulator said.

The country’s airlines are struggling to turn this rising traffic into profit, as government restrictions on ticket prices have prevented them from raising fares enough to cover higher jet fuel prices. Airlines in China lost US$332 million in the first half of 2006.

LEGAL

Truck maker MAN files suit against Zonda German commercial vehicle manufacturer MAN AG, Europe’s thirdlargest truck maker, announced that it had filed a lawsuit for design patent infringement and damages against Chinese industrial and automotive group Zonda. “The Zonda A9 is a copy of the Starliner, a coach developed by Neoplan Bus, a subsidiary of MAN AG,” the German company said in a statement.

In its complaint, the German company requested the court order the defendants to cease manufacturing and selling the Zonda A9 and pay appropriate monetary damages and costs normally granted in such cases internationally. The lawsuit has been accepted and is now being handled by the courts in Beijing.

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China Paradise may seek arbitration in retail spat China Paradise Electronics, China’s number three electronics retailer, said it might seek US$38 million in compensation from smaller rival Beijing Dazhong Electric Appliance for breaching a business cooperation agreement on procurement and logistics. Competition in China’s US$55 billion consumer electronics industry is stiffening and more takeovers or alliances are expected while the sector braces for the entry of US number one consumer electronics retail chain Best Buy and others.

In April, Paradise signed an agreement with Dazhong to cooperate on procurement, logistics and delivery, product display, store development, store management and other areas. But Dazhong terminated the agreement after Paradise agreed to merge with Gome.

US wireless giant Motorola recently opened an innovation centre in Hunan province, as part of its drive to increase research and development (R&D) in China. The Hunan Innovation Centre, in provincial capital Changsha, will focus on developing wireless applications to drive innovation in China’s dynamic telecom sector.

Since 1993 when Motorola launched its first R&D centre in the country, the firm has established about 20 similar centres.

Motorola has pumped more than US$600 million into the centres and employs about 3,000 R&D staff, according to RueyBin Kao, president of Motorola China.

China’s spending on R&D growing faster than US China spent a record US$ 30.6 billion on scientific R&D in 2005, accounting for 1.34 percent of the country’s GDP. While the US still has a bigger share of the global R&D market, second-ranked China is gaining ground. According to a recent study by research firm Battelle, China ranks second for most dollars spent, and while it’s only responsible for 13.4 percent of the world’s R&D, that number will rise to 14.8 percent in 2007.

MANUFACTURING

Bayer Expands China Presence Bayer Healthcare, the pharmaceutical division of German chemical giant Bayer, doubled its presence in China with the acquisition of Topsun Science and Technology. Bayer will pay US$136 million for the over-the-counter (OTC) drug business of Topsun Group, one of China’s largest privately owned pharmaceutical companies. Bayer’s acquisition is one of the largest to date by a western pharmaceutical company in China, the world’s ninth-largest healthcare market and its fastest growing.

Topsun sold US$42 million in cough and cold remedies last year under leading brands including Black and White.

Such sales could seem insignificant in a Chinese OTC market valued at

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percent in the first nine months of 2006 to 3.59 million units. Shanghai GM, General Motors’ joint venture in China’s largest city, saw sales shoot up 33.4 percent in the first nine months from a year earlier to 296,658 units. Daimler-Chrysler opened a new factory in Beijing in September, giving the US-German carmaker and its Chinese joint venture partner a reported initial capacity of 100,000 sedans a year.

In July, Japan’s Toyota Motor said it would double the production capacity of its plant in Guangzhou to meet fast-growing local demand.

SOURCING

IBM moves global procurement HQ to China IBM announced the relocation of its global procurement headquarters to Shenzhen in south China as the company continues its strategy to draw more efficiently on its global capabilities and capitalize on emerging market opportunities. The move comes after IBM’s Asia-Pacific office completed its move to Shanghai from Tokyo this year, and the company made India a global delivery hub for software needs and client services. The decision to move chief procurement officer John Paterson’s office from the US to China marks the first time the headquarters of an IBM corporate-wide organization has been located outside the US. “In a multinational model, many functions of a corporation were replicated around the world – but each addressing only its local market,” said Mr. Paterson. “In a globally integrated enterprise, for the first time, a company’s worldwide capability can be located wherever in the world it makes the most sense, based on the imperatives of economics, expertise and open environments.”

Asia is home to more than 1,850 IBM procurement and logistics professionals, many of whom work at the China Procurement Centre in Shenzhen. The company also has strong and collaborative relationships with nearly 3,000 suppliers across Asia, accounting for about 30 percent of the US$40 billion IBM spends annually on procurement.

SOURCING

Ford to buy US$2.6 billion worth of auto parts in China

ChinaFotoPress

US$1.9 billion in 2004, yet Bayer’s purchase makes it a top-ten seller of non-prescription drugs in the country.

The Chinese pharmaceutical industry is extremely fragmented, with over 5,000 companies according to consultancy firm, Ernst and Young. China’s 2001 entry into the WTO and tightening of regulations by the government are driving rapid consolidation.

The acquisition, pending government approval, includes Topsun’s manufacturing facility in Jiangsu province and a national sales force and distribution network. Topsun will continue to market traditional Chinese remedies as well as psychotropic drugs. In 2004, Bayer purchased the global non-prescription 14

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drug business of Switzerland’s Roche Pharmaceuticals, gaining a substantial China foothold as well.

New factory in Wuhan for Peugeot French auto maker PSA Peugeot Citroën kicked off construction of a massive factory in Wuhan, Hubei province Combined with the output of an existing plant in Wuhan, Peugeot will eventually be able to produce 450,000 autos a year. The existing factory in Wuhan is already running at capacity. The Wuhan manufacturing facilities will be a 50-50 joint venture with state-owned Dongfeng Motor.

China’s passenger car sales rose 26.4

Ford Motor expects to buy more than US$2.6 billion worth of auto parts in China for overseas use in 2006. The company is also expected to build a new factory with Japanese affiliate Mazda Motor and local partner Changan Automotive.

Ford’s chairman, William Clay Ford, disclosed the plan for boosting China sourcing during a visit to Beijing last month. That amount would be 63 percent higher than the US$1.6 billion Ford spent on China-made auto parts in 2005.

The new auto plant, to be opened in 2007, will be located in Nanjing in Jiangsu province and will produce up to 160,000 vehicles a year. Coupled with an expansion at Ford’s factory in Chongqing, the new facility will boost total capacity to more than 400,000 units a year.

Ford, which posted a preliminary third-quarter loss of US$5.8 billion in its worldwide business, has seen strong sales growth in China. Its vehicle sales in China more than doubled to 114,685 units in the first three quarters of this year from 55,807 in the same period last year.

Li & Fung acquires KarstadtQuelle sourcing arm Hong Kong-based global consumer goods exporter Li & Fung recently announced that it has entered into an agreement to acquire the sourcing arm of German-listed KarstadtQuelle AG, a major department store and mail order operator in Germany.

Turnover of the sourcing arm of KarstadtQuelle, KQIS, amounted to www.chaina-online.com

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approximately US$1.46 billion in 2005.

KQIS has a sourcing network of 22 offices including several in east Europe, and future sourcing volume for Li & Fung could potentially reach more than US$2.25 billion based on the size of KQ’s extensive retail operations, Bruce Rockowitz, President of Li & Fung, estimated. Li & Fung has a sourcing network of over 70 offices in 40 countries and territories.

Li & Fung bought five companies last year and plans more acquisitions of small and medium-sized businesses as it seeks to boost annual revenue to US$10 billion by 2007 from about US$7.2 billion in 2005. The company has bought two US companies this year for a combined US$199 million. In July this year, Li & Fung agreed to buy New York-based Rosetti Handbags & Accessories for US$162 million to boost its non-clothing and US private-label wholesale income. In May 2006, Li & Fung announced the US$37 million purchase of the women’s wear unit of Atlanta-based Oxford Industries.

SK Telecom, China Unicom announce joint handset sourcing deal SK Telecom and China Unicom revealed recently that they have agreed to work together on “joint handset sourcing” in order to target the two markets of Korea and China. Through such an agreement, SK Telecom and China Unicom have agreed to source joint handsets of six types in the first half of 2007 for the Korea and China markets, and plan to continue expanding the supply of model types and volume by 2008. Through cooperation between the two companies, joint supply of mid-to-low priced models aimed at the China and Vietnam markets is also planned.

China Unicom’s chief executive officer Chang Xiaobing remarked, “The joint sourcing of handsets will be an important basis for development of [China’s] CDMA operations, and we will provide full support so that the diverse strategic ties between the two companies can bear fruit.” This is the first cooperation project

announced since the strategic alliance between SK Telecom and China Unicom which was announced in June 2006.

SK Telecom and China Unicom revealed that other than joint handset sourcing, they are undergoing discussion for other areas of cooperation under the strategic tie-up, such as joint VAS development, joint platform development, and marketing and distribution.

LOGISTICS

China’s logistics industry surges ahead The aggregated turnover of China’s logistics industry totalled US$3.3 trillion in the first half of 2006, up 15.3 percent yearon-year, said the China Logistics Alliance Network. In a breakdown, the sector’s turnover of industrial commodities came to US$2.9 trillion, up 15.6 percent yearon-year. Rising global energy prices have apparently forced China-based businesses to pay more for logistics.

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OOCL Logistics to open third Shanghai warehouse OOCL Logistics, a wholly owned subsidiary of Orient Overseas International, plans to open an 8,300 square metre warehouse at the Shanghai Baowan International Logistics Centre. This will be the company’s third warehouse in Shanghai and will bring its total warehouse space in the city to 25,000 square metres. The OOCL Baowan warehouse is located in the northeast of Shanghai and will provide domestic storage, distribution and export consolidation facilities.

DHL opens new facility in Shanghai, plans operations centre in Chengdu DHL Global Forwarding has inaugurated a new warehouse which is part of DHL’s total US$315 million investment in China over the past few years. The US$3.6 million logistics centre is located in the Waigaoqiao Bonded Logistics Zone, currently the largest bonded logistics zone in China and one of three key logistics zones in Shanghai.

It covers 1.03 square kilometres with a total planned warehouse area of 700,000 square metres.

DHL also plans to begin building an operations centre at the Chengdu Airport Logistics Park in southwest China before the end of 2006. Construction of the Chengdu Airport Logistics Park is already underway, as is the building of a cargo terminal at Chengdu Airport.

This flurry of infrastructure development works in Chengdu has also attracted the attention of rival global delivery firms, UPS and FedEx, which are also said to have held talks with authorities about establishing a presence at the logistics park.

centre. Sinotrans views its move into cold chain logistics as an opportunity to increase profit, according to Qi Yan, Sinotrans general manager. Yan also said that although cold chain logistics has a relatively low return on investment compared to other areas, it has stable, long-term profitability.

