FOREIGN EXCHANGE China clamps down
BAHRAIN LOGISTICS ZONE New regional hub
SCHENKER
Olympic logistics champ
EMERGING MARKETS Mitigating sourcing risks
COLD CHAIN
Still not cold enough
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THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS
m How companies are navigating through cost pressures in China
THEWORD
Recent Soundbites
David Bartlett FDI expert and adviser to accounting network RSM International “Lots of European companies are hedging their Chinese manufacturing positions. Industries are looking more and more at central and eastern Europe, which are plausible alternatives to China for moving production.” Zhang Shuguang Deputy Chief Engineer with the
Ministry of Railways “It is possible that we can start to manufacture 380-kph trains in two years’ time, and put them into service on the Beijing-Shanghai high-speed railway.” Wang Yiming An economist with the National Development and Reform Commission “This year is the start of a slowdown phase. But the fundamentals propelling
MAKING BUSINESS FLOW CEVA designs, implements and operates complex supply chain solutions on a national, regional or global scale for medium to large enterprises. With more than 52,000 dedicated professionals CEVA maintains 614 warehouses globally with a combined space of approximately 8,6 million square meters and operates an extensive global network in over 100 countries.
China’s economy, such as urbanization and infrastructure investment, will remain in the years ahead.” Andrew Nathan Columbia University professor and co-editor of a book on how Asians view democracy “China is poised to join the list of developed countries with large middle classes and non-democratic regimes” Jeff Immelt Chairman, General Electric General Electric Co. expects its business in China to double by 2010 to US$10 billion a year. This would be a bright spot for GE after the U.S. credit crisis forced it to cut this year’s earnings forecast. Liu Jiayi State Auditor General An audit of more than 50 Chinese government departments and their subsidiaries discovered that 4.5bn yuan ($660m) had been misused or embezzled in 2007. Cheng Siwei Former vice chairman of the Standing Committee of the National People’s Congress “The domestic inflation, severe winter weather, devastating earthquakes and the weakening global economy in the first half year have pushed the country’s economy to the edge of decline, but it is getting better”. Sir Terry Leahy Chief Executive, Tesco “If we want long-term growth, we must go green!” Vicente Trius Head of Wal-Mart in Asia “Improved management of our supply chain would help offset inflationary pressures in China”. Wal-Mart sources $9 billion in manufactured products a year in China.
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Managing Editor & Publisher Russel Beron rberon@supplychain.cn Art Director How Xu hxu@supplychain.cn Graphic Designer Franck Meyer Finance Manager Jenny Kim Key Account Manager Wendy Yu
Account Manager Carl Pan Circulation Manager Giselle Yang Special Projects Amina Khayat Photographers Grant-Oh! Buchwald Jackson Lowen Contributing Writers Chris Deans, Kevin Gromley, Edrick Guo, Tan Beng Ti, Katherine Tan, Michael Yee, Eric Zhang
Chaina magazine editorial advisory committee Dittmar Nerger Head of Global Sourcing Bayer Healthcare
Max Henry Founder and Executive Director, Global Supply Chain Council
Dong-Hong Zhu Head of WW Procurement (China), Materials Manager, Agilent Technologies Shanghai
Vanessa Guo VP Sales, Runbow Logistics
Guy Tran Logistics Manager, Auchan China Hypermarkets Jean-Luc Laboucheix Supply Chain Director Asia Pacific, Goodyear
Nis-Peter Iwersen VP Procurement, Asia Pacific Schaeffler China Robert Jiang General Manager, Dajin Logistics Tony Li Logistics Manager, Amway China
CHaINA Sponsorship For information on sponsorship opportunities with CHaINA Magazine, please contact: Russel Beron rberon@supplychain.cn DISTRIBUTION We distribute CHaINA free by direct mail to subscribers in Greater China who are involved in all aspects of supply chain management, manufacturing and logistics. Our target subscribers are logistics, warehousing and transportation directors and managers; sourcing, procurement and purchasing directors and managers; and manufacturing executives at foreign and domestic Chinese companies. For subscription inquiries, please contact: subs@chainamagazine.com. Contact us to receive a free digital or print edition of the magazine. CHaINA Magazine is distributed through selected locations in Shanghai, including hotels, restaurants, business centers, airport lounges and other key locations.
Comments and Feedback We welcome feedback and comments about our content or any issues relating to supply chain management or trade in China.
