2007 Sep-Oct Issue

SEPTEMBER/OCTOBER 2007 www.chainamagazine.com AUS$7.50 EUR€5 HK$40 RMB40 SG$9 UK£3.50 US$6

THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

Building safer supply chains in China Page 22

China’s cold chain: it won’t fix itself, page 6 n China sees the (green) light, page 40

CONTENTS THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

18 22

SEPTEMBER/OCTOBER 2007 www.chainamagazine.com

COVER STORY

Building safer supply chains in China Recent safety scares have highlighted the need for companies manufacturing in or sourcing from China to build an end-to-end supply chain that is both clean and safe from contamination

32

REGIONAL FOCUS

22

Tale of two cities Chongqing and Chengdu - southwest China’s two largest cities - are vying for regional dominance

REGULARFEATURES 6

COMMENTARY ■ China’s cold chain: it won’t fix itself ■ Interior motives ■ Green houses ■ Journey to the West 14 NEWSROUNDUP

32 37

TRADE FINANCE FEATURE

Trade up The challenges of integrating the physical and financial supply chain

40

GREEN SUPPLY CHAIN FEATURE

China sees the (green) light As economic growth steams ahead, energy demands increase and pressure on the country’s logistics infrastructure mounts, just how green is China’s supply chain?

28 Q&A Jerry Schafer, senior vice president and chief restaurant officer and Gary Rosen, vice president, chief marketing and corporate affairs officer, McDonald’s (China) 30 Q&A Olly Riches, manager, procurement and supply chain, property and construction, Michael Page International (China) 44 BLOGWATCH 46 CAREERS 49 EVENTSCALENDAR / COMPANYINDEX 50 CHINA SUPPLY CHAIN IN NUMBERS

40 www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

3

M

y favourite headline written about the recent China product recalls is “Does Chelsea Clinton still play with Barbies?”

For me it perfectly captured the other news story in all of this: this is the latest in a long line of excuses by the United States to jump on the ‘bash China’ bandwagon. And such China-bashing neglects the real story.

Sure, the quality of products coming from China (and indeed from anywhere in the world) is a serious issue and one that requires serious attention. But that attention needs to focus on a company’s entire supply chain, right from the selection of suppliers (to the supplier’s suppliers) to the manufacturing process to the transportation of the goods. Many commentators on the issue are only belatedly realising that the majority of the products that have been recalled became unsafe because the overseas manufacturer did not pay due attention to the source of the goods that went into their products. Very simply, it doesn’t matter how advanced the manufacturing process, shoddy raw materials means shoddy final product. And this is of course not a problem isolated to China and certainly not a reflection of the quality of China’s manufacturing processes.

So really what is needed is a lot more transparency at the supplier end, and this is where things gets tricky. The well-publicised Mattel-Lee Der incident illustrates very well just how tricky. The tainted lead paint found in Mattel’s toys had come from Lee Der’s supplier Dongxing, who in turn had bought the paint from Dongguan Zhongxin Colorants. Apparently only eight companies in China are approved by Mattel to supply their toys, and Dongxing was not one of them.

China has been manufacturing toys for the world’s children for decades, but there have been some interesting specific changes to the way those toys are manufactured in the last ten years. Ten years ago, companies like Mattel were still very much in control of their entire supplier network. More often than not they were working with other multinational companies when sourcing parts for their products. But as China has matured, the supplier base has grown and grown, and where many companies have failed is that they haven’t paid attention to their supplier’s subcontracting relationships.

Companies are ultimately responsible for the goods they are exporting overseas. After all, it’s their brands and the safety of their customers that are at stake.

The ‘made in China’ brand is not going away and by better scrutinising every single step in their supply chains, I would argue that companies that are sourcing from and manufacturing in China also have a big role to play in helping to protect that ‘made in China’ brand.

Publisher Michael Pennington michael@mk-media.net

Contributing Writers Chris Horton, Cameron Wilson, Pilar Dieter, Bradley A. Feuling, Russel Beron

Editorial Consultant Max Henry Art Director Colin Dizengoff Graphic Designer Veronica Zhu

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

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

ADVERTISING SALES Thomas McKinley, Business Development Director, China thomas@mk-media.net +86 137 6164 5140 Yuki Lam, Business Development Director, Hong Kong yuki@mk-media.net +852 2521 5294 DISTRIBUTION

Michael Pennington Editor and Publisher michael@mk-media.net

Chaina magazine’s sponsors:

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.

For subscription enquiries please contact our subscription department at: subs@chianamagazine.com or subscribe online at:

www.chainamagazine.com All subscriptions will commence from the next available issue.

We welcome your comments and feedback, please contact the Publisher at: michael@mk-media.net +86 138 1897 6097

© Copyright 2007, Middle Kingdom Media Ltd. All rights reserved. Chaina magazine (ISSN 1992-9668) is published by the Middle Kingdom Media Ltd, 11/F Golden Star Building, 20-24 Lockhart Road, Wanchai, Hong Kong. Tel: +852 3421 2086 Fax: +852 2529 8771.

No charge for subscriptions to qualified individuals. Annual rates for subscriptions to non-qualified individuals differ depending upon the subscribers country or territory and can be found at: www.chainamagazine.com Send address changes to: subs@chainamagazine.com The contents of the publication may not be reproduced in whole or part without the written consent of the publisher. The publisher is not responsible for product claims and representations. CHaINA™ is a registered trademark of the China Supply Chain Council.

4

SEPTEMBER/OCTOBER 2007

www.chainamagazine.com

COMMENTARY

China’s cold chain: it won’t fix itself Jeff Bullard

is partner at Alaris Consulting in Illinois and Pilar M. Dieter is director at Alaris Consulting in Shanghai.

A

t the China Cold Chain Summit held in Shanghai in July, an attendee casually commented that, despite the obvious need for quality improvements in pharmaceutical and food safety, logistics companies only stand to lose money with an investment in temperaturecontrolled services in China. The debate often heard around cold chain logistics in China centres on two issues: the high cost of temperaturecontrolled transport, storage and distribution, and the government’s ability to implement and evenly enforce regulations. To solve this wide-reaching cold chain problem, both of these issues must be addressed simultaneously. That is, logistics service providers must be willing to invest in assets to supply temperature-controlled logistics, and China’s government must demonstrate effective policy making and enforcement to ensure this investment is not wasted.

Monthly profit and loss of cold chain transportation in China (RMB) Fleet of ten 22-ton trucks making nine 1,800km trips each month

Non-refrigerated Refrigerated transport transport

Monthly revenue

990,000

1,188,000

Monthly expenses: depreciation, operational, maintenance, taxes

913,419

1,046,643

Monthly profit margin

76,581

141,357

Source: Alaris Analysis

The need for investment It is clear from both an international and domestic perspective that China’s cold chain needs improvement. Internationally, China has a tarnished reputation that requires repair around the healthful manufacturing and handling of consumable products. Domestically, over 30 percent of China’s fresh food and vegetables is lost through poor transport and handling.

China’s perishables are properly transported approximately 20 percent of the time, compared to over 80 percent in developed countries.

With such poor performance, the current supply of temperature-controlled conveyance and storage units is not sufficient to address the need and production levels of China.

Less than 2 percent of the nationwide fleet of railcars in China is refrigerated. And as of 2005, only 30,000 refrigerated trucks were registered throughout the country, as opposed to 280,000 in the US and 120,000 in Japan.

Furthermore, the need for temperaturecontrolled distribution is not likely to subside in the future. Market projections forecast that by 2017, China’s growing middle class will spend 6

SEPTEMBER/OCTOBER 2007

RMB5 trillion on food. At the same time, mass urbanization is creating an increase in the Chinese consumption of frozen and chilled foods, resulting in a 10 percent annual increase in the production of such foods. The distribution network required to ensure safe and effective supply for this growing demand can only be supported by significant investment in the existing infrastructure. Major manufacturers, retailers and distributors need to bring the right assets on line.

Despite forces that would seem to dictate the call for cold chain investment, companies are slow to act. Today’s demand for and, equally importantly, enforcement of, Chinese temperaturecontrolled storage, transport and distribution is primarily being driven and funded by multinational companies. They hold a higher standard of quality that calls for independent inspection and temperature monitoring of shipments. The logistics companies that service this demand have leveraged the annual shipping volumes to justify their investment in cold storage warehouse and transport facilities. With transportation accounting for up to 80 percent of the overall logistics cost in the cold chain, a logistics service provider’s investment in cold transport assets would appear to be prohibitively expensive.

However, after the initial investment in refrigerated transport (approximately 40 percent higher than non-refrigerated trucks), the benefits of such an investment can be significant. An evaluation across Chinese cold chain service providers indicates that, at full utilization, a cold chain fleet has the potential to realise up to 84 percent greater monthly profit margins than a non-temperature-controlled fleet of the same size.

As long as the multinational companies continue to demand strict adherence to quality distribution standards, the logistics service providers that invest in the correct assets should continue to achieve a good return on their investment.

The need for enforcement Though the benefits of a cold fleet seem enticing, logistics service providers, outside the multinational company customer base, are not seeing enough of a demand and immediate willingness on the part of their shippers to pay for cold transport. The reason is that government regulations around the transport of perishables are too easy to circumvent. Currently, there is no comprehensive enforcement body that ensures perishable products are distributed in a safe manner. Although the standards are written, no consistent auditing is done, and therefore, shippers feel no consequential penalties. Without this enforcement function, the standards are largely ignored. www.chainamagazine.com

COMMENTARY This lack of enforcement puts logistics service providers that comply with stricter, global standards at a significant competitive disadvantage. Many local food distributors and retailers do not adhere to the current regulations and will not compensate service providers for the added cost of temperature-controlled assets.

Without this added compensation – and until they can be assured that their returns will justify the investment in valuable cold chain assets – logistics companies will continue to sit on the sidelines. To ensure that their investment is not wasted, the majority of them will wait until the government institutes a regulatory infrastructure that will guarantee increased demand.

Signs of change The scrutiny with which the international community is judging China’s ability to export safe consumable products is causing China to respond with direct and dramatic action. For example: In June, China closed 180 food factories as part of a nationwide crackdown in response to international concerns on China’s food safety after high levels of toxins and chemicals were found in exported products. n

n Findings of corrupt policy enforcement in the approval of “fake drugs” by the Director of State Food and Drug Administration SFDA, Zheng Xiaoyu, led to his execution in July. n Under the Eleventh Five-year plan, the State Council issued the “National Food and Drug Safety” programme that aims to establish a food safety guarantee system throughout China. n In an effort to begin policy implementation at the provincial level, local governments have formulated a series of regulations and laws requiring perishable goods to be kept at specified low temperatures and not exceed recommended highest temperatures.

RMB (000s) 1400 1188

1200 990

1000 800 759

815

600 400 200 0

Operating expenses

51 73

103 158

Depreciation

Tax expenditure

Non-refrigerated

Revenue

Refrigerated

Source: Alaris Analysis

Enforcement will drive investment Indeed, local attention to the health and safety of the food and pharmaceutical consumer is at a record high, thanks to worldwide attention to the issue. At the same time, market projections indicate the consumer demand for a temperature-controlled distribution network will continue to grow. The question remains, however: Who will foot the bill at the end of the day for cold chain logistics in China?

For logistics service providers to make an investment in China’s temperature-controlled storage, transport and distribution, they have to be able to achieve economies of scale among shippers willing to pay for the temperaturecontrolled quality assurance. However, neither will happen unless national and regional governments can mobilise quickly to implement formal and enforceable cold chain policies. Only then will the logistics community follow with this critical capital investment.

Imaginechina

While such measures will help lay the foundation for a fairly regulated logistics infrastructure, a nationwide, uniform approach to cold chain policy needs to be in place for logistics service providers to make further investment in the requisite assets.

Average monthly cost and revenue of refigerated versus non-refigerated logistics service providers in China

www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

7

COMMENTARY

Interior motives Jamie Bolton

is Executive Partner, Supply Chain Management, North Asia for Accenture, based in Shanghai.

C

hina’s immense economic boom has been felt around the world, and because China’s economic growth has relied exceptionally heavily on exports, the effects of that boom have probably affected people and companies outside of China more acutely than many people and companies in China. The country’s domestic consumption as a proportion of GDP remains low by international standards.

The net effect is that large economic disparities exist between the country’s urban (generally coastal) and rural (generally inland) areas. China’s growth has lifted more than 200 million people out of poverty, but huge segments of the country’s hinterland remain more or less unaffected.

A big reason is lack of infrastructure. China is so large and was so underdeveloped for so long, that it has only scratched the surface when it comes to accessing its own interior. That’s part of the reason why the government recently cited the creation of a “harmonious society” as one of its top priorities, which will broaden China’s growth from quantity to quality and from investment and exports to domestic consumption. All of this translates into significant plans for infrastructure.

Although this is great news for millions of Chinese consumers, international companies should also take note. If product can’t move beyond major cities, then most of China’s market will remain unattractive. But if the government can successfully extend its own arteries, then the flow of labour and investment will expand and everyone—both consumers and corporations—will benefit.

Dramatic infrastructure upgrades Seeking to connect all municipalities with populations above 200,000, China plans to expand its expressway network to 85,000 kilometres— longer than the current US interstate highway system. Total investment over the next 30 years is projected at US$256.4 billion. When the expansion is complete, residents in eastern provinces should be just 30 minutes from the nearest expressway, while most inland residents (except for those in the very remote far west, in areas such as Xinjiang and Tibet) will be an hour away.

The rail system has equally far to go. China’s rail density is among the world’s lowest, even though the system’s traffic density is among the world’s highest. To fix this disparity, the government has earmarked about US$20 billion. Access to and throughout the western provinces is a priority, with plans to nearly double the regional rail network to 40,000 kilometres by 2020.

During the past decade, the rapid expansion of China’s port infrastructure has been critical to its export successes. For the past two years, in fact, 8

SEPTEMBER/OCTOBER 2007

Shanghai has been the world’s largest cargo handler in terms of volume. Raising the capacity of ports on China’s rivers—traditionally the major links between the interior and the coast—is the government’s next aim. This will involve investing in new docks, lifting equipment and transport connections, as well as dredging along the country’s main inland shipping artery, the Yangtze River.

Increasing the capacity and reach of Chinese aviation is also a priority. The most recent five-year plan allocates US$17.5 billion for airport construction between 2005 and 2010.

This includes 71 expansions, 11 relocations and 49 new airports.

Preparing today for tomorrow’s China The massive transformation of China’s transport infrastructure is unprecedented in both scale and ambition. Furthermore, the government’s substantial investments in this initiative are creating a wave of opportunities for businesses to tap into new sources of labour, grow their consumer markets and reconfigure their supply chains for greater efficiency.

To help ensure their ability to capitalise on these opportunities, companies should position technology as a differentiator. Implementing systems that streamline logistics, selecting optimal delivery routes and reducing the number of transport vehicles can help them effectively navigate China’s evolving logistics arena.

Another key is to make inventory management a priority. Historically, China has produced mostly low-end products, so managing inventory hasn’t been viewed as an essential strategic capability. But as product value increases, so will the “total cost of error.” In effect, lowest price will lose a certain amount of currency in favour of high product availability and exceptional delivery accuracy.

Lastly, a dearth of domestic supply chain talent is inevitable. By 2010 China will need approximately 400,000 logistics professionals, yet its universities currently produce less than 10,000 logistics graduates per year. Compounding the problem, few Chinese companies excel at supply chain training or offering incentives for exceptional performance. Organisations that start thinking now about how to acquire, retain and grow the best logistics experts can help ensure their competitive positioning in China’s current and future business climate.

As the Chinese government strives to open its interior and match its astonishing levels of export success, forward-looking high performers are already working with equal determination to prepare for the opportunities presented by the new reality.

www.chainamagazine.com

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

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

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

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

COMMENTARY

Journey to the West Bradley

A.

Feuling

is chief executive officer of consulting firm Kong and Allan LLC, based in Shanghai, China.

Kong and Allan specialise in supply chain operations and corporate expansion.