Sinotrans also announced last month its interim results for the first half of 2006. Total turnover generated increased 11.9 percent to US$1.84 billion. The core businesses of the company – freight forwarding, express services and shipping agency – saw continuous growth, with turnover increasing 11.8 percent, 31.2 percent and 5.4 percent respectively.

Beijing set to become international air cargo hub China’s first airport-based bonded logistics centre will begin operations in the first quarter of 2007 and is expected to make Beijing an important northeast Asian air cargo transportation hub. The bonded area is a key part of a three square kilometre airport logistics park to be completed by the end of next year.

The Beijing Airport City Logistics Park will involve a total investment of US$456 million.

The logistics park, located at the north end of the airport’s second runway, has five functional areas: a bonded zone, cargo terminals, an express cargo centre, an import/export air cargo customs surveillance zone and a comprehensive office complex. Analysts agreed the airport logistics park would serve as an engine for the economic growth of Beijing with the park expected to directly contribute US$937 million to Beijing’s GDP by 2015. Beijing airport transported 782,066 tons of cargo last year.

Sinotrans cold chain logistics centre opens, company sees continued growth

RETAIL

Sinotrans Shanghai Cold Chain Logistics has opened a 11,000 square metre cold chain logistics centre in the Jiading district of Shanghai. The company invested more than US$15 million in the

Starbucks has bought out its partner in more than 60 retail stores in China by purchasing 90 percent of Beijing Mei Da Coffee, a licensee and owner of stores in Beijing and nearby Tianjin, from

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Starbucks buys out local Beijing partner

ChinaFotoPress

REAL ESTATE

H&Q Asia Pacific and other owners. It is expected that the acquisition will help the company to improve efficiency and accelerate expansion in China. “It’s a trend for foreign retailers to move from traditional joint-venture partnerships to wholly owned enterprises,” said Paul French, chief analyst of Access Asia.

“The purchase will enable Starbucks to control supply chains and improve margins,” French said.

Starbucks currently has 190 stores in 19 cities in China. “China will eventually be our largest international market,” Martin Coles, president of Starbucks Coffee International, told a press briefing in Beijing. Starbucks has said the company may ultimately have as many as 6,000 or 7,000 stores in China.

Starbucks may exercise a right to increase its stake in a second venture, which includes Taiwan’s Uni-President Enterprises and covers about 100 outlets in Shanghai and surrounding cities, Coles said. He didn’t say when. Starbucks agreed in July 2003 to pay US$21 million to buy 45 percent of the Shanghai chain from Taiwanese companies President Chain Store and Uni-President.

Paul French questioned the popularity of Starbucks in China: “Many Chinese www.chaina-online.com

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IT

Wumart finds fit with SAP Beijing-based retail chain Wumart Stores has selected mySAP ERP and SAP for Retail to upgrade the company’s information systems. With the selection of SAP, Wumart becomes the first Chinese supermarket chain to implement an international enterprise resource planning (ERP) and retail package from a top global enterprise software provider.

The agreement marks another success for SAP in the highly competitive retail market in China. Wumart extends SAP’s portfolio of Chinese customers, which already includes leading manufacturers, financial services companies and petrochemical companies.

The systems will enable Wumart to roll out an ERP and retail system

consumers have been to Starbucks, but they’re not regular coffee drinkers.

In the US, people buy takeout coffees, but most Chinese stay in the shop so the turnover is not good.”

Carrefour not interested in big China acquisition French retailer Carrefour is not interested in making a major acquisition in China in response to Wal-Mart’s reported expansion plans, the retailer’s chief executive said last month. Carrefour could lose its top spot as China’s largest foreign retailer if U.S. giant WalMart succeeds in buying Trust-Mart, which owns 100 supercentres in China.

“We asked ourselves should we keep the emphasis on organic growth or take the risk of doing a large acquisition with all the problems and challenges of integration,” chief executive officer Jose Luis Duran said. “We are more interested in organic growth, and we will not deviate from that.”

At the time of going to press, sources suggested that Wal-Mart is planning to buy Taiwan’s Trust-Mart for US$1 billion, which would more than double its presence in China. Carrefour aims to www.chaina-online.com

that connects its headquarters with more than 500 outlets to enhance management control, optimize business operations and support corporate core business processes, including category management, internal supply chain management, commodity planning and chain store management.

Wumart’s selection of SAP shows that China’s retail industry is entering a new stage in the development of its IT infrastructure. To better serve their growing customer bases, Chinese retailers recognize the need to replace their homegrown and domestic retail software with standardized ERP and retail applications from global vendors.

China’s enterprise application solutions market revenue was estimated at US$1.8 billion in 2005.

open at least 20 hypermarkets, which sell food along with household items such as fridges and TVs, in China in 2006 and beyond. It opened its 84th hypermarket late October 2006, which is its seventh in Beijing and 1,000th in the world.

Duran said Carrefour had looked at buying Trust-Mart but that the company did not meet its criteria.

Retail sales growth expected in coming years Consulting firm Ernst & Young forecasts that China’s retail sales will maintain fast growth in the coming years and more mergers and acquisitions (M&A) are to be expected. The sector is expected to grow at an average of 14 percent per year between 2007 and 2010. And the firm also forecast that retail sales will hit about US$1.1 trillion next year.

The main reason for M&A activities among local and foreign retailers is to reduce competition, resolve real estate issues, and gain presence into new markets. Also, mergers and consolidation within the industry will reduce fierce head-to-head price competition among retailers.

As China’s retail sector is largely fragmented, there are plenty of opportunities for companies to consolidate. This is especially viable because only ten percent of the industry is dominated by the top 100 retail companies.

In July this year, Gome, the nation’s largest home appliance chain company, took over rival China Paradise Electronics, China’s number three electonics retailer, for about US$680 million. In order to further consolidate its position, Gome has also publicly expressed interest in taking over Suning Appliance, China’s number two electronics retailer. However, Suning chief executive officer Sun Weimin has firmly rejected that idea.

Office Depot buys into China’s office supplies market Office Depot, a leading global provider of office products and services, last month announced that it bought a controlling stake in Beijing-based AsiaEC, one of the largest dealers of office products and services in China.

“AsiaEC is a leader in delivering a wide range of products and services to businesses, including to multinational corporations operating in China,” said Charles Brown, president, Office Depot International. “This acquisition gives Office Depot a significant presence in the fast growing Chinese market, and allows us to further leverage our operations in Japan and South Korea to enhance our competitive position within this increasingly important region.”

“Both AsiaEC and Office Depot are committed to a customer-centric framework that delivers the products and services businesses need to be successful in the marketplace,” said Tim Liu, a founder and CEO of AsiaEC. “Combining Office Depot’s multi-channel sales expertise with AsiaEC’s proven, scalable business infrastructure will give customers throughout China an even wider array of solutions.”

AsiaEC will operate under the Office Depot International division. Liu will report to Teddy Chung, senior vice president and managing director, Asia.

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POWER

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www.chaina-online.com

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W

hen talking to supply chain professionals, there’s one thing that constantly comes back to mind and that’s just how complicated running efficient supply chains, no matter in China or in Chile, can be. And if you’re struggling with your company’s supply chain and looking for some advice on how to do your job better, who better to turn to than the established experts in their field?

The inaugural CHaINA China Supply Chain POWER 20 highlights the leading lights in the field of supply chain management in China today. The individuals that are profiled over the next nine pages (listed in no particular order) represent a kind of “who’s who” of the power players in supply chain management in China. They are drawn from a variety of different areas including manufacturing, retail, distribution, sourcing, logistics and consulting. They have been recognised for their achievements and superior expertise in efficiently driving their company’s (or sometimes their client’s) supply chains and for a job well done.

The key logistics challenges for our clients are related to getting better supply chain visibility and reducing inventories.

Henrik Anker Olesen, IBM Global Business Services

Fanny Xu Supply Chain Associate Director, Greater China, Johnson & Johnson Medical Fanny Xu serves as the Greater China lead for Johnson & Johnson Medical’s supply team responsible for a range of issues including supply chain integration, people development and 3PL management. Some of her biggest achievements include establishing China’s regional distribution centre and setting up a platform for the sharing of information and experience sharing and benchmarking across Johnson & Johnson Medical Greater China network. Fanny has twice been awarded with the Johnson & Johnson Asia Pacific ‘Top Contribution Award.’

Prior to joining Johnson & Johnson Medical, Fanny worked for a Shanghai-based metal trader.

A native of Shanghai, Fanny has been with Johnson & Johnson Medical for the past nine years and during that time she has led the drive for raw material localisation (achieving a 70 percent localisation rate), played an important role in ERP implementation and oversaw the establishment of a customer self service and online ordering system.

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Sean Shao Logistics Manager, NuSkin China Sean Shao has been managing NuSkin China’s Shanghai-based logistics division since 2002. He leads a team of more than one hundred, handling issues including import/ export procedures, warehouse management, inventory control, distribution management, sourcing management and cost optimisation.

Prior to joining NuSkin Sean worked for ExxonMobil as the senior supervisor of LSP and fleet administration. Previously Sean also served as the assistant manager of Samsung China’s logistics department, where he was responsible for logistics management in east China and for SAP/R3 normalisation.

In the future Sean plans to implement more effective and high level systems in NuSkin’s supply chain operations “by combining sales forecasting, inventory supply and demand, production execution, and distribution fulfilling systemically and consistently.”

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Raymond Hui Director of Distribution – Greater China, Amway China Raymond Hui handles all Amway China’s logistics and shop operations across mainland China, Taiwan and Hong Kong. He has more than 28 years experience in this area having previously worked for Dodwell Trading, China Gas, Dairy Farm and pharmaceutical giant GlaxoSmithKline.

Raymond, who is currently based in Guangzhou, has worked for Amway for more than 12 years. In 1997 he was appointed Director of Distribution for Greater China, and was charged with the task of putting in place a more streamlined logistics infrastructure. Since that time Raymond has overseen the setting up of more than 188 stores across China, the backbone of Amway’s sales structure in the country.

In 2002, he pushed for the establishment of a modernized Logistics Centre in Guangzhou with a total area of 40,000 square metres, something which Raymond looks on as perhaps his biggest achievement to date. The centre serves to concentrate the efforts of Raymond’s distribution management team who are in charge of a supply chain that has to date supported RMB17 billion worth of sales in China.

Raymond firmly believes that “only once companies have a healthy supply chain can they enhance their competitive edge in the market to occupy unbeatable positions.”