FROM THE EDITOR The Coca-Cola commercial played through the Olympics featured Yao Ming, morphing as a Chinese dragon, versus NBA star, Lebron James, as an American bald-headed eagle: China versus America. The Olympic battle between China and the U.S. extends beyond the sports field though – in case you hadn’t noticed the two countries are in a heated battle whose ultimate prize is a shift in global power. In the commercial the two stars are united by Coca-Cola, in reality competition is heating up. This great game of power sounds auspicious, but it’s really about who gets to control and utilize the world’s resources, who is the bigger manufacturer, who gets to feed the insatiable appetites of the world’s consumers, who drives innovation, R&D and new technology, whose currency is stronger and increasingly, who provides more value added services. Despite the surrounding controversy, China racked up its fair share of Gold medals at the Olympics, even though the U.S. total medal tally triumphed. To extend this metaphor, the U.S. is still a giant, but China is very much on the same playing field and growing in strength on just about every front. Yes, the bald eagle still dwarfs the dragon in total GDP, in innovation and in value added service industries. Yes environmentally, China lags and human rights is still a big issue, but these are issues the U.S. also contends with; they are just better at PR. The U.S. also has its own question marks, such as being mired in a war in a foreign country costing billions of dollars a month and numerous lives while the country slips into a recession at home. As this issue of the magazine reveals, tough times in the U.S. are certainly affecting Chinese exports and growth. On the other hand the Chinese government has been mandating export reduction through their own measures such as VAT rebate cuts on export goods, new laws on foreign exchange and new labour and environmental laws which are squeezing low cost manufacturers out of business. The Chinese are also focusing more on other developing markets to sell their goods, so are not too fazed by the impact of a U.S. or European slowdown. The stories we cover in this issue suggest that China is turning a corner that will see it stepping into a heavier weight class, albeit one that carries more global responsibility. We see effective supply chain management playing an ever increasing role in this shifting landscape.
Please email any comments to: comment@supplychain.cn
Chaina magazine’s sponsors:
Russel Beron Editor and Publisher CHaINA Magazine
CHaINA Magazine (ISSN 1992-9668) is published jointly by Painted Horse Media Limited (Hong Kong) and the China Supply Chain Council Limited (Hong Kong). There is no charge for qualified readers to receive subscriptions. Send subscription requests or address changes to subs@chainamagazine.com. The contents of the magazine may not be reprinted in whole or in part without the permission of the publisher. The publisher is not responsible for product claims and representations. CHaINA is a registered trademark of the China Supply Chain Council.
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COVER STORY
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Managing through the lean times: How companies feeling the pinch from every direction are navigating through ongoing cost pressures in China – By Russel Beron
Q&A/COMPANY PROFILE 48
REGULATORY UPDATE
Interview with Alex Angelchik, President of New Times Development, a leading global sourcing company
Is your foreign currency accounted for? - The implications of new foreign exchange measures – by Tan Beng Ti and Edrick Guo, Baker & McKenzie
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THE MAGAZINE FOR GLOBAL SUPPLY CHAIN LEADERS
SEPTEMBER/OCTOBER 2008
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CONTENTS THE WORD 4 China sound bites NUMBERS 8 Numbers- Lianhua Supermarket sweeps up customers and profits INSIDE VIEW 10 Vying for talent -China still faces a drastic shortage of experience and skilled managers – by Michael Yee, Accenture 12 Regulatory obstacles remain for logistics investments in China: A look at the climate for logistics property and infrastructure expansion in China – Katherine Tan, Tractus Asia Q&A / EXECUTIVE TALK 15 Interview with Duane Bolinger, Managing Director of BBK Shanghai, a consulting company specializing in Supply Risk Management (SRM) SCM GADGET 14 A scooter with a stomach for cargo NEWS ROUNDUP 16 The Big Picture – A roundup of relevant macroeconomic news 20 Supply chain Management – A roundup of relevant supply chain related news SPECIAL FEATURE 34 How to put the break on rising costs in China - Searching for hidden cost savings in the supply chain – by Eric Zhang, LowendalMasai REGIONAL FOCUS 37 The Bahrain Logistics Zone – A new regional logistics hub
Q&A / 3PL FOCUS 56
INSIGHT 40 Are you getting paid enough? – A look at Hudson’s 2008 Manufacturing and Industrial salary Report
Interview with Andrew Jillings, CEO, Schenker China and Steve Dearnley, CEO, Schenker Asia Pacific
PRODUCT RECALLS 41 Recent consumer product recalls in the U.S.