A

major theme among foreign companies operating in China is the feasibility of establishing operations in western China. As the Chinese government promotes western development and cities such as Wuhan, Chongqing, Chengdu and Kunming improve their logistics infrastructure, it is usually suggested that a saving in costs is the primary factor for western expansion. It’s said that labour and real estate prices have become too expensive around Shanghai, Beijing and Guangzhou; doing business in these areas no longer holds the same advantages it once did. At the same time, however, it needs to be remembered that investing in western China poses a new set of challenges that may outweigh fixed asset and direct labour savings. And the cost of overcoming these challenges can adversely affect an existing supply chain’s profitability. Do the benefits of moving westward really create a more efficient operating model?

Shorter lead times?

In looking at the whole supply chain, a company must consider what costs are added through their own operations, including fixed overheads, and how supplier costs affect the overall picture. If it is believed the utility of each square metre is maximised in current facilities and supply chain operations are optimised, then replicating this model in western China may serve the company well. Setting up there can also provide an outlet to new markets, new suppliers, warehousing and central distribution locations. An added advantage is shorter lead times to many tier two and tier three cities located in western China. If this is your company’s long-term strategy, then expanding your supply chain model westwards may be effective.

But have you considered how this expansion will affect the entire supply chain’s profitability?

10

SEPTEMBER/OCTOBER 2007

The first question to ask is: “Where are your customers and where are your suppliers?” The answer should identify new considerations with regard to supplier and 3PL integration. With the addition of any new facility, the optimal supply chain metrics for all other functions and operations changes. What may seem like a simple increase in capacity actually has ripple effects that create material and information flow changes, adding further costs. New inventory and capacity levels, along with lead times must be understood for the model to operate efficiently.

Further analysis should look at your existing supplier and 3PL partnerships. If a company is planning to ship from existing suppliers in eastern China, what are the additional costs and who will the company partner with? Today, there is much talk about the fragmented logistics and transportation in China. As the costs attributed to supplier and 3PL processes add to the overall product cost, maintaining current operating levels will be a challenge. Has your company factored in these costs? As the labour force in coastal regions is generally more knowledgeable of foreign operating practices, how will training and education take place in western China?

Lastly, a company should evaluate business practices in western China compared to those in eastern China. Many companies moving westwards will find cultural practices, business formalities and negotiation processes that are much more ‘traditional’ than those in Shanghai, Beijing and Guangzhou. Has your company adequately prepared for these realities?

Improve operational efficiency Companies must compare the establishment of new operations in western China with the alternative option of improving operational efficiencies within their existing facilities. As quality and capacity issues still loom large, it seems difficult to believe current processes fully optimise supply chain profitability. What we commonly see are inefficiencies for a number of reasons. Document processing, demand planning and forecasting, inventory management, and capacity optimization are only a few key areas to consider. Each can severely impact the operating return of a facility.

Here, the costs of incremental improvements must be weighed against the entire supply chain costs of moving westward. Where can both internal and external supply chain factors generate greater margins in existing operations? How can material and information flows be strengthened to create increased visibility? In general, if current facilities have existed for some time, many of these factors concern business processes and therefore can be remedied through more concrete operating policies. www.chainamagazine.com

Chinaphotopress

COMMENTARY

If a company doesn’t consider all the factors contributing to current operating costs and profitability, then the so-called remedy of setting up a new facility in ‘low cost’ western China seems almost futile and certainly short-sighted in the overall enterprise supply chain. It is questionable at best whether operational inefficiencies that plague the company today will not be recreated in a new facility. The question of cost goes far beyond the realm of simply analysing direct operating, overhead and material input costs. Supply chain costs can impact the operational process in a multitude of ways. Consider quality as just one example.

The cost of quality In most cases, quality is viewed as actual product quality. However, it is also important to consider the quality of operational and material management procedures, which dictate the results of production. When we say a company cut corners impacting product quality, we are in fact saying decisions impacting the operational process or supply chain led to product defects.

If a company is considering the development of new operations in western China, internal and external processes, and product quality must all be included in the discussion.

With operations in western China, a significant factor in product quality will be supplier material inputs. On one side, existing suppliers can be used if quality is consistent.

The cost of transportation and quality issues in shipping should also be considered. Raw materials leaving Wuxi may not reach Chengdu in the same condition. On the other hand, if the goal is to establish a new local supplier base, the suppliers existing supply chain and that of the company must effectively integrate. www.chainamagazine.com

All materials used by the supplier will become a part of the company’s end-product. Due to this fact, an in-depth assessment of current and future supply chain processes should be conducted. Without a clear picture of these operations it is a bit like a football coach arriving at the start of a match and not knowing which players are available to play.

If the company is considering the replication of an existing model from eastern China, again it would be wise to conduct an operational assessment as full supply chain integration will bring with it many new inefficiencies and quality issues. Supplier and 3PL partners may be entirely new and companies may even find that these inefficiencies and quality issues actually increase.

Therefore, it is critical to establish an operating model and identify each supply chain stakeholder prior to developing a physical facility. As the cost of quality can be very high for some products, these factors cannot be over emphasised.

The consideration of developing operations in western China is a long-term strategy that can greatly impact the entire global supply chain. There are certainly short-term benefits in fixed asset and labour costs, but these must be quantifiably measured against the additional costs incurred, short and long-term profit margins, and the benefits of incremental improvements in current operational processes.

Developing in eastern China will have been a challenge. The stress put on operations at the time was probably quite taxing. If new operations in western China are not given adequate preparation, those forgotten memories will return and pressures on current operational processes will be even greater. Without a plan, the future is uncertain.

SEPTEMBER/OCTOBER 2007

11

COMMENTARY

Green houses Trent Iliffe

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

S

ustainable buildings are defined as those that are designed, built and operated with low environmental, social and economic impacts while still enhancing the health, welfare and quality of the people that live and work in them (as defined by the New Zealand Ministry for the Environment). As international awareness of corporate responsibility has grown, sustainability has become a crucial factor in the assessment of real estate options as multinational companies show an increased interest in the environmental credentials of the real estate that they occupy.

Although the demand for higher levels of environmental compliance may initially appear as a threat to owners of large assets, sustainable buildings do not represent a loss in building utility or level of profit. Rather, modern sustainable technologies possess the proven ability to raise environmental efficiency while simultaneously bringing real economic gains. It is my belief that it is only a matter of time before the current market preference towards environmentally friendly buildings in developed markets will become an imperative in mainland China.

Sustainability at a country level In 2000 Germany launched an environmental sustainability programme to encourage renewable energy use, higher energy efficiency and reduction of carbon dioxide emissions.

The country saw carbon dioxide emissions fall by 19 percent compared with 1990 levels, and in 2003 the energy efficiency of every additional unit of GDP output showed an increase of nearly 25 percent above 1990 levels. What is most encouraging is that this has been achieved against a backdrop of healthy economic growth.

On the other hand, China’s state environmental protection administration (SEPA) released a report in 2006 stating that it would cost US$84 billion to clean up the pollution produced in China in 2004 alone. Additional estimates indicate that the overall impact of pollution is even greater, with cumulative environmental damage representing between eight percent and 13 percent of China’s GDP growth annually. The environmental impacts of China’s economic progress have long taken a back seat to economic gain. However, these impacts have now compounded to a point where they can no longer be ignored.

The sustainability movement in China What is noteworthy is that in the 11th Fiveyear plan announced in 2006, significant 12

SEPTEMBER/OCTOBER 2007

attention was placed on the environment for the first time. Targets include: a reduction of energy use per unit of GDP by 20 percent by 2010; water consumption to be reduced by 30 percent per unit of industrial output by 2010; and, the Chinese government will develop and refurbish government buildings and then improve their management to increase energy efficiency.

Although the Chinese government has made overt attempts to address the issue in the form of legislation and regulations, actual progress on the ground has been limited. More than 80 percent of completed built space in China fails to meet government efficiency standards and up to 95 percent of buildings in mainland China are considered ‘high energy consuming’, with average consumption levels two to three times higher than in developed countries. As SEPA vice minister Pan Yue recently said, ‘the reality is that the current environmental laws look good on paper, but that’s by and large where they remain.’

There are some encouraging signs however.

Many local governments have made efforts to promote energy efficiency in buildings by offering financial incentives to developers who use energy-efficient technologies and at the some time have provincial and municipal governments have started to halt the approval of new projects that fail to meet energy efficiency standards. Shanghai is developing a sustainable building certification system and has hosted several conferences on sustainable construction, and developers in Beijing are now required to incorporate design features guaranteeing energy savings.

Business advantages for sustainability In China, sustainable buildings in tier one cities are at best limited to a handful of top-quality grade A properties with very few examples of sustainable buildings in smaller cities.

Sustainable buildings in the industrial sector are almost non-existent, though some of the major logistics developers are now pushing for more ‘green development’.

Whether done quickly or slowly, the process of implementing sustainable building practices in the real estate sector can and will make a significant contribution to the reduction of waste and to efforts to clean up urban environments. However, the process is not a simple one, and nor can it be imposed singularly upon building users or owners.

Instead, the process is a partnership where the interests of all stakeholders need to be taken into account. www.chainamagazine.com

DTZ Industrial provides unparalleled industrial expertise and execution of services, offering comprehensive China market coverage,

Fenhu Wujiang •GFA: 35,000 sq.m •Single story

•Ceiling height: 7.5m •Property type: Workshop

simplifying your industrial needs.

CORE SERVICES Occupier Services • Macro / Micro Site Selection • Market Survey / Valuation and Strategic Advisory • Build-to-Suit • Incentives / Contract Negotiations and Advisory • Company Registration

Jiangning Nanjing

Landlord Representative Services

•GFA: 21,844 sq.m •Single story •Ceiling Height: 9m

• Property Advisory • Marketing Promotion • Contract Negotiations

•Site Area: 260,000 sq.m •Completion Date: Feb 2008 •Property type: Warehouse

Investment Services • Investment Market Research and Strategic Advisory • Financial Analysis • Policy / Taxation Consultancy

Consultancy & Planning Services • Market Positioning and Development Strategy Study • Sales / Lease Agency • Project Management / Facility Management

Jiading Shanghai •GFA: 32,858 sq.m •Single story •Ceiling Height: 10m

•Loading Dock provided •Completion Date: Feb 2008 •Property type: Warehouse

FOR FURTHER INFORMATION, PLEASE CONTACT: Alexander Sasagawa Palar

Adrian Margiotta

Direct tel: +86 21 2208 0181 Mobile: +86 136 6191 3251 Email: alexander.s.palar@dtz.sh.cn

Direct tel: +86 21 2208 0180 Mobile: +86 159 0085 8455 Email: adrian.margiotta@dtz.sh.cn

NEWSROUNDUP

Chinese product recall systems in place Product recall systems were officially installed in China last month. The systems will recall unsafe food and toys, and they follow a system for defective cars set up in 2005.

The systems were put in place by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), and will be used to track domestic and export products. The new mechanism means AQSIQ can force a food product recall and issue a consumer alert if producers are negligent or if a food safety incident occurs.

The recall systems are some of the most concrete steps the Chinese government has taken so far to address the ongoing product safety crisis.

The government has defended its exports amid the Mattel recall earlier last month, saying that the company’s designs, not its Chinese contractors, were to blame.

Li Changjiang, head of the AQSIQ, said 85 percent of Mattel’s recalls were caused by problematic US designs and 15 percent by mainland manufacturers.

“Demonising Chinese products ... is simply a new form of trade protectionism,” Li said last week, appearing on television as part of a media campaign to counter international concerns that Chinesemade products are substandard.

Schenker ‘closely cooperating’ with authorities to clear problems German logistics giant Schenker, under fire from Chinese authorities over allegations that it was operating with a fake non-vessel-owning common carrier (NVOCC) license, has shifted all mainland business to its two Hong Kong units.

‘Schenker will continue to provide reliable ocean freight services from and to China through its registered organizations in Shanghai and Hong Kong, Schenker Logistics (Shanghai) and Schenker International (HK),’ a Schenker spokesman said. ‘Both are holding valid NVOCC licenses, as acknowledged by the Ministry of Communications.’

Companies on the mainland involved in negotiating freight rates with and buying slots from shipping lines, selling slots and issuing their own bills of lading to shippers require an NVOCC license.

14

SEPTEMBER/OCTOBER 2007

The spokesman said Schenker was ‘closely cooperating’ with the Chinese authorities to clear the case as soon as possible. He said only the ocean freight business of Schenker China was affected but ‘Schenker China has more than ocean freight business’.

Trans-regional customs clearance for 12 cities across China Authorities in 12 mainland cities, provinces, and autonomous regions have signed a memorandum of cooperation to simplify trans-regional customs clearance.

Participating in the initiative are the local governments of Beijing, Tianjin, Hebei, Shanxi, Henan, Shaanxi, Xinjiang, Ningxia, Gansu, Sichuan, Qinghai and Inner Mongolia.

Authorities in these regions have agreed to promote closer ties between customs offices at sea ports, land borders and in inland areas to offer one-stop online customs clearance and intermodal transport services to facilitate trade.

R&D

Nortel to boost Chinese R&D operations In a cost-cutting move that also takes advantage of China’s growing pool of engineering talent, Nortel plans to boost the number of engineers in China.

Imaginechina

LEGAL

Jackson Wu, who heads up Nortel’s Chinese operations, said that “a significant portion” of R&D jobs will move to China because “the difference in costs is just too big”. He declined to be specific about how many more positions would be created in China, where Nortel now employees 2,000 engineers.

In the past year, Nortel has boosted its operations in China, including a new centre of excellence in Shanghai that will enhance the company’s ability to provide supply chain operations and procurement in China. To give you a sense of how much business Nortel is doing in China, the company will source more than US$1 billion of supplies from China this year-

R&D

Coca-Cola plans US$80m R&D centre in Shanghai Coca-Cola will invest US$80 million in a new China headquarters and research and development facility in Shanghai. The company’s China president, Douglas Jackson, said that having an R&D centre here “is going to be great in terms of speed to market”. The centre, one of six Coca-Cola R&D facilities worldwide, will be completed by the end of 2008 and have a staff of 200.

The company currently has 40 R&D workers in China. In the past five years, China has become Coca-Cola’s fourth-largest market, behind the United States, Mexico and Brazil. The company said it had an 11 percent share of China’s non-alcoholic beverage market in 2006.

www.chainamagazine.com

NEWSROUNDUP news@chainamagazine.com

MANUFACTURING

MFG.com opens China sourcing resource centre MFG.com, the largest global online marketplace for the manufacturing industry, recently announced the availability of an online resource centre to help sourcing professionals, engineers and manufacturing suppliers better understand the implications of the recent changes to China’s tax laws.

In July this year, China reduced or eliminated value – VAT rebates on 2,831 products for suppliers in their country – causing an immediate rise in prices for a range of manufactured products produced in China.

“China’s changes in the rebate laws are causing a shake-up on the regional and global sourcing stage,” said Mitch Free, founder and chief executive officer, MFG.com. “This resource centre is for the entire manufacturing community, not just MFG.com customers or marketplace users. MFG.com has established itself as the platform for manufacturing commerce – and we are now further defining ourselves by becoming the leading information source on this important business issue.”

partners to reduce exposure, and using real-time information to create responsive, customer-driven processes, according to the study.

Understanding demand patterns and optimal planning of supply are the constant endeavours of supply chain planning, with leaders demonstrating the ability and flexibility to be responsive, IBM found.

The study found that most respondents feel that they are rapidly responding to changes in market conditions; however, they have yet to evolve to more mature risk-sharing across a network as opposed to concentrating in a single enterprise.

About 42 percent of the respondents indicated that they have extensive, dedicated programs to replenish supplies based on actual and forecasted product demand, with about 33 percent

adopting effective returns management to improve end-to-end supply chains.

The study recommends that companies should enforce more use of technology, while forecast sharing with suppliers, weekly planning processes, and systemgenerated supply and demand plans.

For a rapidly developing country like China, the ability to bring new products to market quickly, efficiently and ahead of the competition is becoming increasingly important.

About 24 percent of Mainland China respondents said at least 80 percent of their new products launched to market on time, while 39 percent said 80 percent of products were launched to market to budget.

The study recommends that in order to reduce “maverick buying,” Chinese companies should consider a centralised

discover.

IBM study helps China supply chain management The IBM Global Business Services 2007 Mainland China Value Chain Study examines the supply chains of operations across the country, and makes recommendations on the basis of best practice.

A total of 640 supply chain executive respondents, from a variety of industries, were surveyed to provide a picture of business objectives, enabling technologies, and current practices, as well as core performance data.