Bee Choo Lim Materials Director, Asia and Latin America, Intel Based in Shanghai, Bee Choo Lim is Intel’s materials director for Asia and Latin America with a team of more than 700 across more than ten countries. During her time with Intel she has been instrumental in building a fully integrated materials operation in China and in developing local resource capabilities.

Bee Choo has fully committed herself to the development of Intel’s China supply chain and under her leadership the China materials division has grown three-fold. Annual spending in China has more than doubled in the last two years. Bee Choo feels there are huge opportunities for suppliers in China 20

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to get more actively involved in the global supply chain so long as those companies can quickly get up to speed with the expectations of global users.

For Bee Choo, her fundamental approach to her job is to “nurture and grow” the talent and leadership of her team in China so they can “actively lead and engage in strategies that grow the effectiveness and efficiency of Intel’s supply chain.”

Jean-Luc Laboucheix Supply Chain Director, Asia Pacific, Goodyear Jean-Luc Laboucheix only joined Goodyear in July this year and prior to his current position as Asia Pacific supply chain director for Goodyear, he was supply chain director for Electrolux in Europe and China. He started his career in humanitarian aid leading logistics missions in Afghanistan and Pakistan for UNICEF and the WHO, before leading the logistics chain for the largestever EU food aid programme to Russia in 1992.

He has led international supply chain projects for a variety of leading automotive, chemical and transportation companies.

Although many of the challenges of JeanLuc’s current position remain the same as in his previous many and diverse roles, the biggest challenge he faces right now is “the size, the geography and the diversity of cultures in the Asia Pacific region as compared to Europe and the US. And dramatically different markets.” As a result, as Jean-Luc goes on to say, it’s not possible to simply copy models that may have previously worked well in Europe or North America.

Goodyear is in the early stages of the development of an integrated supply chain and thus far concentrated efforts on the development of the people the company employs. As Jean-Luc says, “by first getting good people can you drive change.” In the past six months, 80 percent of senior supply chain positions in Goodyear have been filled by new people hired both internally and externally. www.chaina-online.com

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The logistics industry in China is still far behind in terms of operational and management level skills.

Raymond Hui, Amway China

William Sun Purchasing Director, Saint Gobain China Delegation

Jon Frauenfelder Manager/Project Leader, IKEA Distribution Centre Shanghai Jon Frauenfelder joined IKEA in 2002 to focus on the expansion of the company’s China based distribution capabilities and domestic operations in order to support growth in the Asia Pacific region.

Jon was subsequently charged with the task of leading the project to construct IKEA’s first purpose-built Asia Pacific-based distribution centre. He led the project from the very beginning and is now responsible for the smooth running of what is one of the largest and most technically advanced distribution centres in China. With 14 years experience in China prior to joining IKEA, Jon held positions with Siemens and also with the US Department of Commerce.

IKEA’s distribution centre currently has a total storage capacity of 90,000 cubic metres and the largest Automated Storage Retrieval Systems (ASRS) installation in China. By February 2007, a second building will open and the centre will grow in capacity to 200,000 cubic metres. Jon leads the team of over 160 workers which is understandably not without its challenges with Jon citing people development as one his most important tasks.

Other challenges he has highlighted include China’s complex regulatory environment and a uneven level of consistency of service by logistics service providers.

People are clearly important to Jon and he has said that he wants to “change the mindset about what is achievable in supply chains in China, enable an evolution of thinking and how things are done when it comes to logistics in such a complex market as China.” www.chaina-online.com

William Sun is currently the purchasing director of Saint Gobain (China) Investment leading a supply chain platform across 34 sites for Saint Gobain in China and sourcing- from China initiatives. He is also leads the purchasing management of glass raw materials for Saint Gobain Asia.

Prior to joining Saint Gobain, William worked with Degussa China as a senior procurement coordinator, in charge of purchasing management at the country level and global

Fuelled by a booming manufacturing sector, I expect we will see a big boom in the use of supply chain software systems in China. This will definitely makes things easier to control and track on what goes on within the country.

Amit Kumar, Electrolux Group

Jamie Bolton Executive Partner, Supply Chain Management, North Asia, Accenture Jamie Bolton is responsible for Accenture’s North Asia Supply Chain Practice, located in Shanghai. He joined Accenture in 1993 and has a varied background in strategic consulting. For the last 12 years has been involved primarily in supply chain consulting and Jamie has served clients across a wide range of industries including telecoms, consumer and industrial products.

Focusing on business transformation and creating sustainable supply chain performance improvements through behaviour change, his areas of expertise include supply chain strategy and integration, supply chain planning and optimization through network modelling, procurement transformation, low cost country sourcing, supply chain process reengineering and inventory management.

Moving to Shanghai in 2002 Jamie has rapidly built Accenture’s North Asia Supply Chain Practice and his recent work has focused on improving the operational performance of Chinese organisation’s supply chains, implementing LCCS strategies for multinational organisations in China and supporting Accenture’s global multinational clients who are seeking to implement China operations strategies.

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sourcing activities. He has also previously worked as the import and export manager for China Resources Group based in New York and Beijing.

During his time with Saint Gobain, some of William’s major achievements include the setting up of a centralised supply chain platform that has already estimated to have saved the company around five to 40 percent in costs in the procurement of raw materials, equipment, transportation and other services. He has also led several process improvement projects, developing standardised operating procedures to ensure that Saint Gobain’s supply chain is efficient, transparent and corruption free.

The logistics industry in China is still far behind in terms of operational and management level skills.

Raymond Hui, Amway China

Jiwei Ye Vice President, JPMorgan Chase Vastera International Trade Consulting (Shanghai)

Eugene Lim Registered Foreign Lawyer, Baker & McKenzie, Hong Kong Eugene Lim is a registered foreign lawyer with Baker & McKenzie in Hong Kong. His practice focuses on distribution and supply chain strategies, and tax, customs and international trade advisory work in China.

He also covers trade law developments in the WTO, APEC, ASEAN and free trade agreements in the Asia Pacific region, and is a steering committee member of Baker & McKenzie’s global international trade and WTO practice group.

Eugene has advised various multinational companies in China on their China distribution and sourcing strategies, issues related to disputes with China customs officials, how the use of various preferential tariff schemes and free trade agreements can minimise their exposure to customs duty. He has also advised clients on issues relating to the implementation of China’s WTO obligations.

Given that China has greatly liberalized its logistics and distribution sectors to foreign investors in recent years, Eugene feels that currently perhaps the biggest challenge that many companies are now facing in their China supply chain operations include greater competition as well as a demand for more sophisticated supply chain capabilities. As he says, “restructuring supply chain operations to keep pace with these changes and to keep ahead of the competition will be one of the biggest challenges for businesses in China.

This involves an appreciation of how China’s www.chaina-online.com

Jiwei Ye, originally from Shanghai, leads JPMorgan Chase Vastera‘s operations in Asia Pacific and is chiefly responsible for implementing business development strategies, managing the company’s trade consulting and services operations, as well as developing new product offerings for the region. His expertise lies in the areas of export/import trade compliance, supply chain performance and costs savings.

Jiwei set up JPMorgan Chase Vastera’s China office and the ‘Asia trade center of excellence’ in 2004. He has since been integral in establishing JPMorgan Chase Vastera’s presence in Asia Pacific, for implementing the China Trade Compliance program and for building what is already an impressive list of clients including Ford, Honeywell, Lucent and Nortel, and an extensive supplier network.

Like other key figures involved in supply chain, the thing that Jiwei probably finds hardest about his job is recruiting capable supply chain talent. And for him “the future is all about supply chain integration.

Instead of integrating the individual logistics functions, the future is about integrating the financial, physical and information supply chains.”

complex regulatory, customs and tax regime affect business needs.”

Eugene gets real satisfaction from watching how he can help his client’s business in China grow as a result of his advice, something that he will have plenty of opportunity to do more of in the future given that so many foreign companies are now setting up their international procurement operations in China to serve both the domestic and international markets.

Going forward, Eugene also sees an “increasing demand for more sophisticated supply chain needs such as greater use of RFIDs, more electronic interfaces between businesses and China Customs, efficient reverse logistics, just-in-time delivery structures and so on.”

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The projected skills shortage in the supply chain industry in China continues to concern me - related issues include skills training, recruitment and development and retention of key personnel.

Mark Millar, UPS Supply Chain Solutions

Future customers will seek greater reliability at lower cost through end-toend integrated supply chain services.

Henrik Anker Olesen, IBM Global Business Services

Henrik Anker Olesen Transport & Logistics Leader Asia, IBM Global Business Services Based in Shanghai, Henrik Anker Olesen is the Asia Pacific transport and logistics leader for IBM Global Business Service and has been instrumental on several major transformation deals for shipping lines and logistics companies across Asia Pacific. His work involves setting a new strategic direction for his clients, defining best practice business processes, aligning organisations with new processes and implementing new systems in the front and back office. As a result of this work, IBM has become the transformation partner of choice for a large number of leading shipping, logistics and express companies in China.

Prior to his current role Henrik was part

of the IBM team that acquired Maersk Data in Denmark in 2004. This acquisition made IBM a leading IT services provider for shipping and logistics companies worldwide. Henrik himself worked for Maersk prior to joining IBM and held positions in a variety of different business areas and countries including Denmark, the UK, Hong Kong, Singapore, Taiwan, Thailand and Bangladesh.

Henrik helps his clients “with defining their strategy, with improving their business processes and with the implementation of end-to-end execution systems. IBM is helping both multinational companies and Chinese companies.” Henrik says, “there are several large Chinese enterprises who have potential to become global conglomerates or multinational companies. IBM is helping these companies on their transformation journey with the implementation of world class business processes and execution systems.”

Mark Millar Director of Strategic Business Development, UPS Supply Chain Solutions Mark Millar is perhaps one of the best known figures in China supply chain. His current position is as the Director of Strategic Business Development with UPS Supply Chain Solutions based in Hong Kong. Prior to moving to Hong Kong, Mark was previously based in Shanghai where he held positions with Exel Contract Logistics, ModusLink and Platinum Logistix. Originally from the UK, he has enjoyed an international supply chain and logistics career spanning more than 15 years and in addition to the UK and China, he has lived and worked in the Netherlands, Ireland, Singapore and Australia.

Mark is well known as an energetic and entertaining speaker and he has chaired and presented at more than 40 international conferences on supply chain issues. He also serves on the board of several supply chain organisations across Asia Pacific and is currently honorary chairman of the China Supply Chain Council.

The projected skills shortage in the supply chain industry really worries Mark. Related issues he feels “include skills training, recruitment and development and retention of key personnel.”