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EVENT UPDATE 43 China’s cold chain still not cold enough – Government regulations play catch up to business and consumer requirements 44 Cold Chain Summit report Advice on sourcing in risky markets – Jim Ridgewick, Deloitte Consulting 44 Update on New foreign exchange measures – Tan Beng Ti, Baker & McKenzie 45 A closer look at Indirect Spending – William Hilborn and Simon Chuang, Tyco Electronics 46 All hands on the supply chain – Simulation Game report SPECIAL REPORT 50 Making risks in emerging market sourcing work for you – by Kevin Gromley, Deloitte KNOW HOW 54 The Tao of manufacturing – The history of lean manufacturing – by Chris Deans Q&A / EXECUTIVE INSIGHT 59 Interview with Serge Cofrade – by Michael Page International MOVERS & SHAKERS 60 New Executive appointments BLOG WATCH 61 Recent Blog entries relevant to China’s supply Chain STARS & DUDS 65 A look at some of the best, worst and mediocre performing companies 66 CLASSIFIED LISTINGS 69 COMPANY INDEX 70 EVENTS CALENDAR
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THENUMBERS
Lianhua
Supermarket mops up customers
The popular domestic supermarket recently announced their 2008 Interim Results. “In the first half of 2008, the Group actively promoted the “Strong Outlet” strategy while striving to improve our operation and foster the building of support systems,” said Mr. Wang Zhigang, Chairman of Lianhua Supermarket on the financial results for the first half year.
10.74 57.2 13.4 262 12% 256 3,848
billion RMB Yearly turnover; an increase of 19.8% YOY
% The percent of the Group’s turnover produced by the hypermarket.
% The gross profit margin, which continued to maintain a steady growth of 0.7 percentage points
million RMB The Net profit, an increase of 44.2% YOY, a record high. , 15.2% and 11.4% Growth of the hypermarket, supermarket and convenience stores respectively, a new record high.
Number of new stores opened, comprising 11 hypermarkets, 94 supermarkets and 151 convenience stores. The Total number of outlets reached, 84% of which are located in Eastern China.
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INSIDEVIEW
Vying for supply chain talent in today’s China
I
t’s 2008 and the world’s emerging economies are marshalling work forces that are four times larger than in the West. Led by China, India, Korea, Singapore and Vietnam, these economies also are producing huge pools of skilled workers. Yet companies are finding that attracting and retaining talent is still among their biggest Michael Yee leads the Accenture Supply challenges. Chain Management Not only is China a good example of this dilemma; practice in China and it may well epitomize it. With rapid levels of economic is based in Shanghai. growth and rising incomes, China is set to become the world’s largest consumer market. By the 2030s, the size of our economy may exceed that of the United States.1 However, talent-specific demographics are already working against domestic companies and multinational corporations that serve (or are eyeing) the Two out of five Chinese companies Chinese marketplace. experience difficulties filling senior Consider that China’s workforce will begin management positions, and turnover shrinking in the decade rates at the manager level are 25 after 2015.2 Generational percent higher than the global average attitudes toward work are changing as well. Courted universally, the best and the brightest often seek opportunity elsewhere. A fair number return, but nowhere near enough to effectively counter the labor shortage or escalating salary levels. Scarcity of talent is particularly acute at the management level. Two out of five Chinese companies experience difficulties filling senior management positions, and turnover rates at the manager level are 25 percent higher than the global average. In addition, much of the middle management workforce lacks relevant experience and exposure to the business practices and culture of multinational companies. The
simple reality is that attracting and retaining managerial talent is a particularly serious problem. Demand outstrips supply, and Chinese universities—despite their quality—cannot turn out graduates fast enough. Nor can they instantly create the high levels of experience that emerging market penetration requires most acutely.
Supply Chain Implications Supply chain mastery is the critical—and often weakest—link in the China-workforce conundrum. This should not be surprising, given that transportation and distribution costs are up to three times higher than in developed countries. Moreover, China business is expanding inland. This is clearly a good thing, but it is likely to exacerbate labor shortages, push wages up and further increase supply chain costs. Looking more closely, the most serious supply chain labor issues often relate to fulfillment and logistics. China’s mediocre logistics infrastructure is partly to blame, but an equally core issue is rapid increases in the use of third parties. Logistics services providers are often the best way for companies to enter and serve new markets across China. In this respect they’re vital allies; but in the labor market, they’re the competition. Another critical area is sourcing—where labor shortages are likely spurred by the increasingly global nature of procurement and the constant reprioritization of sources and suppliers due to political shifts, shipment costs and demand cycles.