Comparisons have been made between the data collected in China and that gathered from studies elsewhere in the world, including North America, Western Europe, Japan and India.

Using their benchmarking system, IBM has assessed how developed supply chain management is in China and how it is evolving against leading practices within a global economy.

Top performing executives are adopting strategies including synchronising supply and demand through planning and forecasting, sharing information and risks with www.chainamagazine.com

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

for more information, visit us online SEPTEMBER/OCTOBER 2007

15

Chinaphotopress

NEWSROUNDUP

IBM China chairman and CEO Zhou Weikun

sourcing organisation, with a centrally managed and consolidated supplier management, and master contracts with key suppliers established.

The study found that while many Mainland China companies are well informed and gearing up to meet challenges and opportunities, there is still considerable room for improvement for delivering better performance with increased responsiveness within the supply chain.

LOGISTICS

China’s rail to see more IPOs At least five companies in China which are involved in rail — gear makers to rail operators — are getting ready to do IPO either this

year or early next. Nicholas Yeo, a fund manager at Aberdeen Asset Management, said, “In this sector there are not many to choose from and those that are listed now have probably gone up too much because of the (growth) story.”

Rail equipment makers, which analysts expect to be the first beneficiaries of China’s RMB1.5 trillion ($199 billion) rail investment plan in the current five-year plan to 2010, are trading between 35 times and 108 times forecast earnings in Shanghai. The new listings could open a window for interested buyers.

China’s two state locomotive and railway equipment makers — China Northern Locomotive and Rolling

Stock Industry (Group) and China Southern Locomotive and Rolling Stock Industry (Group), are seeking advice from regulators for a share sale, possible next year.

China Northern, a partner of Siemens and Alstom, is finalising detailed plans for an IPO. China Southern meanwhile, which is a partner of Bombardier, is considering whether to apply for a separate listing or inject its assets into one of its listed units.

All state-owned railway vehicle manufacturing enterprises in China are owned by China Southern and China Northern, except for those large railway maintenance vehicles owned

by Kunming China Railway.

China’s Ministry of Railways has made financial reform of the sector a priority, urging railway operators and equipment makers to list their shares to boost capital and strengthen management.

The ministry plans to issue a RMB60 billion bond in the third quarter of 2007 to help fund the massive spending in 2006-2010, doubling such investment from the previous five years.

“China railway equipment is a huge market with significant growth in the next 20 years at least,” Merrill Lynch said in a recent research report.

The ministry’s three other units, China Railway Express, China Railway Engineering Group and China Railway Construction Group, are also seen seeking to float their shares this year or in 2008 to raise a combined US$4 billion.

LOGISTICS

World Courier extends China network United States-based World Courier, a specialist in cold chain transport services, has extended its network within China to 36 major cities.

“China is poised to become the fourth largest pharmaceutical market by 2012,” said Henning Voss, director for World Courier North Asia. “With our new operational network in place, we will be providing an enhanced service to help pharmaceutical companies, central labs and clinical research organisations improve their supply chain efficiencies.

“China presents many infrastructure challenges for temperature-controlled and clinical trial shipments,” said Voss. ”In addition, domestic transport companies do not yet fully understand the many international standards at play in handling these types of shipments. As such, the real concerns and requirements of major pharmaceutical clients in China have not been adequately addressed until now.”

World Courier director North Asia Henning Voss

16

SEPTEMBER/OCTOBER 2007

www.chainamagazine.com

NEWSROUNDUP news@chainamagazine.com

UPS and the Shanghai Airport Authority recently conducted a formal groundbreaking ceremony for the UPS International Air Hub at Pudong International Airport.

“The opening of this hub will ensure we are well-positioned to support the explosive growth in Asia’s regional trade,” said UPS chairman and chief executive officer Mike Eskew.

Over the past five years, UPS has invested about US$600 million in China, including a successful transition to become the first wholly-owned foreign express carrier in the country.

Located at the southern end of the West Cargo Terminal Area, the new hub will be built on a parcel totalling one million square feet and will open next year. Rapid expansion is planned to a sorting capacity of 17,000 pieces per hour.

The new hub will link all of China via Shanghai to UPS’s international network with direct service to the Americas, Europe and Asia. It also will connect points served in China by UPS through a dedicated service provided by Chinese allcargo airline, Yangtze River Express.

Imaginechina

Construction begins on Shanghai UPS air hub

Minsheng launches ChongqingShanghai feeder service

Chongqing railway freight station to be expanded

Chongqing-based Minsheng Company has started a feeder service from Chongqing to Shanghai. The journey takes about six days.

In addition to Minsheng, four other shipping companies, including Pacific Basin, Cosco Chongqing, Sinotrans Chongqing and China CSC also provide this type of fixed service between Chongqing and Shanghai. Together they operate ten voyages a week on the route.

The Chongqing railway container freight station expansion plan has won approval from the Chinese Ministry of Railways.

The freight station will be enlarged to include a container logistics park serving a wide range of businesses, providing express delivery and cargo distribution service at a cost of RMB766 million. By 2015, it is expected the container logistics park will be able to handle 810,000 TEU and 1.4 million tons of express cargo each year.

lease+ Kangqiao Distribution Centre Warehouse and office space available from 5,000 to 27,000 sqm Building A Xiupu Road, Kangqiao Zone, Nanhui District, Shanghai + + + + + + +

27 kilometres to Pudong International Airport 31 kilometres to Hongqiao Airport 54 kilometres to Yangshan Deep Sea Port 12.5 metre clear ceiling height 6T/sqm floor loading capacity 1.3 meter raised docks with dock leveller Completion due September 2007

Contact Phone +86 21 6133 2088 or email leasing.cn@goodmanintl.com Goodman is an integrated property group that owns, manages and develops industrial property and business space globally. www.goodmanintl.com www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

17

NEWSROUNDUP

China United International Rail Container, a joint venture between China Railway Container Transport, China International Marine Containers, Deutsche Bahn, CMA CGM, Zim and two other Hong Kong companies, will invest RMB618 million in the project and will be responsible for the park’s container operations.

Second highway in Xinjiang desert completed China has completed the construction of a second blacktop highway across the Taklamakan Desert in the northwestern Xinjiang region.

The 424 kilometre highway runs from Aral, a city in central Xinjiang, and ends in the Hotan prefecture in the south of the region, traversing the Taklamakan Desert. Construction of the road began in June 2005 with an investment of RMB790 million.

Xinjiang’s first highway through the desert opened to traffic in 1995. At 522 kilometres it is the world’s longest desert highway.

The Taklamakan Desert is known as the largest sandy desert in the world.

NYK inaugurates dedicated vehicle terminal in Dalian NYK Line has inaugurated a dedicated terminal for automobiles in Dayao Bay in the port of Dalian. The total area of the terminal is approximately 210,000 square metres, giving it a handling capacity of around 300,000 cars per year.

“NYK regards Dalian Port as a logistics hub for northeast China,” said NYK chairman Takao Kusakari. “Therefore, NYK is anchoring great expectations on the new automotive terminal in the

port. We would also like to contribute to the development of China’s automobile industry by promoting the terminal as a logistics centre for automobiles in northeast China.”

NYK already operates dedicated automobile terminals in the ports of Shanghai and Tianjin through joint ventures with local interests.

Those terminals are mainly used by NYKCOS Car Carrier, NYK’s joint venture with COSCO Group, for the coastal transport of automobiles.

GE to continue heavy R&D investment in China Wal-Mart imports from China reach US$27 bln McDonald’s looks to China to trim costs Intel announces US$2 plant in China IBM moves global procurement HQ to China Metro uses RFID to speed up China-Europe supply chain Airbus establishes China sourcing centre Dell sourcing in China reaches US$22 in 2006

THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS

Be part of the team of 12,000 executives who are improving their China supply chain capabilities by reading Chaina magazine.

Register for your free subscription to Chaina magazine online now at: www.chainamagazine.com or email: subs@chainamagazine.com

18

SEPTEMBER/OCTOBER 2007

www.chainamagazine.com

NEWSROUNDUP news@chainamagazine.com

Chinese cities without changing Dell’s traditional direct-selling pattern. Midha says that Dell is currently considering seeking more partners, but he denies this is altering the company’s traditional pattern of direct-selling.

Dell has already begun to carry out the 2.0 strategy in China. Earlier this month, it signed a strategic cooperation agreement with IT product distributor VST Holdings to allow VST to sell Dell’s whole range of products in China.

Lenovo to sell RMB1,499 PC in China

Shanghai Tower, Liverpool

Port of Liverpool links with Shanghai The company planning a US$180 million post-Panamax container terminal at the Port of Liverpool in the United Kingdom has announced waterfront plans for Britain’s tallest building outside London - to be named Shanghai Tower.

The 60-storey building is expected to provide a major boost to the strengthening ties between the twin seaport cities of Liverpool – home to the oldest Chinese community in Europe - and Shanghai.

RETAIL

Dell reveals China retail plan Amit Midha, co-president of Dell China, has announced that Dell will expand rapidly to the fourth and fifth tier cities in China to carry out its retail plan before October this year.

After being appointed co-president of Dell China in August 2006, Midha has been tasked with implementing Dell’s ‘2.0 strategy’ in China, which means to expand the retail market to more

German Basketball League Team EISBÄREN BREMERHAVEN sponsored by BLG LOGISTICS

Let‘s move better!

Lenovo is targeting lower-income consumers in China by offering a new PC with a suggested retail price of RMB1,499 (US$198).

The computer maker is also offering PCs for RMB1,999, RMB2,499 and 2,999, respectively. All four are designed to make computer ownership available to three million new, rural users. The least expensive model includes a keyboard but is designed to be used with a television as its monitor.

The move came on the same day that Microsoft introduced its own thrust towards

o on

c cs

ss

www.blg.de | communications@blg.de www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

19

NEWSROUNDUP

reaching more consumers in China by cutting the price of the simplified Chinese version of its Windows Vista operating system.

Suning has signed a cooperation agreement with top home appliance providers Siemens and Sony.

The three parties have formed a 3S Alliance and they will cooperate on a whole range of businesses ranging from product development, marketing and after-sales service to jointly increase their capacity in serving high-end consumers in China.

One of the most important missions of the 3S Alliance is to provide service and experience beyond Chinese consumers’ expectations by focusing on product and service quality. The three parties have also set a series of targets for their cooperation.

First, they will form a medium and high-end product R&D platform to develop valueadded products for individual consumers.

Second, they will form a marketing alliance, and third they will jointly offer new service experiences to consumers.

On home appliance package services, both Siemens and Sony promise to provide their latest products to Suning and offer discounts to consumers who buy a whole set of Siemens or Sony electrical appliances.

Imaginechina

Electronics companies forge China retail alliance

Suning has also recently signed an Efficient Consumer Response (ECR) agreement with Haier, its largest supplier.

The ECR operation system is a supply chain management system that aims to increase the efficiency of overall supply chains and reduce unnecessary cost in retail and manufacturing operations. Analysts said

RETAIL

McDonald’s raises China staff wages

Imaginechina

McDonald’s raised wages for restaurant staff in China by between 12 percent and 56 percent above the suggested minimum wage from September this year.

About 45,000 full-time and part-time staff will receive higher wages.

The suggested minimum wage in China varies depending on the city or province. In March, McDonald’s, KFC and Pizza Hut were accused of underpaying workers in Guangdong province, although local authorities eventually cleared the companies.

20

SEPTEMBER/OCTOBER 2007

the new systems would reduce product launch periods from three to one month.

The agreement also gives Suning exclusive rights to launch Haier products.

REAL ESTATE

ProLogis to develop logistics park near Shanghai Hongqiao airport ProLogis will develop a new distribution park near Shanghai Hongqiao International Airport.

The company has acquired a 48-acre parcel that includes an existing warehouse and two closed manufacturing facilities, which it will convert for use as distribution centres.

The site can accommodate four additional two-story buildings ranging in size from about 18,600 to 41,800 square metres. The park, to be called ProLogis Park Hongqiao West, will total over 170,000 square metres at full build out. Total investment at the site will be approximately US$60 million.

“We expect strong growth in demand for high-quality warehouse space in the area due to the dramatic increase in air cargo predicted for Hongqiao Airport over the next several years,” said Ming Mei, ProLogis’ president of China operations.

“Given its prime location, the park property is ideal for logistics and shipping companies using the airport to move product in and out of Shanghai, as well as for companies with local distribution operations,” Mei said. www.chainamagazine.com

NEWSROUNDUP news@chainamagazine.com

ProLogis Park Hongqiao West

ProLogis has also recently leased 6,200 square metres in Shanghai to Best Buy. The electronics retailer will occupy one half of a distribution centre at ProLogis Park Minhang, a new industrial park under development.

The park, which will comprise five warehouses totalling over 55,700 square metres, is now 100 percent pre-leased.

Roger Li, the executive who leads the Chinese operation, says this rapid growth is not without its problems. “In China, our biggest challenge is the shortage of highly skilled IT technicians.”

“Scale pushes technology to its limits in meeting market demands,” said Brian Mitchell, Oracle’s Sydney-based senior vice president responsible for strategy and acquisitions.

IT

RedPrairie expands in China

Oracle focuses on China

Chinaphotopress

In less than two decades, China has become the world’s sixth largest IT market. And leading software company Oracle has more than 1,500 employees there spread across nearly 30 regional and branch offices, making it one of the biggest western multinational presences in China.

Much of the growth has come from providing database and enterprise software to China’s burgeoning manufacturing sector as well as telecommunications, banking, construction and retail.

As a largely non-retail software provider, Oracle is dependent on 90 percent of its revenue from partner organizations, both multinational and Chinese.

RedPrairie, a world leading consumer driven optimisation company, has expanded its operations in China and opened bigger offices in Shanghai.

Dr Ziping Zhang, who leads the Shanghai team, commented, “With RedPrairie’s sales, service and development teams now totalling 88 people we needed more space to accommodate us all in one facility. Our new office houses the whole team on a single floor and has state of the art facilities for serving our prestigious clients.”

Mark Skipper, managing director, RedPrairie Asia-Pacific, says, “With our E2e suite of integrated supply chain and retail solutions, RedPrairie is positioned to thrive in China. Having proved consistently that we can deliver on time and on budget, we are unique among Chinese and Western companies in our space.

www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

21

Securing your supply chain Recent safety scares have highlighted the need for companies manufacturing in or sourcing from China to build an end-to-end supply chain that is both clean and safe from contamination

COVERSTORY

I

t’s the red-hot topic in the news, in boardrooms and in factories the world over: tainted Chinese products. Dodgy toothpaste, lead-contaminated toys, fake drugs – you name it, its been all over the news recently and then some. Although the issue itself is nothing new, the scale of some recent product recalls, and the multi-million dollar lawsuits being filed in their wake, has left some senior executives in a cold sweat. Tragically, the pressure has been just too much for some, as the well-reported death of the boss of one Chinese company at the centre of a massive lead-tainted toys scandal showed. Cheung Shuhung, chief executive officer of Lee Der Industrial, committed suicide in August after his company supplied the nearly one million infant toys for Mattel’s Fisherprice brand which were found to be decorated with paint containing dangerous levels of lead.

Unsurprisingly, intensive and widespread media coverage of the issue has quickly built up, and its been not so much a snowball effect of one scandal after another, but more an avalanche of all-round bad news for anyone involved in Chinese exports. But whilst China is generally regarded as a complex environment in which to do business, there are proactive steps businesses can take to avoid being embroiled in these safety scares and ensure that every link in their supply chain is as safe as possible.

Inadequate cold chains The question how to build a safer supply chain is of course a complex and multifaceted one. The answer is dependent upon many factors, most importantly, the nature of the product itself. But for starters, one of the most pertinent illustrations of the gap between quality standards at the Chinese end of the supply chain, and the western end, is the example of cold chain management. By examining the cold chain, problems and issues peculiar to China which affect product safety can be identified.

Peter Chu, vice president of Carrier Commercial Refrigeration in China, says that adequate infrastructure to maintain the cold chain is not yet in place in China. “In the United States, close to 98 percent of products, from processing to retail, is temperature controlled in one way or another,” he says. “In China, its probably less than five percent. [You can see] from those numbers [that] obviously the risk of not keeping the product at the right temperature is much higher.” www.chainamagazine.com

Chu says he does not think awareness of how to maintain the cold chain is the problem in China, just the actual means of doing so is lacking. “Everybody knows we need to keep certain products in a refrigerated environment in order to maintain freshness and safety – but it’s an issue of knowledge of how to get the cold chain in place - infrastructure only comes when there is a need for it.” Chu does however believe awareness of best cold chain practice is at a ‘high level’ due to government campaigns.