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Steve Aschkenase Managing Director, Deloitte Consulting Shanghai Based in Shanghai, Steve is a managing director of Deloitte Consulting Overseas Services and leads Deloitte China’s Strategy and Operations Practice. He works with leaders of both multinational and Chinese state-owned companies on issues ranging from market entry to joint venture formation and low-cost country sourcing. In the latter area, he has a particular focus on sourcing execution – picking the right suppliers and effectively integrating those suppliers into the customer’s supply chain.

Prior to coming to China, Steve was based in the US and led Deloitte’s global service parts management practice with a focus on clients in automotive, aerospace, and other manufacturing industries in the areas of inventory management, warehouse operations and supplier collaboration. A number of service parts practice projects had spectacular www.chaina-online.com

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results in customer service, cost and inventory management--and won both company and industry level awards.

Steve finds that many of his current multinational clients “are struggling with increasing sourcing from China without incurring too much risk – finding the right suppliers and then holding their hands through integration.” He cites amongst his biggest achievements helping some of his clients to walk away from troubled deals before it was too late. One deal involved a JV in China for a global company, another a JV in the US for a Chinese company.

Steve predicts a “relentless drive for improvement in supply chain management in China for many years to come.” Why? “Because enhanced supply chain capability will be a key enabler of China’s plans to move up the value chain, increase imports and compete effectively with lower costs sorcing destinations such as Vietnam.”

Max Henry Executive Director and Founder, China Supply Chain Council As the executive director and founder of China’s leading professional organisation in the field of supply chain, logistics and manufacturing management in China, Max Henry is one of the best known figures in supply chain management circles in China. Through the regular events and activities organised by the China Supply Chain Council, Max has been pivotal in establishing the Council’s position as the best and most influential forum in China for exchanging ideas on supply chain best practices and initiatives. Indeed he originally set up the Council “to offer supply chain professionals, not only the top managers, access to practical knowledge, hands-on experience and quality networking.”

Max initially started his career in media and trade publishing. For the eight years www.chaina-online.com

Improved supply chain performance in China will serve as a differentiator from lower cost competitors such as Vietnam.

Steve Aschkenase, Deloitte Consulting

Amit Kumar Logistics Manager Asia, Intercontinental Freight & Logistics Services, Electrolux Group Based in Shanghai, Amit Kumar is responsible for logistics and operations management and international cargo movement to and from Asia for the Electrolux Group. He also has global responsibility for procurement of air cargo and courier services for the company.

Electrolux sources more than US$1 billion worth of components and finished products in China. And, as Amit says: “In the past, most of the flows were managed by the suppliers who delivered directly to the factory. We have now taken control of our supply chain. All Electrolux cargo now moves on Electrolux contracted rates with the shipping lines. Similarly, all air freight and courier also moves on our network.”

Amit was instrumental in developing Electrolux’s logistics network across Asia to support the company’s low cost country sourcing initiatives and has been pivotal in helping to establish consolidation hubs in Shanghai and Shenzhen where cargo can be consolidated and then shipped as one consolidated container to factories overseas.

Prior to moving to Shanghai, he was working as a strategic planning manager for Electrolux’s corporate purchasing division and involved in developing a network of sourcing offices across east Europe, with a focus upon Hungary, Poland and Turkey.

Amit is proud to say that all international logistics pricing for any components sourcing for Electrolux’s factories globally is performed by his team in Shanghai and they have saved almost 30 percent on logistics costs regionally.

He finds one of his biggest challenges to be the lack of an integrated nationwide logistics service provider in China making, as he says, “difficult to manage, track and control Electrolux shipments over land because we cannot have one company managing all flows for us.”

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Efficient supply chains will make the difference between success and failure for companies trying to take advantage of China’s exponential growth and untapped sourcing opportunities.

Richard Laub, Dragon Sourcing

Gary So Vice President, Kerry EAS Logistics Gary So is currently the vice president of Kerry EAS Logistics. Gary joined Kerry Logistics in 2000 and before his transfer to China was the general manager of Kerry Logistics Hong Kong.

In his six years with the company he has played a key role in pushing the transformation of Kerry Logistics from an asset based warehousing company to its current position as one of the leading 3PLs in the region with a client roster which includes quite a number of Fortune 500 companies. More importantly he has been instrumental in building a management team that combine international vision with local execution capabilities and in building a pan-China distribution network covering more than 120 branches. Gary is confident that “together with a global freight network, the warehouse anddistribution centre setup and infrastructure investment Kerry is one of the only few having the capability to provide a one-stop solution to customers under different logistics models.”

Prior to joining Kerry Logistics, Gary worked for Lufthansa, TNT, the logistics arm of NYK and also with a smaller management consultancy firm which is now part of PricewaterhouseCoopers. With over 18 years experience in the industry, he has extensive experience in contract logistics, express, air and sea freight, warehouse management, distribution as well as consulting in strategy and supply chain management strategies.

Gary was a founding member of the Hong Kong Chapter of the Council of Supply Chain Management Professionals.

Regarding the future of supply chain management in China, Gary sees competition in the market continuing to hot up with companies needing to offer what he calls “more integrated supply chain solutions with integration between logistics operations, trading, finance, cash management, IT and customers’ business processes.”

The technology side of supply chain is clearly very important to Gary and he has pushed for Kerry Logistics to enhance the transparency and visibility of the supply chain that they operate by making the backend IT applications more visible to customers.

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Max Henry continued

prior to the founding of the China Supply Chain Council in 2002, he was actively engaged in developing supply chain and logistics solutions for foreign-invested enterprises in China including running a strategic sourcing consulting firm, managing a supply chain solution provider and establishing a value-added logistics platform operator.

In the future Max plans to expand the Council’s presence online “by offering new ways for members to network online, find jobs, access webinars and trainings. The web offers a new area of growth that is critical, in particular with our expansion to other low-cost countries like India and Vietnam.”

Richard Laub CEO, Dragon Sourcing Richard Laub is the chief executive officer and founder of Dragon Sourcing, a procurement service provider. Since co-founding the company in 2004 he has grown the team to 25 procurement professionals in China and France, and has spearheaded the sales of procurement services to more than 15 large multinational companies.

Prior to his current role, Richard was the partner in charge of Accenture’s procurement practice in Europe. Other previous positions include responsibility for managing the transformation – over a three year period – of the indirect procurement organisation of Philipps Electronics and partner in charge of European procurement for Booz Allen Hamilton in London, a leading international strategy consulting firm.

One of Richard’s main challenges includes, once again, the human resources issue and his “ability to recruit, develop, train and retain high quality procurement professionals in order to build a critical mass of buyers capable of implementing best procurement practices in China.” To that effect he’s highly committed to training his people in the latest procurement techniques.

He also cites awareness as a key challenge and by that he means the need to educate “senior managers at leading Chinese corporations about the positive contributions that procurement can make to the bottom line.”

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Paul French Chief Analyst, Access Asia, Shanghai Paul French is a well-known figure around China, particularly in Shanghai, for his work as the Chief Analyst and co-founder of Access Asia, an independent provider of market intelligence for companies and institutions seeking reliable information upon which to establish or develop their presence in China.

Prior to the founding of Access Asia, Paul was writing on Chinese and South East Asian consumer markets for several years for many of the leading market research companies in the UK, including Euromonitor, Frost & Sullivan and KeyNote. He has also worked as a China analyst for Royal Mail Consulting and a number of other major UK companies.

Paul’s areas of special interest include consumer goods, retailing and leisure services and as a China specialist he is regularly quoted in a wide variety of international publications. Based in Shanghai, he writes much of the strategic analysis for Access Asia reports, which have included an analysis of the retail environment in China and a profile of WalMart’s entry into China.

Benjamin Gordon Managing Director, BG Strategic Advisors Benjamin Gordon is the managing director of BG Strategic Advisors, an investment banking and supply chain strategic advisory firm specialising in

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the supply chain industry. In the past 12 months, the company has worked on logistics M&A deals totalling over US$2.1 billion in transaction value. Benjamin is responsible for leading key client engagements and for setting the direction of the firm.

Prior to BG Strategic Advisors, Benjamin founded 3PLex, a web-based solution enabling third-party logistics companies to automate their business, which has since been sold to Maersk. He also previously led strategy projects in transportation and technology at Mercer Consulting, where he developed one of the first e-marketplace strategies for a logistics client.

Benjamin sees a booming market for AsiaNorth America merger activity, as mature US logistics companies merge with highgrowth Chinese logistics companies, and he has noticed that “smart Chinese logistics companies are teaming up with global logistics leaders. We will see this geographic consolidation accelerate in the coming year.”

Future supply chain management teams will have to develop multidisciplinary capabilities to enable them to understand how business and operational requirements interact with regulatory, tax and customs planning objectives.

Eugene Lim, Baker & McKenzie

Marc Hantscher International Sourcing Unit, Bosch and Siemens Home Appliances Group Based in Nanjing, in Jiangsu province, Marc Hantscher is currently responsible for running the international purchasing office for Bosch and Siemens Home Appliances Group. Prior to taking up his current position he worked for Mercer Consulting in their Munich, San Francisco and Paris offices where his work focussed on promoting procurement and operational efficiency for manufacturing and technology companies.

Of the many challenges that Marc faces he finds that probably his biggest challenge is “to stabilise [the company’s] many small- and medium-scale suppliers to ensure they meet his requirements regarding quality, timely delivery and above all – volume growth.” He has made this proactive approach to supplier development a keystone of Bosch and Siemens Home Appliances’ supply chain operations.

Of his many achievements in the role, Marc is most pleased about having achieved localisation rates of up to 100 percent of total spend on some projects at their factories in China.

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The challenges in Chinese procurement Companies that source goods from China must overcome several challenges to realise the opportunity in full.

Jimmy Hexter is a principal in McKinsey’s Beijing office, and Ananth Narayanan is an associate principal in the Chicago office. This article is reprinted with permission from The McKinsey Quarterly.

Copyright McKinsey & Company. www.mckinseyquarterly.com

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US

companies have captured only a fraction of China’s potential as a source of low-cost products and plan to strengthen their purchasing activities in the country, despite high employee turnover and other difficulties. In a survey conducted with the American Chamber of Commerce in Shanghai of 39 US companies with sourcing offices in China, the respondents estimated that these companies buy only 30 percent of the goods they ultimately could buy there, though that figure will rise to 50 percent three years from now. Moreover, to date, the respondents’ companies have captured only about one-quarter of the potential savings from purchasing in China—a proportion expected to hit 40 percent in three years. (Volumes increase faster than savings because it takes time for suppliers to squeeze out costs.) Notwithstanding all the press about Chinese exports to the West, only a fraction of the full potential has been captured so far.

Companies maintain that they are overcoming many of the cultural and logistical complexities that vex them. Some of the issues (such as communicating with corporate headquarters, training Chinese workers, and overcoming cultural and language barriers) are expected to be less pressing three years from now as companies gain experience

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and streamline their purchasing processes (see chart 1, opposite page). However, companies expect that today’s number-one challenge— retaining workers in their Chinese offices— will get tougher, in view of high demand for experienced people as multinationals expand their sourcing activities.

Despite the progress the respondents cite, companies worry that their procurement performance lags behind that of competitors.

When we asked respondents how their companies compare with rivals in nine areas, from the total volume of goods purchased in China to the ability to develop a local workforce there, they felt that their employers trailed the competition on every point (see chart 2). They feel least secure about the size of the cost reductions they realize by sourcing products in China but also express concern about the quality of the products they buy and the slow pace at which volumes are increasing.

Such concerns may reflect an awareness of the competitive challenge companies face in China and of how much improvement is possible.

To increase the savings, companies are shifting their Chinese purchasing organizations into a higher gear. Although respondents indicate that reducing the cost of the goods their companies buy www.chaina-online.com

SOURCINGFEATURE will remain a significant issue, raising volumes—in part by giving Chinese sourcing offices more autonomy and responsibility—will become increasingly important. Companies plan to transfer to China some critical functions and decisions that are currently the responsibility of headquarters.

Although today just 14 percent of all companies in China design products there, our respondents believe that the proportion will rise to 50 percent in three years. Likewise, while 34 percent of the respondents say that their companies’ Chinese offices currently approve product prototypes, the proportion is expected to double in three years (see chart 3).

Companies expect that moving decisions overseas will yield competitive advantages, such as shortening the time needed to bring products to market. One European apparel manufacturer, for example, formerly needed 12 to 24 weeks to get new products from the design phase to the point when it could place orders with its suppliers. By cutting the back-and-forth between headquarters and the Chinese sourcing office, the company has already shaved that time by several weeks and ultimately expects to reduce it to five to ten weeks—though progress toward that goal has been slowed by a shortage of experienced staff in China and by opposition at headquarters to the change.

Indeed, despite the potential rewards of shifting more responsibility to China, companies often encounter resistance back home, especially if the procurement process traditionally has been centralised at headquarters. A prerequisite for giving an office in China more authority—and for raising the volume of goods purchased there—is the ability to instill greater confidence about Chinese staffers, suppliers, and products among the company’s internal customers, many of whom prefer to buy from familiar suppliers. Respondents say that their companies overcome such resistance in several ways: for instance, by inviting headquarters staff to China for frequent visits, by sending key Chinese employees to headquarters on job rotations, and by linking everyone’s incentive pay to performance improvements that are realised in the Chinese sourcing office.

Companies are also upgrading the skills of their Chinese suppliers. Respondents emphasize initiatives that raise quality, cut costs, and improve the suppliers’ ability to deliver goods on time.

Their companies are focusing fewer resources on compatible IT systems, which haven’t yielded big savings, and on efforts to help suppliers apply the principles of lean manufacturing, since they feel that neither the Chinese purchasing offices nor the suppliers have enough skills and experience.

Nonetheless, we have found that Chinese suppliers can cut a company’s costs by 20 to 50 percent, primarily through improved techniques for buying parts and raw materials, as well as through better manufacturing practices. Rapid

efficiency gains are possible: in just four months, one machined-metal parts supplier reduced the time between receiving an order and delivering a product from 14 days to just three. The company also improved the timeliness of its deliveries, with 83 percent of them arriving when they were due, up from 60 percent. Clearly, companies can wring many more benefits from procuring goods in China.

Which issues in a sourcing organisation in China are the most difficult to tackle?

(Chart 1)

How does your company’s performance compare with that of its competitors?

(Chart 2) Clearly lagging behind 5

Clearly superior

Same level

4

3

2

1

Performance factor Total dollars sourced from China Total landed-cost savings (absolute basis) Total landed-cost savings (% basis) Rate of growth in volume sourced from China Reduction in lead time from China to company headquarters Time elapsed from identifying to be sourced from China to selecting suppliers Quality On-time delivery Talent development

Which of the following functions do/will you perform in your sourcing office in China?

(Chart 3) % of respondents Today

3 years from now

Sample approval Final product ordering

63

42

Prototype approval

34

Specitications approval Design

77

44

68

29

63

14

50

Source: McKinsey-American Chamber of Commerce (Shanghai) survey

www.chaina-online.com

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REGIONALFOCUS

ChinaFotoPress

Kunming’s connectivity convergence The capital of Yunnan province is poised for regional logistics hub status.

Chris Horton is managing director of the Meridian Group of Hong Kong, a logistics-focused consultancy with offices in Hong Kong and Kunming.

www.chaina-online.com

N

ot more than a century ago, Kunming was a backwater town where disgraced officials would be sent as punishment, essentially cutting them off from the rest of the world. Fast forward to the present and China’s integration into the global supply chain is morphing this up-andcoming second tier city into a regional transport hub connecting China, Southeast Asia and further down the road – India.

Kunming’s location has long been a hindrance to its economic development and integration with the rest of China. The capital of southwestern China’s Yunnan province, Kunming has traditionally been obscured by the more vibrant and dynamic Sichuanese cities of Chengdu and Chongqing to the north. Even today as foreign investment pours into those two cities, Kunming, with a population of five million, is still just seeing the beginnings of interest from the outside world.

Perched atop the Yunnan-Guizhou plateau at 1,900 metres above sea level, Kunming is bordered by rugged mountainous terrain that rises into Tibet to the west and the tropical jungle of Myanmar, Laos and Vietnam to the south. Politically, the city has only come firmly into the Chinese sphere of power in the last century.

With nearly half of its borders contiguous with politically sensitive Tibet and often-turbulent Southeast Asia, Beijing has traditionally paid little attention to the development of Yunnan. How

quickly the region’s fortunes have changed though: Yunnan is currently caught in a perfect storm of increased government infrastructure investment in the region and the increased stability and rapid growth of its Southeast Asian neighbors. And Kunming sits squarely in the eye of this storm.

China’s manifest destiny: Go West While the coastal economies have been humming along for years, China’s west – home to nearly onethird of its population – has been waiting patiently for its share of the fruits of China’s economic development.

For reasons both economic and social, developing China’s western regions via the campaign known as ‘Go West’ has emerged as a top priority in the central government’s 11th Five-year plan. The cornerstone of this development scheme has been improvement in the region’s logistics infrastructure, with the opening of Chongqing to container ships via the Three Gorges Dam the most notable example.

Roughly the size of California, Yunnan is a primarily agricultural province of 45 million people, the majority of whom have significantly less disposable income and earning power than citizens in China’s east. And most foreign and domestic investors agree that Sichuan and Chongqing’s combined 120 million residents are much more potentially lucrative. Take the China Post-Australia NOVEMBER/DECEMBER 2006

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REGIONALFOCUS

Post joint vernture for example, which according to Grant Kelly, general manager of Sai Cheng Logistics, is just starting to venture away from the ‘logistics hubs’ of Shanghai and Shenzhen in its second year of mainland operations. “We’re doing some work in Sichuan, but Kunming isn’t on our radar at the moment,” Kelly said. Nor does he envision Sai Cheng operating in Kunming in the next few years, stressing that “A few years is a long time in China.”

It may be lagging behind other western regions in some regards then, but Kunming holds a trump card that could propel it to the upper echelon of second-tier cities in China: it is being groomed to be China’s new gateway to Southeast Asia.

Gateway to ASEAN In December 2004 China and the members of the Association of Southeast Asian Nations (ASEAN) signed an agreement to launch what will be the world’s largest Free Trade Area in terms of population. With a total population of 1.8 billion people and a combined gross domestic product of US$2 trillion, the China-ASEAN FTA will begin in 2010 with a cluster of FTAs between China and Brunei, the Philippines, Malaysia, Thailand, Indonesia and Singapore. FTAs between China and Vietnam, Laos, Cambodia and Myanmar are expected to come into fruition in 2015, completing the massive regional trading bloc.

Much of the appeal for investment coming into Kunming is its role in this upcoming FTA, said Michael Hiu Fai Siu, president of Far East Sino-Thai Investment Consulting in Beijing, a consultancy focused on facilitating the flow of investment between China and ASEAN countries.

“Obviously Yunnan will play a major role in the exchange of goods between China and the ASEAN countries,” Siu said. “Kunming is the city that will serve as southwest China’s gateway to the outside world, including ASEAN and beyond.” Siu said he expected China-ASEAN trade through Kunming to be dominated by the import of raw materials from ASEAN countries and the export of inexpensive finished goods from China.

Since bouncing back from the 1997 financial crisis, Southeast Asia has increasingly looked to China as a trade partner. The planned FTA is only accelerating the economic integration of China with ASEAN. Tariffs are expected to be steadily reduced each year until 2010, when China’s Ministry of Commerce predicts 93% of imports to China from ASEAN will be tariff-free. This year the Ministry expects China-ASEAN trade to reach US$150 billion and US$200 billion by 2010.

Geographically positioned to be the focus point of China’s role in the FTA, Kunming already has bold preparations underway to expand its air, road, rail and water connections with Southeast Asia. The flipside of the coin, which is also being addressed, is

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the city’s ability to move goods from Southeast Asia to the rest of China.

Ambitious plans Long in planning, a new international airport hub in Kunming will be accompanied by improvemnts to surrounding roads enabling anyone living within a 200-kilometre radius to reach the airport within two hours. A 160-square kilometre airport economic zone will be built adjacent to the airport.

Kunming is looking to bring in foreign expertise to build an airport that will help it make the quantum leap from up-and-coming provincial capital to regional trade and transport hub. It has awarded the airport design contract to UK-based design and engineering consultancy Arup. German company Fraport – which owns Frankfurt Airport – is reported to be in talks to buy a stake in the US$1.9 billion project.

It is hoped that the new airport will address the numerous logistical shortcomings of Kunming’s current airport, Wujiaba International Airport, which has proved frustrated for foreign firms looking to engage in international trade in Kunming.

Renée Snijders, Chief Representative of the Netherlands Business Support Office (NBSO) in Kunming, has been with the office since it opened in 2004. Since that time, Snijders has served a growing number of Dutch clients, particularly in the horticulture industry (nearby Chenggong County is one of the largest flower production bases in Asia).

And according to Snijders, the shortcomings of Kunming’s current international airport, Wujiaba, consistently topped the list of client complaints.

“The main complaints we hear with regard to logistics in this sector are about the absence of a professional and large-scale perishable centre at Kunming Wujiaba Airport, which hinders largescale export of fresh flowers to foreign markets,” Snijders said. “Of course, the lack of direct flights to international destinations in Europe and the high transport costs per kilo for perishables don’t help either. Furthermore, a professional horticultural supply chain network does not exist either.”