One of the biggest recurring themes in the business environment in China, in terms of regulation, is the lack of enforcement. It’s not surprising that such a huge country has difficulty in making everyone adhere to the rules, and Chu feels that as far as the cold chain goes, there is a lack of standards and a lack of enforcement. However he feels that the problems should be addressed at a more initial stage – and that businesses will ultimately learn through market demand that it’s in their best interests to ensure standards. “I think enforcement is a reactive measure, its more a

In the US, close to 98% of products are temperature controlled. In China its probably less than 5%.

Peter Chu, Carrier Commercial Refrigeration

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

SEPTEMBER/OCTOBER 2007

23

Imaginechina

COVERSTORY

China is growing up, and its liable to stumble here and there along the way.

Peter Chu, Carrier Commercial Refrigeration

24

matter of training, and, from a pure economic perspective, if the end user is willing to pay a premium for a product which is stored, transported and sold in the correct environment, then this will drive the entire chain – this will be the dragon’s head of the process, if you will.”

Building trust with your suppliers It’s easy to think that, as far as ensuring food safety goes, terms like adequate infrastructure, monitoring technology, and relevant training are all you need to bear in mind when thinking about how to make your supply chain safer. But, sensible and practical as these steps may be, they are of limited use without taking into account one of the key aspects of business in China – your supplier relationships. Millions of dollars can be spent on the latest gadgetry to ensure individual batches are handled as they should be, but ultimately the effectiveness of any steps depends on how well the machines are operated by the men.

Chu explains, “If you say I’m going to inspect every single product which comes out of my factory, that isn’t feasible. What needs to be developed is supplier trust – that you are both going to be in it for the long run and we are going to be in it for the long term benefit.

“If I train my suppliers and show them that this is a long term relationship where will be mutually beneficial to adhere to the highest quality standards, the supplier will take it upon themselves to develop the quality systems that would ensure the product meets the standards of the customer.”

SEPTEMBER/OCTOBER 2007

Chu thinks many of the problems China faces not only with the cold chain but with product safety as a whole is down to the fact the the rapid growth of the country has resulted in uneven development across different sectors, “China is growing up, and its liable to stumble here and there along the way.”

He stresses, however, “Look at the longer term. As a businesses person, build a relationship which encourages your suppliers to play the game right, by the rules, with you – I think that is the most important thing.”

Does China really mean poor quality?

There is a charge commonly levelled at China, that the savings offered by sourcing in the “world’s workshop” inevitably have to be paid for somehow and that if you buy cheap, you can’t expect quality and reliability to be as high as one might expect. Would companies who really cannot afford any margin of error at all in terms of safety, for example, those manufacturing aircraft parts, or pharmaceuticals, be better off taking their business elsewhere and coughing up a few extra dollars for extra quality and peace of mind?

Jay Hoenig, China president of risk management consultancy Hill and Associates, thinks not. “I think you will find the quality in China can be second to none in the world, if, the standards and specifications are set, and people understand what they are, and they are enforced – the quality is there, the craftsmanship is certainly there – but you need to set and enforce the expectations.” www.chainamagazine.com

COVERSTORY

www.chainamagazine.com

to ensure their product is correct, and if its not, as in the Mattel case, they cannot blame the shortcomings on a “Made in China” supplier - it is the OEM that determines sourcing, specifies the product and ultimately controls the revenues generated by all.”

Reputational due diligence But how should companies go about meeting these obligations? Hoenig says many companies are already adjusting their internal processes as a risk avoidance step in China, saying that amongst his Hill & Associates’ clients an ‘upsurge’ in integrity risk awareness training has taken place, as companies focus on ethics training and what represents good corporate governance in China.

Many of the steps Hoenig recommends are thankfully easier to carry out than before. The business environment in China has changed for the better, as companies now have much more freedom to choose their own partners, and getting access to the relevant information is easier now that China is opening up more and more. In the early 1990s companies had little choice about their operating terms and conditions if they wanted to do business in China. “You were basically told who your partner was going to be. And if you didn’t like that, they would tell you that’s who your partner was again,” says Hoenig.

The OEM has an obligation, through due process, testing and certifications to ensure their product is correct.

Rodney Miller, Tri-onics

Imaginechina

Of course, Western quality standards cannot simply be implemented overnight. In China, the under-developed infrastructure means that the gap between setting standards, and maintaining them, can be much larger than in the West. Therefore, communication between every link in the supply chain becomes vital to ensure safety. Despite his firm belief in the potential for China to produce goods of the highest quality, different management approaches are necessary, says Hoenig. “I think anybody who lives or works in China understands the complex environment we operate in – and you have to, in many respects, micro-manage your operation in China, you need point-of-work supervision on everything you do.” Hoenig also adds that setting product design and specifications as accurately as possible is vital.

And therein lies the rub. How can companies expect products to be safe, or even, handling procedures to be followed if Chinese partners are not told exactly how to proceed? There is a need for companies to constantly remind themselves that processes commonly followed in Europe or the United States are not always followed in China. It may seem obvious, but companies are prone to forgetting these simple differences between Chinese and Western ends of the supply chain, says Rodney Miller, vice president of manufacturing for printed circuit board assembler, Tri-onics, based in Shanghai’s Waigaoqiao free trade zone.

Miller says so many problems are a result of inadequate specifications being passed on and that any company suffering from a quality control problem in China will have more than likely just not done their homework, which includes detailing every last item on rosters, specifications and other documentation. “All companies have documentation, which are of a varying degree of completeness and/or specification.

However, the majority of companies often have gaps or holes in the specifications for the products they outsource.”

Miller says issues may arise due to contracting the documentation to a third party, or the information being outdated or non existent to begin with, leading to manufacturers guessing at small details which could have serious knock-on consequences.

“More times than not, outsourcing manufacturers are left with a laundry list of assumptions about what exactly the customer wants, which cannot be determined from the information that has been given.”

He also believes that original equipment manufacturers (OEMs) are ultimately responsible for quality issues, and that as many products are “cheapened” to meet OEM objectives, the liability falls on the OEM to ensure the product delivered is up to their demands. “The OEM has an obligation, through due process, testing and certifications

SEPTEMBER/OCTOBER 2007

25

COVERSTORY

For some “Made in China” means “Don’t buy” Visitors to a popular North American website were asked during the month of August, “Have recent product recalls from China made you change your buying habits?” Here are some of the responses given: “I’m checking labels more carefully, and if the information is not on the label I’m researching the product on the Web.” “I’ve thought about it, but I haven’t acted on making any real changes.”

“Having worked for a manufacturing company who outsourced manufacturing to China, I know firsthand how poor Chinese-made products can be. Whenever possible, I avoid purchasing products made in China.”

“When I see ‘Made in China’ on an item, I put it back on the shelf or hangar. It is getting harder to find anything that is not made in China, and as an American citizen, I highly resent it.”

“With three young kids, it’s on our radar screen for sure.”

“Few alternate choices exist - what other options do we have? EVERYTHING is made in China nowadays!”

Reputational due diligence is vital on your vendors and suppliers, contract manufacturers and joint partners. Know who they are.

of the partners they are dealing with - and their leadership. “Reputational due diligence is vital on your vendors and suppliers, contract manufacturers and joint venture partners.

Know who they are.”

Being in charge of a China operation can be the toughest of assignments - China-based executives of western companies often have to walk a tightrope of being held accountable by boardrooms back home on one side and by Chinese partners on the other. Your best chance of building a safer supply chain is to get everything right from the start. As Jay Hoenig of Hill and Associates concludes, “Don’t rush into something because the board of directors are pushing you to get into China before this quarter or so on, because once you get into a supply agreement or JV, it’s very difficult to get out of it.”

Chinaphotopress

Jay Hoenig, Hill and Associates

“Everybody came in the early and mid-90s ‘gold rush’ and were partnered up quickly to get a presence in China. By the late-90s many of the firms I know were trying to get out of these unhappy marriages soon after,” he explains, “But now firms have access to more information and are able to carry out more thorough due diligence.”

Hoenig believes many small- and mediumsized companies coming from the United States and Europe, are not that globally savvy – tending to look at things from their own point of reference and not a China point of reference, and not aware of the subtle nuances of the Chinese business world which can mean the difference between closing a great deal and a shoddy one. The most important thing companies can do is to know the reputation

26

SEPTEMBER/OCTOBER 2007

www.chainamagazine.com

SPONSOREDFEATURE

GSE China: Excellence in cold storage

I

t’s readily agreed that China’s cold chain facilities are in need of improvement and one area in particular that falls short is the level of cold chain storage facilities on offer. Fortunately for companies in need of cold chain storage in China help is at hand in the form of GSE China, a leading European engineering firm that specialises in the construction of industrial and logistics buildings, with a distinct expertise in the construction of cold storage facilities.

With operations in 16 countries, GSE’s annual turnover in 2006 reached EUR500 million. “We build more than one million square metres each year,” says Arnaud Sebban, business development director of GSE China. “And because we’re a general contractor, we provide services that not only include construction but also site identification, programme development, feasibility studies, design, legal and financial arrangements, as well as procurement and construction management.”

GSE is a leading contractor of cold chain storage facilities in Europe and has a c c u m u l a t e d a n e x t e n s i ve c a t a l o g u e o f experience in the designing and building of temperature-controlled warehouses for some of the world’s leading pharmaceutical and retail brands across France, Germany, the United Kingdom and Spain. And according to Arnaud Sebban, GSE has also “delivered numerous frozen and chilled warehouses for many leading European specialised logistics service providers.”

In China, one of GSE’s biggest projects to date in China was the construction of IKEA’s first distribution centre, which measures 70,000 square metres. Another notable project was the recent completion of two large-scale distribution centres in Shanghai for AMB Property Corp. GSE China’ s most recent achievement was being selected to build a 45,000 square metre distribution centre on behalf of logistics real estate developer Gazeley in north China’s Tianjin, expected to be completed within a month.

www.chainamagazine.com

Bringing cold chain storage to China Given the current food safety scares in China, the lack of modern cold chain storage facilities has become a hot topic for many companies in China. Sebban states, “the market is still emerging, the current facilities on offer are generally of a small size – around 1,000 to 2,000 square metres – and poorly conceived. To save money most cold storage developers favour refitting dry buildings and transforming them into temperature controlled warehouses by simply adding some cold storage equipment, and this of course brings with it many problems.” Such problems include the fact that the height of such buildings are not suited for cold storage, that the cold room is usually not well located within the warehouse, that the existing slab floor is not insulated and, importantly, that such retrofitting results in huge energy waist.

Of course, as Sebban points out, warehousing facilities are only one link in the cold chain. “It is useless to have an efficient temperature controlled warehouse without respecting the complete cold chain including the transportation of goods and most importantly a properly trained team in place to handle those concerns,” says Sebban.

GSE has big plans to bring its extensive European-based cold chain expertise to China, because, as Sebban states, “the market is potentially very big and the needs are huge.” The company has recently completed a feasibility study into what might become Shanghai’s first large-sized temperature controlled warehouse conforming to the standards GSE conforms to in Europe.

GSE China Limited 27C Industry Building, 18 Caoxi Bei Road, Shanghai, China 200030 Tel: +86 21 6427 9180 Fax: +86 21 6427 8208 www.gsegroup.com Arnaud Sebban (asebban@ gsegroup.com) is business development director with GSE China, based in Shanghai.

GSE China is a leading European engineering firm specialising in the delivery of turnkey construction solutions in the logistical, industrial and service sectors.

In addition to all this, GSE is fully committed to developing and promoting eco-friendly initiatives in all its projects. As Arnaud Sebban says, “GSE has always been a benchmark for the logistics industry in this area. They are committed to renewable energy such as solar panels, microwind turbines and energy saving lighting systems.

“These are areas where we can make savings in the long term.”

SEPTEMBER/OCTOBER 2007

27

Q&A

Gold standard

QA

Jerry Schafer is responsible for all restaurant development, supply chain, ain, operations, menu management, training and franchising. Gary Rosen is responsible for formulating marketing strategies to build the McDonald’s brand and sales. came at our request 15 years ago, or in some cases 20 years ago because for the some products like our French fries for example it took four to five years before we had opened our first restaurant to took time to find and develop the right potatoes and so on.

But the suppliers took the view that over time their investment would pay off, which it has and their growth has been significant as a result, particularly over the last five to six years. : Do you source any products in China that are then distributed to your restaurants overseas?

: How much of what is bought in restaurants in China is either sourced or manufactured in China?

Jerry Schafer: We source about 97 percent of everything we sell here in China. We don’t manufacture anything ourselves.

Everything is from third party suppliers and we have worked with most of our China-based suppliers in the United States or in other parts of the world.

Gary Rosen: What we’ve done is we’ve taken the long-term relationships we have in other parts of the world. These suppliers have came in and set up in China bringing in local producers, local farmers, and brought them up to the McDonald’s standard that they are required to produce for McDonald’s in other markets. With that we’re then able to set up a full supply chain involving local suppliers but at the world-class McDonald’s standard. So all of our suppliers have to perform to that standard and they are audited on an ongoing basis to ensure that. : So what provided the impetus for those suppliers to come and set up in China?

JS: Well, these are all suppliers we have a long term relationship with, though to be quite honest it wasn’t so profitable for them at the beginning but they always knew they were building for the long-term. They

28

SEPTEMBER/OCTOBER 2007

JS: Yes. All our pies, chicken nuggets and lettuce, to name a few. : Given the recent food safety scares affecting companies that are exporting goods from China, have questions been asked about where your food is coming from?

GR: We don’t export anything from China to the United States. But if we did there wouldn’t be any issue because our standards have been the gold standard since we’ve been operating in China and they certainly meet or exceed the standards set by any government. : What can you tell me about those standards?

JS: Every supplier has internal QA [quality assurance] and we have QA that overlooks the suppliers. All the other standard food safety audits are conducted on all our suppliers. These standards are set on every product at every stage right up to the farmer.

&

help in China to all of the Chinese Cuisine Association officials that are going into restaurants to measure and audit food hygiene standards across the country. That’s clearly a very big honour for us to be asked to act as a support to the authorities here. : Do the recent safety scares come as no surprise to you?

JS: Really the positive outcome of food safety issues for us is that it actually helps our business because we’re so transparent about everything we do.

Our customers I think know that so they realise they can rely on the safety of our food.

GR: We certainly don’t want food issues to happen, but the good thing we’ve been able to establish over the past few years is that people, and mothers, know that when there are food safety scares they can bring their children to McDonald’s. As far as the safety scares: Is it a surprise? It’s hard to say.

But when a country is developing it’s developing, in all areas and sometimes in order to get better you have to have setbacks. We see the changes on a daily basis and as the government is getting a good handle on what they need to do to ensure a safe supply, its quite amazing to watch. I don’t think people realise yet how fast and efficient the government is moving on this. We’re on the inside so we get to see it.

GR: And the standards of the auditing are the same here as they are elsewhere because the auditing companies are the same. The consistency and the transparency are the two factors that will continually make our food supply chain safe and second to none. And in China we’ve been recognised for that by the Chinese Cuisine Association.

In fact our standards our so high that we’re providing our Hamburger University training materials and our

www.chainamagazine.com

Q&A

: What is the Hamburger University?

GR: No. What we’re saying is that is our system, but it’s a question of companies

understanding more and more the importance of cold storage. For example, they’ll find the solutions for what makes best sense for their company. But like anything in China, its very much an education process. People need to understand why it’s important. : McDonald’s is well known for promoting its socially responsible supply chain, can you explain what that means?

GR: It applies to everything we do. We have our own audit system as we’ve mentioned. Also, we actually pay more to ensure that our suppliers and their workers are paid fairly and in many instances over and above the norm. Our food costs more as a result but it’s the right thing to do for the workers. : What is staff turnover like in McDonald’s restaurants?

JS: It is significantly lower in the management and in the crew than in the United States.

GR: And that’s because of the environment we’ve created. We try to give back to our staff in three areas. Certainly there’s the financial reward, but also there’s the education reward and the experience reward. For example, 1,500 of our best China-based management and crew will be working at the Olympics next summer, in the Olympic village for example. We did the same thing for the World Cup in Germany last year.

Imaginechina

GR: Hamburger University was developed by Fred Turner, our second chairman and chief executive officer, and covers all facets of running a McDonald’s restaurant. The courses are so well identified that many universities, including Beijing University, actually offer credit for them. Some of our corporate staff also get involved though, for example, our Worldwide Hamburger Marketing University is all about ‘setting up a country’ and all that is required from a marketing perspective. It’s pretty intense, and it’s outstanding from both a restaurant manager and a support staff perspective. : Does McDonald’s manage all their restaurants in China or operate through franchises?

JS : We have three franchisees in China, out of 820 across China. Those three franchisees become so only this year, and the based in Yiwu, in Wuxi and in Shenyang. The managers of those restaurants spent 15 months in training in McDonald’s restaurants learning everything from shift management through salary management through running a store for six months, and all the other ancillary activities involved in running a restaurant. As far as the long-term strategy of franchising in China, as you know on the whole McDonald’s operates in this way, and at some point we’ll franchise in China, but it’s not something we’ll look at in

the short-term. There’s no set formula to how we operate in any giving market, it’s just what makes sense.

GR: I think what’s important to point out is that for us it not a question of bringing in franchisees because of money. We call these people owneroperators because they are running their restaurant. It’s not about paying a fee and then having someone else manage it, that’s not acceptable. That’s why from our standpoint we will bring in the right model for owner-operators to participate in China. But not anytime in the near future. : Is the current state of China’s cold chain facilities an issue for McDonald’s?

JS: Not at all, not for us. I know it’s a significant issue for China. Our distribution network is second to none in sophistication through one of our long term partners, Havi Food Services, from the United States who have been with us the whole time. They do a fabulous job and their Greater China president is a consummate expert in China cold chain logistics. Their asset base and facilities are very sophisticated. : So essentially what you’re saying is a good cold chain system is possible in China, but companies have to work out how to put it in place?

www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

29

Q&A

The hunt is on

QA

Olly Riches heads executive search firm Michael Page International’s procurement rocurement and supply chain division in Shanghai. Prior to moving to Shanghai he spent three years with Michael Page International in London. in supply chain in China and this has very much led our client strategy.

There is an understandable temptation in China in most industries to try and cover as much as possible as quickly as possible but this often leads to failure. It is a unique market with many of our clients also in a learning phase. They’re still trying to establish themselves and work out how best to position themselves in the China market whilst attracting consistently strong people that fit their own culture but also understand the China market. : Are most of your clients multinational companies? : The supply chain division of Michael Page in Shanghai is fairly new off the ground, is it not?

Olly Riches: Yes, we officially launched in January 2007, although we have covered mainland China from Hong Kong for a number of years.

Globally, Engineering and Supply Chain is our fastest growing discipline.

Within that we specialise in procurement and supply chain, engineering and manufacturing, and sourcing and retail.

We’ve set up in Shanghai to initially focus on key areas of the market: supply chain management, logistics and sourcing, and retail. We recruit midmanagement through to board level positions and have positioned ourselves to attract Chinese nationals, returnees and Asian ex-pats, predominantly from Malaysia and Singapore. : How are things going?

OR: Very well! At the beginning of the year we set ourselves a target in terms of revenue and headcount for 2007 and by August we’ve hit that target, exceeding expectations. Our strategy has been to very much focus on building as strong and diverse a candidate pool as possible which should then enable us to service our clients more effectively. I believe we now have a good understanding of the quality and broad range of talent

30

SEPTEMBER/OCTOBER 2007

OR: Yes, all our clients are multinational companies. : And are many of your clients existing clients from Hong Kong?

OR: Many of our clients are companies that are coming into China and have traditionally used Michael Page in Hong Kong or Singapore.

With more and more companies basing their supply chain divisions in mainland China we are continually referred business from our international offices. We have on-going assignments with clients based in the United States, Europe and Australia. Having said that, some of our strongest relationships to date have been with clients who have never used Michael Page before.

Supply chain is a very broad area. : Are most of your clients service providers or endusers of supply chain services?

OR: 30 percent of what we do is currently with logistics service providers, and the rest of our clients are end-users. Key industries we have had success in outside the 3PLs include retail, FMCG, food and beverage, and textiles. There continues to be a high level of recruitment across the 3PLs at a senior level in China, particularly because so many of them are restructuring right now. As we grow we will recruit specialist consultants to focus by industry sector within the supply chain, mirroring the model which we have rolled out successfully

&

in other parts of the globe. : Would you agree that there’s a shortage of talent in the supply chain?

OR: Well, there’s not a shortage of candidates, but a there is a shortage of top quality candidates. There is a huge variety in terms of the standard of candidates that send their CV to us. In terms of what companies are looking for, the most sought after candidates are those who are fluent in Mandarin and English, have mainland China experience and have worked for a multinational company. Candidates who have these skills are tending to get three or four offers soon after they come on the market. This means running a professional and structured recruitment process is vital at each stage of the process. As I mentioned before, our primary focus over the last seven to eight months has been to build up the candidate pool. We are confident the jobs are there, but it is very much a candidate-led market and without candidates we have nothing to offer our clients. : Where is the skills shortage? Is it clearly identifiable?

OR: Several companies talk to us about their desire to localise their workforce at a mid- to senior-level. The difficulty lies here: do you replace an expat with a Chinese national but short term know it’s going to take time for that person to develop within the role or do you simply replace like-for-like but long term affect some of the succession planning? There is huge pressure on companies in China to succeed as the expectation from overseas can often be different to the reality of actually running a successful operation here. Strong candidates do exist; it’s just a question of how to attract them on a regular basis. : What role does Michael Page have to play in educating their clients in what type of candidates are available?

OR: We sit right in the middle so we see things from both sides. We offer advice and guidance to candidates about the importance of building a meaningful

www.chainamagazine.com

Q&A

career with an employer, not simply chasing the dollar and moving every 12-18 months. This concept is in its infancy in China since candidate shortage has led to managers being over promoted and over paid in comparison with their counterparts in other parts of the world. Candidates need to understand that a demonstrable track record of success takes years to acquire, not months. However, as we all know, to some the quick dollar can be very appealing. From a client point of view we offer advice about how to retain and develop staff so that they’re not recruiting the same position twice in six months. : How long is this skills shortage going to last?

OR: The demographics are not encouraging and it will take 5-10 years before the middle management level candidates have gained sufficient experience and training, assuming the demand side continues to grow as it is today. : Are salaries going up?

OR: You pay for quality in any market.

The perception in China is that labour is cheaper than other markets but if you want someone with proven experience in a similar environment you have to pay for it. And of course in a candidate-led market inflated salaries are common. People know that China is booming at the moment and if they have the skills companies are looking for they can market themselves quite aggressively. We are currently putting together a supply chain salary survey for the first time in mainland China. The average salary increase is around 10 to 15 percent per year, which is actually less than what a lot of candidates are seeking when they move jobs. Our challenge lies in getting candidates to be realistic and to help them to realise that it’s not just about the money, its about career opportunity. : In addition to using head hunters, what are some of the other ways companies in China can recruit and attract good candidates?

OR: Some companies need to spend more time and money investing in their internal HR divisions. A company’s HR division is often key in allowing the whole process to happen.

The majority of the time we look to work closely with the hiring manager particularly at the early stages when

www.chainamagazine.com

establishing who and what they are actually looking for. In terms of the interview process through it is often the HR team who are selling the company to potential candidates. If you have a candidate going to meet a HR manager who doesn’t really know the company and that same candidate then goes to a competitor and meets a HR Manager who is well trained and can really sell the opportunity, then obviously you’re not going to be competitive in attracting the best talent in the market – however good your brand name might be. If a candidate is sat in front of a HR manager who is able to talk about the company’s growth plans in China, for example, then the candidate is going to leave with a very good initial impression. : Clearly then there’s a big value in companies branding themselves as a place to go and work?

OR: Yes, and companies are beginning to do this. A lot of the companies we work with are still finding their feet in China and putting a lot of their processes in place. But what they can do is to get someone strong in place on the operation side quickly who understands the market in China. In terms of branding the best way we find candidates for companies in China is by advertising through a branded advertised campaign. Companies have to invest some money to show they are serious about attracting the best talent and a branded advert is a very powerful

message to the market. There’s an enormous amount of recruitment going on in China and everybody is competing for the best candidates. If you can run a very targeted and structured campaign it will be more successful and far less time consuming than simply putting a job description out to several head hunters. : How can companies retain their top performers?

OR: Many candidates cite salary as a reason for leaving a job, especially if there’s a large disparity between local and expat staff. Another common reason is a lack of communication from senior management about the direction a company is going. Having a proper structure in place in terms of how companies train and develop their staff is also critical but this is a new concept in China. I can understand why setting up a training scheme is not a priority for companies when they first come to China. Some of the larger companies who have been here for a while have a very good reputation for their training and promote that very well. If a company can give a candidate a clear indication of what they’ll be expected to be doing both short-term and more long-term and how they will be rewarded for achieving those goals, it makes it a lot easier to retain top high performers. This is certainly something we encourage companies to promote as the more stable the company is, the easier it is to recruit for them.

SEPTEMBER/OCTOBER 2007

31

2

Tale of cities Chongqing and Chengdu - southwest China’s two largest cities - are vying for regional dominance

W

hen chip-making giant Intel announced in 2003 that it would invest US$375 million in a semiconductor assembly and test facility in Chengdu High-Tech Industrial Development Zone, more than a few eyebrows were raised around China and the world.

At that time the buzz generated by the economic dynamism of the Pearl River Delta, Yangtze River Delta and Greater Bohai Bay regions was ubiquitous. An isolated western province best known for its spicy food, fogshrouded mountains and pandas, Sichuan was viewed as an unorthodox and risky place for major investment in the minds of many businesspeople inside and outside of China.

Less than five years later, Intel’s gamble has paid off handsomely and investing in Chengdu or elsewhere in southwest China – which includes the provinces of Sichuan, Yunnan and Guizhou plus Chongqing municipality – has become an increasingly attractive option for both domestic and international corporations. With a total population of more than 200 million, abundant natural resources and booming urban economies, southwest China is quickly emerging as a viable and important regional market.

Imaginechina

southwestern China’s leading high-tech and R&D centre. Separated by only 340 kilometres, these two regional powerhouses are increasingly competing for investment and regional clout.

Chongqing: Leveraging its location Before joining Beijing, Shanghai and Tianjin as China’s fourth centrally administered municipality in 1997 Chongqing had served as Sichuan’s capital and later as the capital of wartime China. The city had already begun to develop into a heavy industry base by the 1930s but it was the retreat of Chiang Kai-Shek’s Guomindang government from Nanjing to Chongqing and the throngs of refugees who fled to the city that served as the most significant boost to the city’s growth.

From the 1930s on, Chongqing’s strong steel sector served as a catalyst for development of its automobile and motorcycle industries. Today Chongqing is one of China’s largest automobile production bases. It has also developed strong aluminium and chemical processing sectors.

Richard Huang, senior manager and head of manufacturing at Jones Lang LaSalle’s industrial property division in China, said that in addition

Chris Horton

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

Imaginechina

Southwest Chinese cities such as Kunming, Yuxi, and Qujing in Yunnan and Guiyang in Guizhou have logged impressive double-digit economic growth since China’s accession to the WTO in 2001. These cities will continue to make important contributions to the region’s development from disjointed economic hinterland into an integrated regional economy – especially as connectivity with Southeast Asia is improved in the run-up to the China-ASEAN Free Trade Area (CAFTA).

In the coming several years a major subtext to the continued emergence of southwest China will be the competition for dominance between the region’s two largest cities: Chongqing (population 28 million, albeit for the entire municipal area) and Chengdu (population 10.8 million). There is little doubt that both cities will maintain their upward trajectory in the short- to mid-term. The main question, though, is which city will pull ahead in terms of regional importance and influence.

Both cities have clear advantages in certain areas. Chongqing has had the region’s largest industrial base for more than seventy years and is being developed into western China’s main container port. Chengdu is emerging as

REGIONALFOCUS

Chongqing is a good choice for heavy industry manufacturing, equipment processing and other labour-intensive industries.

Richard Huang, Jones Lang LaSalle

to a strong industrial base, Chongqing’s main competitive advantages are a cheap and abundant labour supply, its rapidly developing port on the Yangtze River, and its efficient logistics infrastructure. These factors should keep Chongqing competitive in line with booming Chengdu to its west.

“In the mid- to long-term, Chongqing will still be a good choice for heavy industry manufacturing, equipment production, other labour-intensive industries,” Huang said. However, Chongqing’s advantage in terms of heavy industry is also the source of many of its challenges. “Chongqing’s main disadvantages are its relatively difficult land transportation [it’s very hilly], major challenges in attracting and retaining high-level talent, heavy pollution and a comparatively small high-end and value-added industry,” he said.

less than 45 minutes. In terms of containers, only barges loaded with 144 TEUs or less can access Chongqing’s port today, but with the filling of the Three Gorges reservoir barges carrying up to 400 TEUs will be able to make the journey west.

Chongqing’s port development will be complemented by intermodal capacity expansion. By 2010 Sino-foreign joint venture China United International Rail Container is scheduled to finish work on a containerised rail terminal that will be part of a network of 17 other intermodal rail hubs to be established nationwide. Chengdu will also add a containerised rail terminal during the same period, which should lead to more economic exchanges between the two cities and more international container traffic in landlocked Chengdu.

Chengdu: Late bloomer Economic cauldrons With Chongqing’s strengths and weaknesses in mind, the local government and Beijing are focusing on further leveraging its role as China’s westernmost port. In the current Five-year plan (2006-2010), the central government has earmarked Chongqing along with Wuhan and Nanjing for development as strategic inland ports along the 2,400 kilometres of river flowing from Chongqing to Shanghai.

In the next two years Chongqing Port - which merged with neighbouring ports Fuling and Wanzhou in September of last year – will undertake an ambitious expansion of its throughput capacity.

In 2005 the port handled 100,000 TEUs – by 2010 it is expected to be able to handle an annual throughput of 1.2 million TEUs. The main driver of Chongqing’s development into a viable international container port for western China is the Three Gorges Dam near Yichang in Hubei province. A bi-directional five-stage ship lock opened in 2004 has made it possible for loaded barges up to 10,000 deadweight tons (DWT) to pass in three hours and then proceed upriver to Chongqing. In less than two years a separate ship lift will enable 3,000 DWT vessels to pass in

34

SEPTEMBER/OCTOBER 2007

Unlike Chongqing, Chengdu has spent the majority of its existence in relative isolation, especially in terms of international trade.

“Chengdu’s location has historically constrained the city’s industrial structure,” said Jones Lang LaSalle’s Huang. “Chengdu’s modern economy has therefore developed towards light industrial higher-value sectors, such as IT and medicine. As a result, Chengdu will focus in the mid- to long-term on high-tech manufacturing such as IT, pharmaceuticals and other industries that focus more on R&D activities.”

Compared to Chongqing, Huang said that Chengdu offers advantages including a more highly educated labour pool, good R&D support and a living and work environment more conducive to retaining staff.

In China, attracting foreign investment requires more than simple business opportunities - government accessibility is arguably as important as a city’s development potential.

Richard Brubaker, founder and managing director of China Strategic Development Partners – a business consultancy with clients in both Chongqing and Chengdu – said that Chengdu has a clear advantage in this area.

www.chainamagazine.com

REGIONALFOCUS “Chengdu is going to attract a higher volume of foreign direct investment than Chongqing for sure,” Brubaker said. “They simply have better infrastructure for bringing in FDI. For example, all 14 of their foreign investment officers have lived abroad for at least two years.”

“Chongqing may end up getting bigger deals than Chengdu – a car plant is more expensive than an R&D centre - but there are more people, Chinese or foreign, that are willing to move to Chengdu,” he said. “There are more government offices in Chengdu and it is a better place for high tech, R&D, and FMCG manufacturing.”

Chengdu’s industrial parks have been the city’s star performers in terms of attracting investment and raising the city’s domestic and international profile. Chengdu Economic and Technological Development Zone is focused on light industry, pharmaceuticals and food processing and is home to nearly 500 companies including Volkswagen, Pepsi, BHP, and DuPont.