China has also invested nearly US$1.5 billion in Yunnan on the construction of new roads and the renovation of existing ones to create a new fourlane highway from Kunming that will ultimately end in Singapore, passing through Laos, Thailand and Malaysia. Only the Laos portion of the highway is unfinished, with China and neighbouring countries working with Laos to expedite completion.

China is also expecting to fund nearly 75 percent of a planned pan-Asian railway, which will have three trunk lines connecting Kunming and Singapore and passing through Myanmar, Laos, Vietnam, Cambodia, Thailand and Malaysia. The US$2 billion project is still several years from completion, when

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REGIONALFOCUS

The Stilwell Road Named after General Joseph Stilwell, an American army officer who commanded American and British forces in China, Burma, and India during World War II, the Stilwell Road was a crucial 769 kilometre military supply route linking Ledo in northeastern India with the Burma Road. The Burma Road extended a further 1,154 kilometres through mountainous country from northeastern Burma to Kunming. This was a vital transportation route for wartime supplies to the Chinese government from 1938 to 1946.

The route has since fallen into disrepair however Indian surveyors have recently visited Tengchong County in Yunnan to assess the possibility of its reconstruction. Most Indian exports to China currently follow a 6,000-kilometre shipping route that passes by Singapore and through the Malacca Strait.

it will link Kunming with Hanoi, Ho Chi Minh City, Phnom Penh, Bangkok, Kuala Lumpur and Singapore.

The main depot in China for this rail network will be the comprehensive intermodal container depot recently completed in Jiaying, Chenggong County, 20 kilometres south of Kunming. The US$55 million Jiaying Depot covers 16,000 hectares and is projected to handle 63 million tons annually.

One of 18 new intermodal rail hubs planned by the Ministry of Railways, all container traffic heading from Southeast Asia to other parts of China through Jiaying will be processed once in the container depot, eliminating the need for transfer stations further down the line. This means reduced costs and increased operational efficiency.

Kunming-Vietnam transport corridor The port of Haiphong in northern Vietnam is the closest port geographically to Kunming, but the ports of Qinzhou and Beihai in neighbouring Guangxi province have long been used for goods coming from Kunming. This is all set to change though because China-Vietnam relations have recently reached the détente necessary to make connecting Kunming with Haiphong a viable idea, and in 2008 a highway will be completed between the two cities.

Only the Noi Bai-Lao Cai segment of the US$620 million, 400-kilometre Kunming-Haiphong road remains to be completed. Once finished, the road will be a key component of the planned KunmingHaiphong Multimodal Transport Corridor, with a rail link likely to be added later.

Haiphong is not the only foreign port Kunming is hoping to have greater access to in the near

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future – it is also making overtures to the port of Chittagong, Kunming’s sister city in Bangladesh.

Should the necessary road and rail infrastructure upgrades be made, China would then have convenient access to the Bay of Bengal, eliminating the need to circumnavigate continental Southeast Asia via the Malacca Strait.

A road to India?

And as if the potential of linking up with the growing ASEAN economies wasn’t enough, Kunming might also become the primary conduit for land trade between China and India with those two countries working on plans to reestablish the Stilwell Road, which once connected the two countries via Myanmar (see above).

Despite their size, proximity and economic growth, trade between China and India is still relatively small, US$18 million in 2005. A road link between the two has obvious implications for trade between the two Asian giants.

Any first movers out there?

“In Yunnan there is no big player in the logistics industry. Yunnan companies have been traditionally small and short of cash and do not tend to think big,” Far East Sino-Thai’s Siu said. “The local government is eager to attract foreign investment in this sector.”

NBSO’s Snijders said she anticipates that increased economic interaction with ASEAN and the accompanying logistics improvements would propel Kunming toward a more significant domestic and international role.

“It’ll become the regional hub it says it already is.”

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Reverse logistics Strengthening the forgotten supply chain.

Jewei Ye is vice president of JPMorgan Chase Vastera International Trade Consulting (Shanghai), based in Shanghai.

As

business practices and globalisation continue to evolve, enterprises strive to expand the boundaries of integration to drive business value. One way to achieve this is by deploying reverse logistics strategies. These every day activities can have a profound impact on the bottom line. However in order to capture this value, there are unique barriers to integration that must be overcome.

What is reverse logistics?

Reverse logistics is the supply chain that flows opposite to the traditional process of order, fulfillment and customer delivery. It is the combined processes of planning, implementing, and controlling the flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin. Reverse logistics activities include customer returns, disposal of excess inventory and the return of obsolete inventory. Also known as the aftermarket service and supply chain, reverse logistics is critical to organisational output. The ability to control these processes for the purpose of recapturing value or proper disposal of scrap in an efficient and costeffective manner can yield quantifiable savings for manufacturing entities.

Reverse logistics is a very complex process; and 34

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it should be stressed here: it is not supply chain backwards. Material flow characteristics, supply and demand dynamics, and technology considerations are fundamentally different than what their forward logistics counterparts address, for example: Irregular material flow. Return processing is highly dynamic and inconsistent. Factors such as product variations and conditions, processing requirements, warranty and extended warranty provisions dictate the workflow steps to which a given return is subject. There is no single supply chain flow; the reverse logistics path can be very complicated.

Multi-condition inventory. Supply chain management systems are not designed to manage inventory in various condition states, such as repaired, remanufactured, defective, damaged or obsolete. These conditions are critical factors in reverse logistics processes; often reverse logistics consignments are small volume/high value shipments of goods which are often key components to a network, hence express delivery is often needed. Additionally customs scrutiny is much more acute when screening remanufactured and defective units; inventory forecasting, planning and financial management specific to valuation are also crucial factors. www.chaina-online.com

CONSULTINGFEATURE

To describe reverse logistics in action, consider a telecommunications carrier. Many carriers provide their customers an “advance exchange service” where an equivalent functional unit is delivered to the user before the defective unit is returned. The carrier may source the replacement from a 3PL that is managed by the original equipment manufacturer (OEM). Instead of returning the defective unit to the 3PL and then the OEM, the defective unit is routed directly to a repair centre for disposition. Integrated reverse logistics in this context enables the remote management of the reverse supply chain.

Reverse logistics challenges Typically, reverse supply chains have little automation, and are characterised by unknown factors and poorly managed assets that sit in warehouses, where losses are typically accepted or absorbed. It is estimated that managing ‘return and repair’ processes alone contribute to at least ten percent of overall supply chain costs. Ineffective reverse supply chain processes compound this cost and can reduce an organisation’s profit by approximately 30 percent. Those numbers are even higher for China. An opportunity of this magnitude has driven many companies to find new ways to optimize reverse logistics practices and to streamline operations and drive profits.

The pursuit of profit and competitive advantages drive ever-evolving reverse logistic models.

Companies today have shifted their reverse logistics operations to business models that require the coordination of multiple tiers of administration and logistics operations with outsourced partners such as OEM, contract repair centres, 4PL networks and so on. If an enterprise lacks an integrated reverse logistics process before outsourcing, an extended enterprise business model will add complexity to an already challenging business environment.

Leveraging the power of reverse logistics The key to successful reverse logistics is the ability to integrate business proposal development, international trade compliance, project management, contract administration and product management into daily operations across the enterprise. This can only be achieved through intelligent, dynamic decision-making. To optimise performance, reverse logistics functions must operate in a manner that is both tactical and operational. Tactical plans and schedules reverse the supply chain in order to meet supply and demand.

The operational team executes plans in the context of dynamic and changing business environments including frequent technology updates, outsourcing of manufacturing or the change of OEM suppliers, international trade restrictions, foreign exchange controls and so on. Tactical and operational level decision-making functions are by nature distributed across reverse supply chains. As a result, these www.chaina-online.com

functions must be optimised both locally and across the extended enterprise.

The challenge is for corporate entities to overcome management and execution barriers as they apply to the value that integrated reverse logistics delivers. First, bring reverse logistics to the boardroom. The lack of recognition for the strategic importance of reverse logistics and the cross-functional nature of reverse logistics processes spans multiple organisations within an enterprise. Executive leadership is fundamental to the alignment of people, process, technology and financials that hinder the path to integration.

Second, execute flawlessly at each point in the process. The ability to execute well across the reverse logistics lifecycle is the foundation for achieving integrated reverse logistics. Those that are successful understand that the dynamics of reverse logistics integration requires a new approach to execution that involves the enterprise as a whole, addresses the complexities of today’s supply chain environments, and understands the limitations imposed by cross-border transactions such as inability to export/import defective goods due to customs regulations or environment control regulations such as the AQSIQ requirement in China, requirements for additional export licenses, levy of additional duties and taxes, restrictions regarding the remittance of foreign exchange and limitations of temporary import export or repair trade mode including tracking serial number, time limitation of the repair cycle and proof of prior import.

To build an integrated reverse logistics enterprise it is essential that you understand your customers and their markets. It is imperative to involve your customer in the strategy planning, understand constraints imposed by customs and other government entities in your customer’s markets, provide inventory to facilitate efficient replenishment, and identify the true costs associated with the import of replacement inventory. These true costs include determining if re-manufactured inventory is permitted, if “like for like” operations are permissible, evaluation of export permits requirements, assurance that defective or obsolete inventory may be recovered, and clarification if duty reimbursement is possible for DOA (dead on arrivals) and if subject to limitations.

While the business of reverse logistics is not new, the complexities associated with international business, manufacturer outsourcing and remote logistics management have added cost and time to efficient execution. Leading companies are finding solutions through the use of technology, process improvements and an understanding of the restrictions imposed by foreign customs to continuously expand the boundary of integration.

Understanding and provisioning for these factors will assure customer satisfaction and directly impact the bottom line in a positive way.

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CONSULTINGFEATURE

L

ike many Chinese roads, the road to successful supply chain management in China is both winding and bumpy. Foreign companies face numerous challenges on an almost daily basis: long transportation distances, increasing inventory levels, delays, quality problems, political and regulatory risk. The list of problems that can arise is virtually infinite. When internal company challenges such as over-ambitious cost saving targets, lack of support from head office and a lack of competent human resources are added to this list, the picture starts to look rather grim.

Moreover, as foreign companies increasingly seek suppliers in the Chinese hinterland due to overheating in the coastal regions of China, an already tricky situation becomes even more complex and difficult to handle.

Fortunately however, the path towards successful supply chain management is getting both smoother and straighter. China’s accession to the WTO in 2001 has improved transparency and facilitated more stable trade policies. Moreover, upon WTO entry, China agreed to open up its product and service markets which had hitherto been protected from global competition. And the 11th Five-year plan announced in Beijing earlier this year stressed the need for improvements in the logistical infrastructure in regions beyond the eastern coastal regions of east China.