Chengdu High-Tech Zone boasts modern, state-of-the-art facilities with efficient infrastructure inspired by similar developments in Western countries. Located five kilometres from downtown Chengdu, the home of Intel’s Chengdu facilities also boasts tenants such as Motorola, Sony and Corning.

As Huang points out however, Chengdu also faces its own developmental challenges.

“Chengdu’s disadvantages from a manufacturing standpoint include less flexibility for cargo transportation - especially for heavy industry - plus less support from government in traditional manufacturing industries when compared with high-end industries such as IT.”

Addressing the supply chain bottleneck To address current and future supply chain bottlenecks, Chengdu is aggressively expanding its logistics network, with several logistics parks currently being built or in the planning stages, including Chengdu Airport Logistics Park, Chengdu International Container Logistics Park, Chengdu Qingbaijiang Logistics Park, Chengdu Bonded Logistics Centre and many more.

Despite its challenges, Chengdu has been able to develop a fairly balanced industrial base and leverage its position as capital and commercial centre of Sichuan – home to nearly 90 million people – into a dynamic local market with consumers who are famous for both their love of leisure and shopping. Chengdu’s economy has held its own compared to Chongqing: from 2000 to 2005 GDP growth in Chengdu averaged 13.2 percent, even stronger than Chongqing’s respectable 11 percent growth over the same period.

Perhaps even more illustrative of Chengdu’s relative economic strength, in 2005 Chengdu’s per capita GDP was US$2,738 – nearly twice that of Chongqing’s US$1,372. www.chainamagazine.com

Chengdu’s rather isolated location is slowly becoming less of a liability as its links to China and the world gradually improve (the city has a direct flight to Amsterdam in the Netherlands).

Last year a new expressway connecting Chengdu and Chongqing opened, increasing the viability of utilizing the Yangtze as a transport channel as Chongqing’s throughput capacity develops further.

Improvements to Chengdu and western China’s rail connectivity in the next few years should enhance the city’s regional clout. Aside from building a new containerised rail terminal by 2010, Chengdu is expected to have a doubledecker containerised rail line to Shanghai by 2020. There are also plans for a bullet train between Chengdu and Shanghai that will reduce travel time between the two cities to ten hours.

Chengdu’s proximity to Kunming and plans to upgrade rail links between the two cities should boost Chengdu’s imports from and exports to Southeast Asia. Kunming is a key city in the upcoming Pan-Asian railway which will connect China, Myanmar, Laos, Vietnam, Thailand, Malaysia and Singapore by rail within a decade. Once completed, the railway is expected to bring raw materials and commodities northward and send finished goods south.

More people -Chinese or foreign -- are willing to move to Chengdu.

Rich Brubaker, China Strategic Development Partners

Competitive or complementary?

Given their different strengths and the sizable overall potential of southwest China as a region, how real is the perceived competition between Chongqing and Chengdu?

“I would say there is definitely a level of competition going on,” CSDP’s Brubaker said. “[But] it is not any more than say TEDA [Tianjin Economic Development Area] and SIP [Suzhou Industrial Park]. They are competing for what they feel is a finite amount of money, but are both doing well. In fact, many of my contacts travel between the two to work together.”

Although both cities will undergo major changes in the next five to 10 years, it appears that Chengdu is already emerging with an early edge in terms of attracting foreign investment. In 2005 Chengdu registered US$1.45 billion in contracted FDI compared to Chongqing’s US$800 million in the same year. Although Chongqing is having difficulty pulling in as much FDI as Chengdu, it should receive a major boost as improvements are made to its port facilities and its international container traffic increases.

In the long run, Chongqing and Chengdu may end up becoming more complementary than competitive. Rather than choosing one over the other, some companies are opting to set up in both cities, enabling them to take advantages of the different strengths of each city while hedging against each city’s weaknesses. ProLogis is currently developing industrial parks in both cities as a cornerstone of its inland distribution network – don’t be surprised to see similar investments by other companies in the future.

SEPTEMBER/OCTOBER 2007

35

?30 14=>? A4=?@,7 ;=:.@=0809? ?0.39:7:2D 0A09?

;=:.@=0?0.3 74A0 9:A08-0= "

,209/, ?:;4.>

H[]_ij[h jeZWo \eh j^[ Ç hij [l[h l_hjkWb fheYkh[c[dj j[Y^debe]o Yed\[h[dY[ WdZ [n^_X_j_ed$ :[b_l[h[Z '&& edb_d[" l_i_jehi m_bb h[Y[_l[ Wbb j^[ X[d[Ç ji e\ W Yedl[dj_edWb Yed\[h[dY[ WdZ [n^_X_j_ed m_j^ekj j^[ jhWl[b" j_c[ WdZ [nf[di[$ 7i Wd Wjj[dZ[[ oek m_bb X[ WXb[ je l_i_j [n^_X_j_ed Xeej^i" l_[m b_j[hWjkh[ WdZ fh[i[djWj_edi" Wjj[dZ a[odej[ i[ii_edi" WYY[ii h[iekhY[ Y[djh[i" [nY^Wd][ Xki_d[ii YWhZi WdZ _dj[hWYj m_j^ ej^[h Wjj[dZ[[i Wbb \hec j^[ Yedl[d_[dY[ e\ oekh ^ec[ WdZ e\Ç Y[$

Ikffb_[h D[jmehai [FheYkh[c[dj [IekhY_d] I[hl_Y[i FheYkh[c[dj If[dZ CWdW][c[dj 9edjhWYj CWdW][c[dj

=024>?0= ?:/,D JWa_d] fbWY[ ¾b_l[¿ WYheii Z_\\[h[dj ]beXWb j_c[ ped[i ed ('ij Del[hcX[h (&&-" h[]_ij[h Wj mmm$fheYkh[j[Y^b_l[$d[j%h[]_ij[h \eh oekh \h[[ fWii$

0@=:;0

9:=?3 ,80=4.,

,>4,

80/4, ;,=?90=>

;7,?49@8 >;:9>:=

2:7/ >;:9>:=>

>@;;:=?492 >;:9>:=>

Imaginechina

Trade up The challenges of integrating the physical and financial supply chain

A

round ten years ago physical supply chain management became a hot topic in China. During this time a number of best-in-class practices were deployed and implemented by government and business, resulting in considerable improvements to China’s logistics industry.

Though supply chain management has been popular for some time, the concept of financial supply chain management has emerged only recently. Unlike physical supply chain management, few companies in China leverage the financial supply chain as a means to drive financial performance. Aberdeen Group’s September 2006 “Supply Chain Finance Benchmark Report” noted that only 13 percent of companies around the world are currently using financial supply chain techniques to improve the bottom line. According to the report, best-in-class companies achieve 13.6 days greater days payables outstanding on average and obtain trade financing at an annualised rate 2.86 percentage points lower than their peers. In addition, the average US$1 billion company can free up US$10 to US$40 million in cash through global trade process improvement and automation.

The point is clear: Businesses should utilise www.chainamagazine.com

financial supply chain management to generate a positive impact on a company’s bottom line and bolster competitive standing.

Simon Yu is assistant vice president of JPMorgan Chase Vastera International Trade Consulting (Shanghai), based in Shanghai.

Why improve the financial supply chain in China?

Let’s illustrate the importance of financial supply chain management for China businesses using the example of a company which we’ll call simply ‘US Buyer’, one of the world’s leading manufacturers. As competition grows fiercer, a number of issues arise: inventory is starting to lag, payments are not being received as quickly and purchasing costs are not as low as that of the competition.

In an attempt to improve the situation, US Buyer negotiated the following conditions and terms with its ‘China Seller’: n Shifted all sourcing to China causing annual production volume of China Seller to soar by 240 percent. n Changed the Incoterms from Ex-Works to Deliver Duty Paid so that the inventory burden transfers to the China Seller. Ex-Works SEPTEMBER/OCTOBER 2007

37

TRADE FINANCEFEATURE is the location where shipment is available to the buyer for pick up and transportation.

Deliver Duty Paid is when the seller arranges transportation, customs clearance and duty payment but not the actual unloading or removal from vessel. n Deployed VMI (vendor managed) and JIT (justin-time) inventory models to scale inventory carrying time back to less than half an hour. This required China Seller to locate a warehouse close to the U.S. manufacturing site to store products as an inventory buffer. n Extended the payment terms from 30 days to 45 days.

‘China Seller’ is a private company located in an underdeveloped area of China.

A large volume business from a world leading company is so important for China Seller that they cannot afford to lose this golden opportunity. However, this business presents a challenge – it is difficult to accommodate big orders due to insufficient working capital. This is driven by several factors including: n Days Sales Outstanding are extended from 30 days to 87 days. n Days Inventory Outstanding are extended by 42 days. n Need capital to purchase soaring raw materials, equipment and hire new labourers. n Unavailable financing from the banks due to lack of asset collateral.

BEFORE China Seller

US Buyer U.S. Buyer Carries Inventory

Incoterm: EXW Payment term: Open account 30 days

AFTER China Seller

VMI warehouse

En route 4 weeks (or 28 weeks)

US Buyer

2 weeks stock (or 14 days)

China Seller carries 6 weeks of inventory China Seller accountability Incoterm: DDP Payment term: Open account 45 days 38

SEPTEMBER/OCTOBER 2007

In China, private companies have to mortgage their real assets to the bank as security to get a loan. For this company, however, there are not any real assets left to be mortgaged as they have already been mortgaged for other loans. In this situation, there are no banks willing to finance the new business opportunity. The president of this Chinese supplier needs a financial institution that is willing to lend against the purchase orders so that raw materials and equipment can be purchased and the inventory can be pledged to the bank as collateral. This solution would provide a win-win situation for both US Buyer and China Seller. Otherwise, the new business arrangement will not work – US Buyer will have to revise its supply chain strategy or find another supplier; or China Seller will default on delivery promises.

The financial supply chain refers to the endto-end trade processes and data that drive a company’s cash, accounts and working capital.

From a buyer’s perspective, this involves the full procurement-to-payment process. For the seller, it is the order-to-cash cycle. As working capital becomes tied up in the physical supply chain, financial supply chain management improves cash flow, liquidity, and risk management, ultimately resulting in stronger financial performance.

Financial supply chain management runs in parallel with physical supply chain management and, as outlined in the example cited above, changes to one directly impact the other. The common denominator is information flow.

Along the way there are points at which the supply chains intersect. The documents and data required to inform and automate the financial supply chain are identical to those produced and exchanged by trade and logistics partners along the physical supply chain.

Challenges and practical issues As most finance and physical supply chain operations are not fully synchronised, companies have great opportunity for financial improvement.

Though challenges remain, here are some recommendations for China-based businesses when working with United States-based buyers.

Establish common ground between buyer and seller: Do not establish relationships where one party has more bargaining power in the transaction. In most United States-China business relationships, it is highly likely that the American buyer will have the upper hand in the relationship. This creates a situation where the buyer can leverage their power to the detriment of the Chinese supplier’s business. This causes the supplier to embed incremental costs into the overall cost of goods sold in order to re-coup their losses. Instead of transferring costs to another party, try to eliminate them. Study your entire supply chain and work to remove inefficiencies that currently lock up working capital. Ensure that all the parties benefit from supply chain modifications. If necessary, split increased costs between both parties. www.chainamagazine.com

TRADE FINANCEFEATURE

Leverage partner’s line of credit and cost of capital: Chinese suppliers face enormous hurdles obtaining loans from financial institutions due to credit line limitations and the high cost of capital. As far as the cost of capital is concerned, Aberdeen Group reported these findings in its paper New Strategies for Financial Supply Chain Optimization published in November 2006: the average cost of short-term capital annualised is 17.5 percent for ‘emerging market’ suppliers; the cost of factoring letter of credits/confirmed purchase orders is typically 15-20 percent of the factored amount; and, the average difference between a buyer’s annualised cost of capital and that of its suppliers in the primary emerging market is 4.71 percentage points.

If the gross margin of most of suppliers’ products is below 10-20 percent, then it is difficult to afford a 17.5 percent (high) cost of capital. In contrast, their overseas buyers usually have higher credit lines. One solution is for the Chinese supplier to try and access the buyer’s credit line. If this is feasible, it is a win-win business for both.

Overcome Barriers of Credit Risk Ratings: Credit risk ratings are the life blood of all financial institutions; however, they also impede the ability of Chinese suppliers to gain access to capital. Instead of basing credit rating on country and company risk, Chinese suppliers should look for a financial institution that is willing to determine credit risk based on the transaction risk. If the specific transaction and the trading activity are secure, this type of financing should be a viable option.

Understand Existing Legal Challenges: Today, the biggest challenge for all Chinabased companies (including those with only domestic interests) is relying on the legal system to protect their business interests. Before 2007, creditors were not supported by the legal system and were constantly confronted with obstacles when engaged in financial supply chain practices. Major obstacles included www.chainamagazine.com

a lack of legal basis for a creditor to secure property financing, and the complicated, timeconsuming and costly nature of enforcement of creditors’ rights.

However, this will change with the passage on March 16 this year of the new Property Law. A major milestone in China’s legislation history, this law will become effective on October 1, 2007 and will join the China Contract Law, China Security Law and China Bankruptcy Law to serve as the legal basis of all financial institutions who are engaged in financial supply chain management.

The new China Property Law offers major improvements relevant to financial supply chain including clear provisions on fluctuating property financing by way of securities; the enforcement of security interests; and, establishment of a quicker and less costly enforcement system.

Certainly, this law is not perfect, and areas remain to be modified in order to keep pace with China’s fast growing market-oriented economy.

Therefore, creditors need to identify areas of risk and develop protection strategies with their ‘US Buyer’ relationships.

Impact of accounting treatments: Financial accounting treatments should be carefully handled when using financial supply chain solutions. When a company receives cash from the inventory financing arrangement offered by a bank, some companies treat the money as ‘asset (cash)’, whereas some companies treat it as ‘liability (short-term bank loan)’. Different accounting treatments can dramatically change the ‘asset-liability ratio’ of a company. Another issue is the actual loan associated with the goods title transfer business. A supplier with this arrangement will most likely want their inventories to be taken off the balance sheet.

However, financial institutions will put a ‘buyback’ term and condition for protection.

Therefore, if a ‘buyback’ term exists in the contract, such inventories can not be taken off the balance sheet. Make sure you engage a CPA or auditing company to determine the best approach.

SEPTEMBER/OCTOBER 2007

39

China sees the (green) light As economic growth steams ahead, energy demands increase and pressure on the country’s logistics infrastructure mounts, just how green is China’s supply chain?

2

Russel Beron is a freelance

journalist specialising in supply chain and logistics issues based in Shanghai. He is a regular contributor to Chaina magazine.

40

007 is the year of going green, and environmental issues, formerly the domain of tree huggers and grassroots organizations such as Greenpeace, are now becoming mainstream imperatives of government and big business and are increasingly important across the global supply chain, beginning in China.

“Just as the United States awakened to its environmental crisis in the 1960s, when Cleveland’s Cuyahoga River caught fire and Pittsburgh’s air began to choke its citizens, China now faces highly visible environmental harms,” wrote Daniel Esty, Yale Environmental Law Professor and co-author of Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, in a recent article in Fortune.

Global public awareness of green issues is one catalyst of the shift to a greener China supply chain

SEPTEMBER/OCTOBER 2007

and with the Olympics approaching in less than a year, the Chinese government is especially sensitive to publicity regarding its policy on green issues. China continues to face international pressure to be more environmentally accountable and meet emission reductions goals under the Kyoto Protocol.

Other factors pushing green supply chain management include resource scarcity, cost savings, and a greater drive towards efficiency enabled by improved technology and supply chain management processes. Governments, manufacturers, their suppliers, 3PLs and other participants in China’s supply chain appear to be adopting green supply chain practices whether out of necessity or choice.

The green push from government “From both a cost and an environmental sustainability point of view, implementing green www.chainamagazine.com

GREEN SUPPLY CHAINFEATURE Towards greener transport According to a 2001 European Commission paper, continued global economic growth will lead to an estimated 38 percent increase in demand for goods services and a 24 percent increase in demand for passenger services by 2010. The report also states that 44 percent of goods and 78 percent of passengers are transported through the world’s road network, and this means greater pressure.

Transportation is obviously a key part of the green supply chain equation. Since rail and shipping in China are less reliable and more damage-prone than trucking or air freight, the latter transport modes are much more popular, even though they mean higher fuel costs and greater environmental impact. In China, where rail is heavily under-utilised, trucking handles over 60 percent of intra-China freight.

With foreign 3PLs traditionally strong in the trucking sector such as Werner, Schneider and YRC Worldwide entering the China market and gaining operation licences mostly through acquisitions of existing players, green supply chain initiatives relating to trucking might improve.

“We are trying to find the best suppliers, who are doing good things for the environment whether in the US or here in China,” says Juan Bautista, general manager of Werner Global Logistics, which entered the market only a year ago with two employees and now employs more than 20 in China. Bautista acknowledges though, that since a good part of their trucking is subcontracted, it is difficult to monitor their suppliers’ environmental practices.

From both a cost and an environmental point of view, implementing green supply chain practices in China is a no brainer.

Mark Skipper, RedPrairie

Imaginechina

supply chain practices in China is a no-brainer,” says Mark Skipper, Asia Pacific managing director of Red Prairie, which develops supply chain optimisation software.

According to varying estimates, China’s logistics sector is growing at a rate of 30-50 percent per annum – faster than businesses or government can introduce new legislation, build infrastructure and fill jobs with qualified candidates – making this an opportune time to build green issues into strategic planning.

Red Prairie recently put out a white paper entitled Greenlighting Efficiency: 7 Easy Steps to Reduce the Environmental Impact of Today’s Supply Chains – which highlights better fleet and routing management, energy reduction, labour practices and more sustainable warehouse management as part of its suggestions.

“The white paper came about because we were approached by the Chinese government about 18 months ago to see if we could develop more sustainable supply chain solutions from a government perspective,” said Skipper in an interview.

Other positive measures from a green point of view include Beijing’s recent cut to the export VAT refund, designed to both reduce the country’s export surplus and at the same time reduce the impact of high energy consumption sectors. The newly implemented Chinese Restriction on Handling of Hazardous Materials (RoHS) directives governing the labelling, marking and testing requirements for electronic products should also be positive from an environmental perspective, in that they require greater accountability from companies.

www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

41

Imaginechina

GREEN SUPPLY CHAINFEATURE

China growls for more energy

Attention to environmental issues in China from the government and companies has increased in the last few years.

Mark Rodatz, Panalpina

China’s appetite for energy consumption is unlikely to be abated in the near term. Possessing vast coal reserves – a new coal fired power plant opens in China almost every week to meet energy demands – China’s coal emissions are unlikely to decrease, even if the country follows through with Kyoto Protocol commitments to reduce emissions. Alternatives to coal power – a great polluter – include wind and nuclear power, but these are more costly and longer-term solutions.

Green electronics: How companies line up Every quarter Greenpeace publishes its Green Electronics Guide, a ranking of leading mobile and PC manufacturers on their global policies and practice on eliminating harmful chemicals and on taking responsibility for their products once they are discarded by consumers. In the June 2007 report, Nokia was in the top spot having regained the number one position for eliminating the worst chemicals from many products. Nokia had dropped off the top in March and was replaced somewhat surprisingly by Lenovo, previously a consistent offender but praised for its progress across the board. Apple, HP and Sony all ranked towards the bottom of the list with Sony losing points for inconsistent take back policies and Apple for not having a green product on the market and for a weak take back program.

42

SEPTEMBER/OCTOBER 2007

According to one fund manager at a foreign invested fund management firm in Shanghai, “Wind power is playing an increasing role in China, even though wind power capacity at present can provide still only a fraction of the energy consumption needed in China.”

“On the other hand,” the fund manager says, “Because of the strong Chinese economy, the government is more focused on sustainable growth in the last few years and can afford to invest in more sustainable energy.”

Another positive development is that Chinese companies seem to be buying into the idea of green supply chain management. “The green supply chain topic is quite unknown in China,” said Li Jian Dong, vice president and general manager of marketing for IT company DCMS. “DCMS is providing consulting and increasing awareness among its customers. As a leading software manufacturer and IT consulting company in Taiwan and the mainland, according to Li, DCMS is developing software and consulting for their clients on how to improve green supply chain practices.

Green technology and process management A good example of how environment and cost savings can work together is the way Red Prairie’s technology can save fuel in trucks through realtime data the software can receive from the truck, optimising the truck’s operation.

“There are huge variances in the way drivers operate, says Mark Skipper, “There might be as much as US$45,000 difference in fuel costs between two drivers who drive the same route, www.chainamagazine.com

GREEN SUPPLY CHAINFEATURE but have different driving styles.” Software like Red Prairie’s gives information, which can be used to reduce both costs and environmental impact.

Li Jian Dong of DCMS, which also creates software solutions to optimise supply chain processes, says that companies are willing to spend money to meet green requirements and legislation such as the RoHS, since it can help them sell products to Europe and also prevent the loss involved in product recall.

Ideally, green supply chain management should begin at the design phase of a product, as companies such as Dell are doing. Dell has outlined its Design for the Environment (DfE) programme to incorporate into product development environmental attributes such as “reduction of environmentally sensitive materials, decreases in equipment energy consumption, extension of product life span and utilisation of parts that can be reused, resold or recycled.”

Of course packaging design can also take into account environmental concerns. According to Simon Shaw, director of China Packaging Solutions (CPS), since packaging can account for 40 percent of the final cost of a product, CPS works with their clients to design packaging that minimises environmental impact, safeguards the product more effectively and saves their clients money. This is a good example of a case where green initiative can mesh with smart business.

Green is good for business Since many large multinational electronics and auto companies such as Ford, General Motors and Daimler Chrysler already have social responsibility programmes, they can set standards forcing suppliers to comply with their green supply chain management strategy.

“More and more of our customers, particularly in verticals such as oil and gas are paying attention to environmental issues,” notes Markus Rodatz, head of operations, PRC and Taiwan at Panalpina. “In China, attention from the government and companies has increased during the last few years compared with our other emerging markets.”

Multinational retailers such as Wal-Mart, wielding huge power over their suppliers, are also at the forefront of corporate social responsibility issues in a positive way. “Environmental initiatives have also grown in part due to the Wal-Mart 7R program which though it does not apply in China currently it does set a standard and seems likely to be extended at some time,” says Shaw at CPS. Of course suppliers can’t always fulfil standards.

As a writer for website Greenbiz.com says “it’s not that suppliers don’t want to reduce the environmental impact of their operations and products. It’s just that many find themselves facing a bewildering array of corporate environmental policies, purchasing specifications, and other criteria.”

For the companies that do buy in to the green supply chain management concept and can meet the standards, the rewards can include a more positive public image as well as cost savings and environmental good citizenship.

We are trying to find the best suppliers, who are doing good things for the environment whether in the US or here in China.

Juan Bautista, Werner Global Logistics

A green office guide Working in China often presents many challenges for foreign companies. So how difficult is conducting environmentally-friendly operations in a country that has notorious waste, pollution, and energy problems?

Not difficult at all. Managers of offices both large and small can take simple steps to “greenify” their China office and make a positive impact on China’s environmental problems. Integrating green solutions into the office not only lowers costs, but it exhibits corporate responsibility, cooperation, and conscience towards growing environmental issues of concern in China.

Here are some guiding principles: recycle, reduce, re-use whenever possible; streamline use of supplies whenever possible; and, shut off power for computers, equipment when not in use.

Computer: encourage electronic document storage and only use hard copies when completely necessary; and, switch off computers at night – standby still uses power.

Fax machine: use Internet fax instead of your fax machine. Saves paper, energy, and costs.

Printer: actively discourage the unnecessary printing of emails; and have a ‘used’ paper tray next to printers and on desks.

Energy (equipment): unplug electronics not in use. The average computer consumes five watts of energy, just from being plugged into the wall; and, purchase new equipment with a high energy efficiency rating.

Carol Chen

is director of marketing for MyeFaxChina.com (www.myexfaxchina.com), based in Shanghai

www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

43

BLOGWATCH

The spin war to protect China’s brand The official Chinese reaction stepped up [in August], with claims that China’s reputation is being unfairly tarnished.

The comments, coming directly from Chinese officials come off as inept spin, attempting to minimise consumer concerns instead of deal with them.

A far better tactic is the defence of Chinese businesses by third party commentators. Most of the observers I’ve seen in action are clearly independent, which gives their messages a lot more weight. It’s not clear if China is working behind the scenes to get any of these voices into the media, but the result is much more effective than the predictable guarantees of increased vigilance from official sources.

Official Statements: ‘It’s only partly our fault’ n “This kind of problem exists everywhere in the world. So why just pick out China for a big fuss?” - Lu Shumin, ambassador to Canada n “Some media and irresponsible people take a small problem and make it into a large one. The Chinese government steadfastly opposes these actions by irresponsible people.” - Wang Xinpei, Commerce Ministry spokesman n “The industry itself did not mean to produce poor-quality goods and paid a heavy price for its mistakes. Most of the employees will have to leave factories they have been serving at for many years and are facing unemployment or reemployment problems. This has had a huge impact on the industry and society.

The recent recalls were instigated by foreign brands. Nobody was injured.” China Toy Association Commentators Defending: ‘Blame cost-cutting’ n “Everybody is pushing, pushing, pushing for lower and lower prices.

The vendors are squeezed to the point where they aren’t making a profit anymore. So they are looking to cut corners.” - Peter Dean, former United States toy company executive “The problem is not even China being unable or unwilling to make quality product. Some of the hardest working, most dedicated people I’ve ever met work in Chinese factories. They take their responsibilities very seriously – more so than most Americans. The

n

44

SEPTEMBER/OCTOBER 2007

true villain behind the scene here is Wal-Mart and big-box retail. Wal-Mart has incredible influence in toy designs and costing. They can literally force Chinese manufacturers to shave pennies off production costs – pennies that can affect quality, not to mention working conditions. I do not know if Wal-Mart had anything to do with this latest problem, but this recall is indicative of the kinds of quality problems that aggressive cost cutting demands by such retailers can create. Your summation that this is due to “too much ain’t enough” isn’t quite right. It’s more accurate to say “You know, we could get this for a few dollars less at Wal-Mart.” - anonymous commenter on a marketing blog “Of the approximately 18.6 million toys recalled world-wide, 436,000 are being pulled off shelves for containing impermissible levels of toxic lead paint.

According to Mattel, these toys were manufactured by a contract supplier…

The other 18 million toys in the current recall suffer from an unrelated defect, one that has nothing to do with where they were made. They feature small magnets that can detach and, if swallowed, cause serious or even fatal intestinal injuries in children. This is not the fault of the Chinese manufacturers that made the toys. It seems to be the fault of the engineers who designed them and would have been a hazard even if the toys had been manufactured in the United States.” - Wall Street Journal China has a huge repair job to do on its reputation as a provider of safe products to the world. To repair that reputation will take years of sustained effort.

It’s not a matter of the need for more action, less talk. They will need to do a lot of talking to, with, and about their direct and indirect customers.

n

Wu Yi means it’s serious www.chinabusinessservices.com/blog/ I have heard it said more than once that you know the Chinese government is taking a serious problem seriously when Vice Premier (“the iron lady”) Wu Yi is sent in to fix it (remember SARS?). So it is with product safety. According to the Wall Street Journal: “China’s decision to appoint the government’s top trouble-shooter to head a new cabinet panel on product safety reflects Beijing’s growing concern

about international reaction to a series of scandals involving Chinese exports. Wu Yi, a Chinese vice-premier, will lead a 19member body that will look into ways to fix the country’s problems with food and product safety, the government announced [in August] on its official website. The central government had said [in July] that such a group would be formed.”

In addition to the appointment (and the message it sends), China is imposing new testing requirements on food exporters. The New York Times reports: “Chinese government authorities are prepared to require that every shipment of food being exported to the United States and other countries be inspected for quality by the government, starting September 1, a senior Chinese trade official said…”.

So much negative press has been heaped on China in the past few weeks (as though product safety in the multi-national world of trade is a purely Chinese issue!) that the government is right to take harsh action. Hopefully this will result in longterm benefits all round. But it is just one of many issues that will work to ensure Chinese prices will continue creeping up.

A price worth paying I think.

Assess your risk, plan, and then outsource to China www.allroadsleadtochina.com Recently I have been spending a lot of time on the responsibility companies have when they outsource to ensure the integrity of their supply chain by investing in a solid quality control process, and recently this resulted in an editorial writer from the Wall Street Journal sending me an email for my comments on the following: “Most, if not all, coverage I’ve seen has focused on the role regulators in Beijing and Washington need to play to clean things up. But I suspect that’s missing the big role for the private sector. After all, don’t a lot of western companies sourcing in China have a major financial incentive to enforce quality standards independent of regulators? They have to defend their brand reputations in the eyes of consumers back home, don’t they?”

First, I totally agree with his initial assertion that there needs to be more focus away from just the actions of www.chainamagazine.com

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

those in Washington and Beijing. In fact, given the primary decision makers on outsourcing are from the private sector, the primary bearer of responsibility is on the private sector (those who chose to outsource) to ensure the quality of the goods they are bringing in from China, components or finished. By “ensuring the quality” of the goods I do not simply mean that they look pretty good, or that price-to-quality differences are the same, but that these products are being produced as they were in the United States and being inspected as they would be in the States.

With regard to the second question, the correlation between quality and brand is without a doubt positive at all levels,and what is so interesting to witness is how many firms will add large amounts of risk (knowingly and unknowingly) to their brands when outsourcing. Luxury, mid-level, and low end brands all try to balance brand image, quality, and pricing at some levels, and there are thousands of brand managers spending billions of dollars every year to create brand identities that will lead to customer loyalty as the desired market segment.

From the management/operational standpoint though the decision to outsource to China is a seemingly pretty easy one: China is low cost, we can save money, and someone needs to fly to China. Yesterday!

With this time being the most critical, the logical steps that firms take should include: evaluating supplier capabilities, capacity, price, quality, pricing terms, value add services, etc., and all of these should be considered as part of any final decision. Additionally to this, firms should be making visits to any finalists and negotiating onsite, asking for production samples, running smaller test order, and www.chainamagazine.com

taking other measures to ensure that the supplier is living up to their promises.

Following the successful identification of a supplier, and negotiations, production runs get underway and inspections take place to ensure the product meets specifications and that failure rates are at acceptable levels. If there is a problem, the buyer will have someone who can work through the issues and make the necessary adjustments.

These are the steps that they have taken in the United States in house when setting up their own supplier network there, and it should be expected that the same process would be followed (with more caution) when doing this in China, right? After all, with all those news stories about bad products coming from China in the newspapers and shared over coffee at tradeshows, one would think that companies would be more cautious, right? Wrong.

All too often, and the recent headlines are proof of this, low- and mid-level manufacturers do not take one or many of the steps… For them, their market advantage is on price, and they look for short cuts… they look to save money… they look to cut out middle men of any sort… and do not recognise that by cutting corners on resources, materials, and processes they are essentially adding what can amount to a catastrophic amount of risk into the system.

The choice to move to China is a commercial decision that is made at various levels of management, and it is the role of these managers to ensure that the right supplier is chosen, that the supply chain produces a product no different than it would in their own factory, and that there are the systems and people in place to ensure that should anything go wrong, corrections can be made. Making spot checks,

investigating supply lines, monitoring production samples, packing containers in house, performing multiple tests, etc are all viewed as expenses rather than investments, and as such many will choose to allow their supplier to “get the job done”. Short term, the company saves money, but what these decisionmakers have failed to understand is that long-term they risk everything.

If nothing else, the recent cases show that one bad container can endanger not only one’s brand, but the very consumers who they have built trust with.

This really is a topic that will permeate the global supply chain as it has moved from a commercial issue to a political one. My goal in posting this is not to out any one company, but to highlight that more focus needs to be placed on how companies assess the risks and then take the appropriate steps. The companies that have ended up in the news saved money short term, but what is important to understand is that they not only outsourced their products, they outsourced their brand management, to their Chinese suppliers.

UPDATE: During my discussion with the Wall Street Journal reporter recently, I was asked whether or not I thought buyers were getting smarter.

At that time my answer was an unequivocal: “Yes and no”.

There are defiantly companies like B&Q, General Motors, Nike, IKEA and GE that have put together very strong quality control systems in place. They were put into place by well seasoned professionals and were well funded. In short, their firms saw quality control as an investment in their supply chain rather than as an investment.