Navigating these rocky roads requires the necessary processes, procedures, knowledge and strategies. The objective is not necessarily to create the perfect supply chain, but rather to put into place pragmatic measures that will help to reduce the impact of the myriad of supply chain risks that lurk around the corner, resulting in vast efficiency improvements that can ultimately be turned into a strong competitive advantage.

Computer manufacturer Dell is a good example.

By extensively applying the concept of mass customisation, they have managed to realize a true “pull system”, where no computer is assembled before there is a customer order for it. Its supply chain is probably the most efficient in the industry – putting it at a par with its Chinese counterparts.

In the quest for success, the fundamental key success factors usually boil down to the following five pointers.

Choose an appropriate business mode Although purchase prices in China can be considerably lower than that in the West, companies too often neglect other important cost elements that should be included as part of the initial total cost analysis. Seen from this perspective, it is evident that the relative logistics costs are very high; they typically comprise 20-40 percent of the overall cost of the goods sold, compared to about ten percent in the US. The root of this problem is caused chiefly by rivalry and local protectionism between 36

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The long and winding road Best practice supply chain management in China. country provinces, and an infrastructure geared towards movement of bulk commodities. Clearly, the logistical infrastructure makes it relatively unsuitable for transportation of perishable goods and products with volatile demand. The key issue here is choosing the right mode of business – and deciding what should be managed internally, and what should be taken care of by external service providers.

One solution is to find a logistics service provider that can provide a “one-stop-shop” logistics solution. A good example here is the Swedish home appliance manufacturer, Electrolux, which aims at engaging a single logistics provider throughout its supply chain. This is done in a bottom-up manner by letting changes “propagate” backwards and forwards through the supply chain through mechanisms underpinned by effective coordination, collaboration and information sharing.

Apply a holistic supply chain view Effective supply chain management is about matching supply with demand in the best way possible. With the complicated dynamics of the Chinese market and the large distances involved, any disruption to supply chains in China is likely to be far more severe and have significantly higher impact than it would in the West. Optimisation efforts should therefore be geared as far as possible upstream and downstream the supply chain. This view should not only encompass the end-to-end supply chain, but also the company’s business as a whole.

There are some trade-offs one has to be aware of – a seemingly good business decision might not be www.chaina-online.com

CONSULTINGFEATURE Implement supply risk management practices

right for the company’s supply chain. In a customer service centre for example, there is usually a mix of business processes, operational targets, and policies, that are defined without considering their effect on other parts of the organisation. A holistic view is critical as it enhances the supplyand-demand-matching capability, and ultimately customer responsiveness.

Make use of adequate technology The recent trend of outsourcing the running and control of select portions of a company’s supply chain has led to a situation where the flow of critical data is disrupted. Although technology adoption rate in China is generally fast, most companies, especially those located in west China, are using outdated communication technologies. Systems like Electronic Data Interchange (EDI), Rosettanet and ERP systems are glaringly absent. Therefore, the necessary supply chain partners such as suppliers, manufacturers and distributors cannot easily be integrated into the streamlined, information-driven supply chain of Western companies. The fact that only ten percent of ERP system implementations in China are successful and that 90 percent are late or exceeding budget indicates further problems.

A survey of leading technology companies conducted by consulting firm McKinsey revealed that supply chain information management should be centred on three cornerstones, namely: tailoring information to the nature of customer demands and products; the reconsolidation of supply chain information; and making sure the method of monitoring the activities of your supply chain partners is adapted so as to suit that partner’s specific business. www.chaina-online.com

Being on-site in China, it’s common to hear stories about local supply chain managers talking about how their supply chains “screwed up” after relocating to China, with the right product ending up in the wrong place or with the wrong products ending up everywhere! A recent Boston Consulting Group study on the integration of merging companies supply chains confirms a “bull-whip effect”, showing that even minor weaknesses far upstream in the supply chain can quickly translate into excess inventory, stock outs, or even lost customers. According to the study, a distortion in the supply chain can drive inventory levels as much as 40 percent higher within a few months.

The ability to identify and assess risks, as well as drawing adequate plans for mitigation and avoidance can easily make the difference between success and failure. Proactive companies take appropriate measures through various strategies, such as risk hedging, information sharing and continuous risk evaluation. An example is the furniture manufacturer IKEA, which procures the same parts for a particular piece of furniture from countries as diverse as China, Italy, Slovakia and Sweden. And so, even if a low probability, high impact event like an outbreak of avian flu appears, their supply chain remains relatively unharmed.

Close the knowledge gap Adequate human resources are a must no matter if a company chooses to manage its supply chain itself, or if it relies on external service providers.

Most supply chain experts agree that Chinese supply chains are so complex that there are very few companies, if any, which have the capability to manage them completely from end-to-end.

Some experts claim that as much as 90 percent of distribution initiatives in China fail because of human error. Lacking logistics and supply chain management expertise, the entire field continues to lag behind other professional functions.

The only way to resolve this issue is to make training a priority, develop leadership capabilities at all levels, and define clear career paths in order to attract and retain top talent. In countries like China, where staff turnover rate averages 13 percent per year, which is almost three times more than in most Western countries, the importance of this issue cannot be underestimated. DHL’s plans to launch a 7,500 employee corporate university in China is a good example of what it takes to remain a leader in their field.

Supply chain experts agree that the above suggestions are critical in order to help companies realise their strategic goals and attain operational efficiency in supply chain management in China.

And, such best practices will go along way to ensuring that such companies stay on par with their competitors and increase their chances of longterm success.

Dr. Roger Moser is Director of SMI International Network and Dr. Martin Lockstroem is Director of SMI China. Both are currently engaged in Shanghai at the BMW-SMI Endowed Chair for Purchasing and Supply Management, Tongji University, based in Shanghai.

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CAREERS Changed jobs in the past month? Hired someone new recently? careers@chaina-online.com

Wal-Mart names new head of China operations Wal-Mart last month announced that Ed Chan is to succeed Joe Hatfield as the head of the company’s China retail business. Chan will join the company next month and take over leadership of its China retail operations in February 2007.

Chan, who will be the president and chief executive officer of Wal-Mart China, joins the retail giant from the Dairy Farm Group, where he served as the regional director for North Asia. He joined Dairy Farm in 1998.

Commenting on this appointment, Michael Duke, vice chairman of Wal-Mart Stores, stated, “Ed brings extensive retail experience that will help us expand our growth momentum in this important market. We are pleased he will be leading our China business.”

Meanwhile, Rajnish Kapur has been appointed general manager of Wal-Mart’s global sourcing in India and will oversee the company’s sourcing from India, Nepal and Sri Lanka. Wal-Mart’s Indian sourcing division began operations in 2001, directly sourced goods worth over US$400 million from India in 2005 and serves as the hub for sourcing merchandise from the region for Wal-Mart stores worldwide.

Nestlé integrates sourcing, manufacturing, supply chain roles José Lopez has been appointed head of a new Nestlé executive-level position in charge of a newly created function that combines sourcing, manufacturing and supply chain management. Lopez is currently head of the company’s Japanese operations and will start his new role in February 2007.

New global supply chief for Affinia Thomas Skidmore has been appointed vice president of strategic business development and global supply for the Affinia Group. Skidmore will have global responsibility for all under vehicle group procurement activities in his new role, as well as development of new manufacturing alliances. He will continue to develop and manage issues related to establishing sources of supply and potential strategic business opportunities in Asia.

Skidmore will also lead Affinia’s Global Procurement Council which oversees quality and supply chain initiatives and quality control as Affinia expands its global manufacturing and sourcing base. Affinia is a global leader in the onand off-highway replacement parts an service industry.

What’s it like to work for... Bertelsmann DirectGroup?

Michel Hijma, Senior Manager Bertelsmann DirectGroup

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Who’s the boss?

Bryan Ellis is president of Bertelsmann DirectGroup China and general manager of Bertelsmann Book Club. The chief executive officer of Bertelsmann is Günter Thielen, who oversees more than 90,000 staff in 63 countries worldwide.

How many staff?

Bertelsmann DirectGroup China has over 800 staff with a large part dedicated to operations like fulfillment and customer services.

Supply chain responsibilities?

We are building up DirectServices, a value chain services provider in the B2C market. We are leveraging on the ten years experience of Bertelsmann Book Club’s marketing and operational functions, and have established services in direct marketing, ecommerce, purchasing, warehousing, distribution, a customer service division and payment services (COD, credit card, and so on).

Who’s the competition?

Quite honestly there’s no single other company in China that can offer the complete value chain package in B2C that we do! Especially, in those functions relating to supply chain, where we are cooperating with China Post and EMS to offer very competitive delivery prices.

How do you get a job at Bertelsmann DirectGroup?

I got my job at Bertelsmann in China specifically from a position in the company’s headquarters.

After working in several countries, I had a strong

NOVEMBER/DECEMBER 2006

belief that China would be an interesting and challenging place to work. Without such challenge I would easily become bored! Anybody interested in a job at Bertelsmann should check our website: www.myfuture.bertelsmann.com Are inter-department or office transfers possible?

Yes, I have worked in different functions across different departments in multiple countries. I believe in a global company like Bertelsmann it is important to promote cross-cultural experiences.

Any training offered?

There is a set of standard in-house and external training courses employees can attend, but it’s also possible to choose other training courses based on your own career path and personal interests. Personally, I focus on getting my Chinese up to speed!

Pay or perks?

Pay is fair and we have discounted books, department outings and an annual party for our employees.

Long hours?

In a project environment there are always periods of time when the hours will be long. I like to start early in the office to get myself sorted out and prepared for the day. The early bird catches the worm!

Business travel?

Occasionally we meet with prospect clients, colleagues in other markets or visit trade fairs, the usual that might be expected from a global media company. www.chaina-online.com

CAREERS

What is the biggest problem facing manufacturing companies in China today?

Elena Yang is Country Manager, China for Logistics Recruitment based in Shanghai. www.logisticsrecruitment.com.cn

G

iven China’s reputation as the world’s biggest manufacturing centre and one of the fastest growing logistics centres, the issue of human capital, recruitment of skilled candidates and retention of key talent has understandably become a hot topic. In fact it might just be the biggest problem facing foreign companies operating in China today. Logistics and supply chain executives are among the most sought after employees in the region and the current shortage of suitable candidates for logistics and supply chain positions is likely to continue for the next five years at least.

Long-term sustainability for the region is paramount. This means that there are now greater incentives for local talent to enter the logistics and supply chain industry and that they should start considering the sector as a base for developing a long-term career.

One of the biggest problems presently is that most companies are struggling to retain staff and their employees are being approached with opportunities to move to competitor companies on a regular basis. This has resulted in an extremely high turnover of staff; this turnover is particularly high in lower paid positions. Poaching of star employees is a real problem in what has become a ‘candidate’s market’.