On the other hand, you have firms who are smaller, who are new to China, who are lacking seasoned talent, and are looking at investment required as an expense. They are pushing onto suppliers the quality control function, and for some of these products the cracks are beginning to show.

Shortly after this conversation, I read several very relevant articles on this very issue in United States-based newspapers that explore the China based supply chains of RC2 and Mattel and give some interesting insights into just how critical investment is to the quality process.

SEPTEMBER/OCTOBER 2007

45

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

Container terminal operator appoints new GM

Lufthansa Systems names senior VP sales Asia-Pacific

International Container Terminal Services has appointed Apollo Zhou as general manager for its Chinese unit, Yantai Rising Dragon International Container Terminals.

Zhou has more than ten years of business management experience in Hong Kong and mainland China, including two years as process improvement manager for Central Asia with Sea-Land Services and three years as joint venture manager for CSX World Terminals’ Orient Container Terminal in Tianjin.

Norbert Mueller has taken over as senior vice president of sales Asia-Pacific for Lufthansa Systems and named chief executive officer of Lufthansa Systems Asia Pacific. Mueller succeeds Ralf Cabos in the role.

Trans Global Logistics names China regional director Trans Global Logistics has named Michael Goh regional director of TGL-China.

Goh previously served as Trans Global’s corporate director of service and quality assurance in Hong Kong. Goh joined TGL from Singapore-based S-Net, where he was director of airfreight.

Goh succeeds Danny Leung who has been named corporate finance director.

Tony Yuen will fill Goh’s former role as corporate director of service and quality assurance in Hong Kong.

Dragonair gets new China GM Dragonair chairman and Cathay Pacific chief executive Tony Tyler has announced that Patrick Yeung has recently been appointed as general manager, China to lead the team there. Tyler said mainland China will continue to be a key focus for the future development of Dragonair and the Cathay Pacific Group.

46

SEPTEMBER/OCTOBER 2007

China Sunergy appoints new CEO

CEVA CEO John Pattullo

John Pattullo joins CEVA as new CEO CEVA has announced the appointment of John Pattullo as its new chief executive officer. Pattullo replaces Dave Kulik as chief executive officer of the recently merged CEVA and Eagle Global Logistics, which will now operate under the CEVA brand name. Kulik will continue to serve as the vice chairman of the board of directors of CEVA Group.

Prior to joining CEVA, Pattullo led Deutsche Post/DHL’s EMEA contract logistics business as chief operating officer. In addition, he led the Exel European forwarding and contract logistics business and has worked in various leadership positions supporting Procter & Gamble’s global supply chain.

China Sunergy, a specialised solar cell manufacturer based in Nanjing, China, has appointed Allen Wang as its new chief executive officer with immediate effect.

Wang will succeed Tingxiu Lu, who will remain as executive chairman and continue to be an integral part of the management team and a member of China Sunergy’s Board of Directors. He brings with him over 26 years experience in operations management and sales with leading technology companies in China, the US and Taiwan.

Wang’s particular strengths are in supply chain management, operational management and procurement. He joins China Sunergy from NEC China, where he was senior vice president and general manager of its operations division focusing on supply chain management, quality assurance and customer service.

Qantas hires technology chief Jamila Gordon has been appointed Qantas’ new chief information officer.

The airline’s chief financial officer Peter Gregg said Ms Gordon, whose position becomes effective on September 17, had the broad ranging experience in the global IT industry and expertise in managing complex outsourced arrangements necessary to lead the next stage of Qantas’ IT transformation.

“Ms Gordon has extensive experience in senior executive roles with IBM and has spent the past six years in Europe, where she managed some of the world’s largest strategic outsourcing initiatives in France and the Netherlands.

“Most recently, she was responsible for the IT transformation strategy and end-to-end IT service delivery across 11 countries for a major European bank,” Mr Gregg said.

Prior to joining IBM Ms Gordon worked for GIO and Deloitte Consulting in Australia.

Goodyear CFO W. Mark Schmitz

Goodyear hires Tyco exec as CFO W. Mark Schmitz, Goodyear’s new chief financial officer, speaks fluent Mandarin Chinese and Portuguese.

He expects to put his linguistic talents to use at Goodyear even as he keeps a close eye on the Akron tire maker’s finances. Schmitz, a former executive at Tyco International and General Motors, was named executive vice president and chief financial officer in August. www.chainamagazine.com

CLASSIFIEDS

move your career forward There is a strong demand for professionals with your qualifications and experience within the procurement and supply chain industries.

As specialists in this area, we have the experience and business relationships to help you find your ideal role.

current employment opportunities Distribution Centre Manager – Eastern China Region One of the world’s largest and most recognised retailers is currently undertaking rapid expansion across mainland China. They require an experienced retail DC Manager to play a key role in their growth.

General Manager – China

Country Director – China

Market leading transport and logistics company based in Jiangyin is looking for a General Manager reporting directly to the CEO based in Hong Kong. Overall management responsibility for 100,000 sq foot Logistics Centre.

A groundbreaking third party logistics joint venture is looking for a proven general manager to provide commercial and operational leadership. This role will establish the company as a top player amongst the international logistics companies wihin Greater China.

contact us #5406

For further information on any opportunities or to submit your cv, please visit www.michaelpage.com.cn or contact: Olly Riches, Manager on +86 21 3222 4785 or email ollyriches@michaelpage.com.cn

Shanghai Tian Cai Network Co. Ltd., under license from Michael Page International Group PLC.

www.chainamagazine.com

SEPTEMBER/OCTOBER 2007

47

COMPANYINDEX

EVENTSCALENDAR SEPTEMBER

S

2

9

16

23

30

3

10

17

24

1

4

11

18

25

2

M

Reverse Logistics World September 18 - September 20 Singapore terrapinn.com/2007/reverse

T

5

12

19

23 26

3

6

13

17 20

27 24

4

21

25 28

5

W

Service Parts Logistics Summit September 13 Shanghai, China www.supplychain.cn

T

7

14

Express Logistics and Supply Chain Conclave September 28 - September 29 Mumbai, India www.supplychains.in

F

S

8

15

22

6

30

7

14

21

28

1

8

15

22

29

2

9

16

23

30

3

10

17

23 24

31

OCTOBER

S

M

T

CeMAT SIA 2007 October 10 - October 13 Shanghai, China www.cemat-asia.com

W

4

11

17 18

24 25

1

5

12

19

25 26

2

6

13

20

27

3

28

4

11

18

25

29

5

12

19

26

30

6

13

20

27

T

F

S

NOVEMBER

S

M

Spare Parts Logistics Summit 2007 India November 23 India www.supplychains.in

T

31

7

14

Chaina Summit 2007 November 7 - November 9 Shanghai, China www.supplychain.cn

W

1

8

21

28

PROCURETECH LIVE2007 November 21 www.procuretechlive.net

17 15

22 24

29

Service Parts Logistics Summit September 13 Shanghai, China www.supplychain.cn

T

2

9

16

25 23

30

3

10

17

24

6

F

S

Aberdeen Asset Management ................................................. 16 Aberdeen Group...................................................................... 37 ABN Amro Bank ...................................................................... 50 Accenture ................................................................................... 8 Alaris .......................................................................................... 6 Alstom ...................................................................................... 16 B&Q ......................................................................................... 45 Best Buy ................................................................................... 21 BHP .......................................................................................... 35 BLG Logistics ........................................................................... 19 Bombardier .............................................................................. 16 Carrier Commercial Refrigeration ........................................... 23 Cathay Pacific........................................................................... 46 CBRE .......................................................................................... 5 CEVA ........................................................................................ 46 China CSC ................................................................................ 17 China International Marine Containers................................... 18 China Northern ........................................................................ 16 China Packaging Solutions ...................................................... 43 China Railway Construction Group ........................................ 16 China Railway Engineering Group ......................................... 16 China Railway Express ............................................................ 16 China Southern ........................................................................ 16 China Strategic Development Partners ................................... 34 China Sunergy.......................................................................... 46 China United International Rail Container ....................... 18, 34 Chongqing Port........................................................................ 34 CMA CGM ................................................................................ 18 Coca-Cola ................................................................................. 14 Corning .................................................................................... 35 Cosco Chongqing .................................................................... 17 Cosco Group............................................................................ 18 CSX World Terminals............................................................... 46 Daimler Chrysler...................................................................... 43 DCMS ....................................................................................... 42 Dell ........................................................................................... 19 Deloitte Consulting .................................................................. 46 Deutsche Bahn ........................................................................ 18 DHL .......................................................................................... 46 Dragonair ................................................................................. 46 DTZ .......................................................................................... 11 DuPont ..................................................................................... 35 Eagle Global Logistics ............................................................. 46 Finnair Cargo ............................................................................. 9 Ford .......................................................................................... 43 GE ........................................................................................... 45 General Motors .................................................................. 43, 45 GIO .......................................................................................... 46 Goodman Group ..................................................................... 17 Goodyear ................................................................................. 46 Greenbiz.com .......................................................................... 43 Greenpeace .............................................................................. 40 GSE China ................................................................................ 27 Haier......................................................................................... 20 Havi Food Services .................................................................. 29 Hill and Associates .................................................................. 24 HMG Logistics.......................................................................... 21 IBM ..................................................................................... 15, 46 IKEA ......................................................................................... 45 Intel .......................................................................................... 32 International Container Terminal Services ............................. 46 Jones Lang LaSalle ............................................................. 10, 33 JPMorgan Chase Vastera......................................37, Back cover KFC........................................................................................... 20 Knight Frank .............................................................................. 2 Kong & Allen ........................................................................... 12 Kunming China Railway .......................................................... 16 Lee Der..................................................................................... 23 Lenovo...................................................................................... 19 Lufthansa Systems.................................................................... 46 Mattel............................................................................ 14, 23, 44 McDonald’s ........................................................................ 20, 28 MFG.com.................................................................................. 15 Michael Page International .................................................... 30 Microsoft .................................................................................. 19 Minsheng.................................................................................. 17 ModusLink ............................................................................... 15 Motorola ................................................................................... 35 NEC .......................................................................................... 46 New City Corporation ............................................................... 5 Nike .......................................................................................... 45 NKYCOS Car Carrier................................................................ 18 Nortel ....................................................................................... 14 NYK Line.................................................................................. 18 Oracle....................................................................................... 21 Pacific Basin ............................................................................. 17 Panalpina ................................................................................. 43 Pepsi ......................................................................................... 35 Pizza Hut .................................................................................. 20 Port of Liverpool ...................................................................... 19 Procter & Gamble .................................................................... 46 ProcureTech Live ..................................................................... 36 ProLogis ................................................................................... 20 Qantas ...................................................................................... 46 RC2 ........................................................................................... 45 Red Prairie ......................................................................... 21, 41 Schenker .................................................................................. 14 Schneider ................................................................................. 41 Sea-Land Services .................................................................... 46 Siemens .............................................................................. 16, 20 Sinotrans Chongqing ............................................................... 17 S-Net ......................................................................................... 46 Sony ................................................................................... 20, 35 Suning ...................................................................................... 20 Trans Global Logistics ............................................................. 46 Tri-onics ................................................................................... 25 Tyco.......................................................................................... 46 UPS ........................................................................................... 17 Volkswagen .............................................................................. 35 VST Holdings ........................................................................... 19 Wal-Mart ............................................................................. 43, 44 Werner ...................................................................................... 41 World Courier .......................................................................... 16 Yangtze River Express ............................................................. 17 YRC Worldwide ....................................................................... 41 Zim ........................................................................................... 18

SEPTEMBER/OCTOBER 2007

49

CHINA SUPPLY CHAIN IN NUMBERS ASEAN H1 manufacturing FDI inflows more than double

India shows faster manufacturing growth in August India’s manufacturing growth accelerated in August on rising consumer demand and as a weakening currency spurred exports, a key gauge showed.

ABN Amro Bank NV said its PMI rose to 57.9 last month, the highest level since November 2006, from 52.9 in July. A reading above 50 indicates overall factory output gained.

The rise in the index suggests inflationary pressures remain after almost three years of interest-rate increases, ABN Amro said. Rising incomes in the world’s second-most populous country has increased demand for cars and homes, helping companies such as Tata Steel report record profit.

Demand is rising as India, the world’s second-fastest major economy after China, creating more jobs and boosting incomes.

India generated 11.3 million new jobs annually between 2000 and 2005, which is over 60 percent more than the 7 million created in China every year in the same period, according to the Organization for Economic Cooperation and Development.

Shanghai bonded areas cargo value rises 31.6% S h a n g h a i ’s b o n d e d a r e a s , t h e Waigaoqiao Free Trade Zone, Yangshan Free Trade Port Area and some export processing zones, achieved an import and export value of US$48.2 billion in the first six months of 2007, up 31.6 percent on the same period in 2006.

Combined import and export cargo value processed in these areas increased 23 percent to US$27.07 billion, representing 50.7 percent of the city’s total processing trade value.

Import and export value of bonded cargo handled by freight forwarders in the zones rose 33.9 percent to US$19.99 billion, representing 81.2 percent of the total of those handled by all freight forwarders in the city.

Since the Songjiang Export Processing Zone started a trial run of product research, development and maintenance operations in February, the zone has achieved an import and export value of US$229 million.

China box volume was up 23.6 percent over the first seven months of 2007.

50

SEPTEMBER/OCTOBER 2007

The cumulative container throughput of ports in China rose 23.6 percent year-on-year over the January through July period, to 62.09 million TEU. Mainland seaports handled 57.6 million TEU of the country’s total container volume, while river ports accounted for 4.49 million TEU. In July this year, meanwhile, the country’ s ports processed 8.74 million TEU.

China’s July retail sales up 16.4% China’s retail sales rose 16.4 percent in July over the same period in 2006. Retail sales totalled RMB699.8 billion, the National Bureau of Statistics reported.

Sales of grain and oil rose 45 percent, while sales of meat, poultry and eggs grew 51 percent, the agency said, reflecting recent sharp increases in food prices. The government reported in August that food prices climbed 15.4 percent in July over the same month last year.

Beijing is trying to boost domestic consumption to reduce the economy’s reliance on exports. Growth in retail spending has lagged behind that of exports, which soared more than 34 percent in July.

Foreign direct investment (FDI) in Southeast Asia’s manufacturing sector grew nearly 150 percent to US$30.8 billion in the first half from a year earlier as the region gained from a run-off in investor interest in China and India.

“There is tremendous draw of the Chinese and Indian economies,” said Ong Keng Yong, secretary-general of the Association of South East Asian Nations (ASEAN).

Total FDIs into Southeast Asia rose 9 percent to US$15 billion in the first quarter of 2007 from a year earlier.

China attracted $15.9 billion in FDIs in the same period, an 11 percent increase from the first quarter of 2006.

Wary of being left trailing in China and India’s wake, ASEAN wants to create a European Union-style economic community by 2015. The region attracted total FDIs of $52.4 billion in 2006, up 28 percent from 2005.

RFID spending on the rise In the year 2007 US$4.96 billion will be spent around the globe on RFID and out of this US$2.7 billion will be spent by East Asia, with US$1.9 billion of that by China, 70 percent of East Asia’s total spend. China is believed to be the world’s largest market for RFID. All this is being attributed to the 2008 Olympics where RFID is being implemented across a number of different projects, including US$1.65 billion being spent on RFID chip carrying identification cards for the event.

China manufacturing PMI watch The CFLP China Manufacturing Purchasing Managers’ Index (PMI) provides a monthly indication of economic activity in the manufacturing sector, compiled each month from data about their purchasing activities and supply situations from more than 750 manufacturing companies.

% 60 58 56 54

54 52 50

SEP 06

AUG 07

Source: China Federation of Logistics and Purchasing

www.chainamagazine.com

CREATING OPPORTUNITIES IN GLOBAL COMMERCE

Maersk Logistics is part of the A.P. Moller – Maersk Group.

Being a leading logistics provider, we have specialists in over 90 countries assisting customers all over the world in engineering and optimizing entire supply chains.

We offer customized and integrated solutions for supply chain management, warehouse and distribution, as well as landside services, ocean freight, and airfreight transportation.

If any concern about career opportunity at Maersk Logistics in our Greater China Area, please email to GCARECRUIT@maersk.com, with subject “Inquiry from CHAINA”.