The reality is that loyalty has significantly diminished in the region’s workforce and most people will move on if they are offered more money. It’s therefore critical that employers develop retention programs for employees deemed invaluable to their business. In order to retain employees and reward high performers, employers will need to rely more heavily on incentive and bonus schemes as a way of differentiating between levels of performance.

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ࡏ *R .XQPLQJ 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.

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mghk = china logistics The Meridian Group of Hong Kong (MGHK) is an integrated business consultancy and research house based in Hong Kong with operations in mainland China. Our knowledge of China's logistics infrastructure and connections with key players inside and outside of China make us the premier source for high-value China logistics information.

Need answers? Contact us today: Mainland Director: Christopher Horton E: chris.horton@meridiangrouphk.com Logistics Consultant: Lee Perkins E: lee.perkins@meridiangrouphk.com T: +86 871 551 9116 www.meridiangrouphk.com

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Unido Subcontracting and Outsourcing Fair November 10 - November 12 Chongqing, China 13 14 www.subcon.cn

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e-Business and Supply Chain Development Expo December 15 - December 17 Beijing, China 20 www.cett.com.cn21

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Other events taking place in the next three months: Shanghai International Industry Fair November 6 - November 10 Shanghai, China

China Wuhan International Logistics Expo November 9 - November 11 Wuhan, China

Auto Logistics/SCM World China 2006 November 28 - November 30 Shanghai, China

China Intl Logistics and Supply Chain Management Fair 2006 December 1 - December 3 Shenzhen, China

International Machinery Equipment Manufacturing Expo December 5 - December 8 Guangzhou, China

COMPANYINDEX 3PLex............................................................................... 26 Accenture ....................................................... 2, 10, 26, 40 Access Asia.................................................................. 6, 27 Affinia Group.................................................................. 38 Airbus.............................................................................. 13 American Chamber of Commerce in Shanghai ..... 28, 29 Amway............................................................................. 20 Aquent ............................................................................ 39 AsiaEC ............................................................................ 17 Australia Post ................................................................. 38 Baker & McKenzie ................................................. 7, 9, 23 BALtrans ......................................................................... 16 Bayer Healthcare ........................................................... 13 Bertelsmann Book Club ............................................... 38 Bertelsmann DirectGroup............................................. 38 Best Buy ......................................................................... 13 BG Strategic Advisors ................................................... 26 Booz Allen Hamilton ..................................................... 26 Bosch ............................................................................. 21 Boston Consulting Group ............................................ 37 Carrefour ....................................................................... 17 Changan Automotive .................................................... 14 China Gas ...................................................................... 20 China Logistics Alliance Network ................................. 15 China Paradise Electronics ..................................... 13, 17 China Post ................................................................ 32, 38 China Resources Group ............................................... 21 China Supply Chain Council ................ 11, 22, 24, 25, 43 China Unicom ................................................................ 15 Citiexpo .......................................................................... 30 Daimler-Chrysler ............................................................ 14 Dairy Farm................................................................ 20, 38 Dazhong Electric Appliance .......................................... 13 Degussa .......................................................................... 21 Dell.................................................................................. 36 Deloitte Consulting........................................................ 24 DHL........................................................................... 16, 37 Dodwell Trading............................................................. 20 www.chaina-online.com

Dongfeng Motor ............................................................ 14 Dragon Sourcing ........................................................... 26 Electrolux ........................................................... 20, 25, 36 Ernst & Young ......................................................... 14, 17 Euromonitor .................................................................. 27 Exel Contract Logistics .................................................. 24 ExxonMobil .................................................................... 19 Far East Sino-Thai Investment Consulting ............ 32, 33 Ford Motor .............................................................. 14, 23 Frost & Sullivan ............................................................. 27 GlaxoSmithKline ........................................................... 20 GoKunming ................................................................... 40 Gome ....................................................................... 13, 17 Goodyear ....................................................................... 20 H&Q Asia Pacific ........................................................... 16 Honeywell 2...................................................................... 3 IBM ..................................................................... 14, 23, 24 Ikea .......................................................................... 21, 37 Intel ................................................................................ 20 Johnson & Johnson Medical ........................................ 19 Jones Lang LaSalle ......................................................... 11 JPMorgan Chase Vastera ............................. 23, 34, 40, 44 KarstadtQuelle .............................................................. 14 Kerry EAS Logistics ................................................... 4, 27 KeyNote ......................................................................... 27 Li & Fung ....................................................................... 14 Logistics Recruitment ................................................... 39 Lucent Technologies ..................................................... 23 Lufthansa ....................................................................... 27 Maersk ..................................................................... 24, 26 MAN ............................................................................... 13 Mazda Motor ................................................................. 14 McKinsey ....................................................................... 28 Mei Da Coffee ................................................................ 16 Mercer Consulting .................................................. 21, 26 Meridian Group of Hong Kong .............................. 31, 40 ModusLink ..................................................................... 24 Motorola ........................................................................ 13

Nestlé ............................................................................. 38 Netherlands Business Support Office ................... 32, 33 Nortel ............................................................................. 23 NuSkin ........................................................................... 19 NYK ................................................................................ 27 Office Depot .................................................................. 17 Oxford Industries .......................................................... 15 Phillips Electronics ........................................................ 26 Platinum Logistics ......................................................... 24 President Chain Store ................................................... 16 PricewaterhouseCoopers ............................................. 27 ProLogis ........................................................................... 3 PSA Peugeot Citroën ..................................................... 14 Regus ............................................................................. 15 Roche Pharmaceuticals ................................................. 14 Rosetti Handbags .......................................................... 15 Royal Mail Consulting ................................................... 27 Sai Cheng Logistics ....................................................... 32 Saint Gobain.................................................................. 21 Samsung ........................................................................ 19 SAP ................................................................................. 17 Shanghai GM ................................................................. 14 Siemens ......................................................................... 21 Sinotrans ........................................................................ 16 SK Telecom .................................................................... 15 SMI China ...................................................................... 37 SMI International Network ........................................... 37 Starbucks ....................................................................... 16 Suning Appliance .......................................................... 17 TNT ................................................................................ 27 Topsun Science and Technology.................................. 13 Toyota Motor ................................................................. 14 Trust-Mart ...................................................................... 17 Uni-President................................................................. 16 UPS ................................................................................. 24 Wal-Mart ................................................................... 17, 38 Wumart .......................................................................... 17 Zonda ............................................................................. 13 NOVEMBER/DECEMBER 2006

41

CHINA’S SUPPLY CHAIN IN NUMBERS

How are China’s ports ranking so far in 2006?

ChinaFotoPress

In short: very well. Container volume at Shenzhen was up 12.6 percent in the first eight months of 2006 to 11.6 million twenty-foot equivalent units (TEU).

Throughput at the three terminals of Yangtian, Shekou and Chiwan was 8.9 million TEU, or 76.6 percent of the port’s total container volume. Foreign trade cargo volume accounted for 71.3 per cent of the total cargo volume at 80.26 million tonnes, an increase of 16.6 per cent.

The Port of Ningbo saw its container volume swell to 5.12 million TEU during the first nine months of the year.

General cargo volumes during the same period amounted to 226.13 million tons, including 109.51 million tonnes of foreign trade.

September 2006 was a record-setting month for the port, which handled an all-time high container throughput of 675,000 TEU, representing an increase of 34.16 per cent over the same month a year ago.

The Port of Shanghai is expected to handle more than 21 million TEU and 500 million tons of cargo in 2006. While there is as yet no standardised means of evaluating port performance and traffic, it is generally recognized that the Port of Shanghai is the world’s busiest port by total cargo tonnage.

Hong Kong and Singapore are still the world’s busiest ports in the world by container volume, each having handled 11.4 million TEU in the first half of 2006.

If current growth rates remain the same however, Shanghai will be level with Singapore and just behind Hong Kongby

The state of China manufacturing The China Manufacturing Purchasing Manager’s Index (PMI) rose a hefty 3.9 percent in September 2006 compared to the same month in 2005, indicating faster growth for China’s manufacturing industry in the coming months.

The PMI, which tracks economic activity in China’s manufacturing sector each month, stood at 57 percent in September, according to the latest report from the China Federation of Logistics & Purchasing (CFLP). It was the 21st month in a row with a PMI over 50 percent.

The CFLP report attributes the index growth to new purchase orders, high manufacturing output, better raw materials inventory and export contracts. The purchasing price of raw materials, the only index to go down in the report, indicates less pressure for price hikes in the coming months.

the end of 2006, and way out in front by this time next year.

China’s railway network China currently boasts a rail network of some 75,000 kilometres, but there’s a plan in place to build an additional 19,800 kilometres between now and 2010. The government also plans to modernize

Manufacturing headcount drops A recent survey of forward-looking hiring expectations in China by Hudson, a professional staffing firm, suggests that forecasts for headcount growth in the manufacturing industry have fallen from the 62 percent reported in their third quarter 2006 report to 52 percent now. Reasons for the decline include active hiring earlier in the year for new manufacturing plants, plus a growing focus on enhanced workflow processes.

Unsurprisingly in a candidate-short market, hiring the right staff is seen as one of the most serious challenges manufacturing companies in China will face over the next year. 32 percent of manufacturers also cited retention problems as being a particularly critical issue.

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15,000 kilometres of existing railway lines and boost the average passenger train speed to 200 kilometres per hour with fast trains travelling at more than 300 kilometres per hour. The Ministry of Railways hopes that within four years, China’s railways will be able to carry 30 percent more passengers and 30 percent more freight than now.

Interestingly, despite being home to around 23 percent of the world’s population and the world’s third biggest by area, China only has six percent of the world’s operational railways.

Doing business in China China, number 93 one year ago, moved up 15 places to 78 China in a recent World Bank ranking of the easiest countries to do business after it reduced minimum capital requirements, strengthened shareholder protection and started a consumer credit bureau.

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your entire supply chain while mitigating risk. At JPMorgan Chase Vastera, we help global organizations with complex supply chains optimize working capital, drive cost savings and improve supply chain efficiencies while helping maintain compliance with ever-changing government regulations.

Global Trade Management market leader AMR Research and ARC Advisory Group, 2004, 2005

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To find out more, go to jpmorganchase.com/vastera, or contact: Europe, Middle East, Africa Asia-Pacific Latin America North America

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The products and services featured above are offered by JPMorgan Chase Vastera International Trade Consulting (Shanghai) Co., Ltd., a wholly-owned indirect subsidiary of JPMorgan Chase & Co. JPMorgan Chase is a marketing name for the treasury services businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. ©2006 JPMorgan Chase & Co. All rights reserved.