The Four “Ds”
For domestic and international companies, China’s talent conundrum can be expressed as four specific, but interrelated challenges: The following “Four “Ds” are also a good basis for structuring workforce solutions geared
1 Dreaming with BRICs: The Path to 2050,” Dominic Wilson and Roopa Purushothaman, Goldman Sachs Global Economics Paper No: 99, October 1, 2003. 2 UN Population Division database.
While workers are plentiful, experienced and talented managers are hard to find in China.
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INSIDEVIEW to attracting and retaining skilled employees. 1. Define: Domestic and multinational companies must define their talent needs based on a clear understanding of mission-critical jobs and key workforce skills. They also need to articulate—ideally as part of their strategic plan—how talent creates value for their organization. 2. Discover. Global business leaders seek out diverse talent pools, consider novel options for accessing the talent they need, and offer comprehensive value propositions to current and prospective employees. They may even develop “talent supply chains” that help them adapt sourcing channels to new strategic objectives and changing business conditions. 3. Develop. High performers maximize talent by building individual skills, knowledge and competencies at all levels. In a supply chain context, they often devise a blended skills-building methodology that includes rigorous training, e-learning, e-access to thought leadership, and formal relationships with professional associations, industry consortia and educational institutions. 4. Deploy. Talent management leaders always think in terms of “right talent in the right place at the right time.” They also make a priority of creating the best possible match between people’s talents and aspirations and the strategic goals of the business. They know that engaged employees are more committed, more likely to rise quickly and more likely to create value.Functional strategies, such as outsourcing and shared services, are also key to winning China’s war for talent. But regardless of how operations are structured, winners of the talent war will likely be those that integrate talent management
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The most serious supply chain labour issues in China often relate to fullfillment and logistics.
with their core strategy, invest in employees at all levels, and create people-centric work environments.
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INSIDEVIEW
Regulatory obstacles remain for logistics investments in China
Katherine Tan, is a Research Analyst with Tractus Asia Ltd. Tractus provides assistance with developing and implementing corporate strategies for multinational companies looking to establish or improve their business in Asia. Katherine can be contacted at china@ tractus-asia.com.
C
hina’s logistics industry has matured rapidly since the days of state control, when poor management practices and outdated infrastructure hobbled the system. Subsequent liberalization has spurred dramatic improvements in the sector, stimulating fierce competition and boosting standards of service. According to a recent Li&Fung Research report, the total value of the Chinese logistics industry reached over 75.3 trillion RMB in 2007, an increase of over 26% from the previous year. But despite soaring growth, Chinese logistics firms remain plagued by inefficiency. Logistics costs represented over 18% of China’s total GDP in 2007, compared with an average of 10% in OECD countries. Years of overregulation have created a highly fragmented industry, with tens of thousands of firms in operation and no single company commanding more than 2% market share. The country’s distribution system remains a regionalized, inefficient patchwork of small to medium-sized firms, hindering economies of scale and costing millions of dollars in lost productivity. But even as the central government seems to have realized the need to address these remaining deficiencies, inconsistent and often myopic local regulations continue to limit the industry’s progress. Recognizing the need for reform
Since its accession to the WTO, China has opened most of its transportation and logistics markets to foreign investment.
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China’s national logistics policy has shown signs of recent improvement. Since its accession to the WTO, the country has opened most of its transportation and logistics markets to foreign investment. In 2004 the State Council issued a directive intended to encourage logistics development by simplifying enterprise registration procedures and consolidating various divisional taxes into a single tax payable by headquarters. Furthermore in 2006, regulations preventing majority foreign ownership of a logistics joint venture and mandating a 5 million USD minimum capital requirement for foreign invested logistics firms were lifted. The Ministry of Commerce’s foreign investment catalogue and the National Reform and Development Commission’s Eleventh Five-Year Plan were also revised to reflect the government’s stated commitment to supporting logistics development. Meanwhile, legislation approved in March 2008 consolidated the patchwork of regulatory bodies once responsible for regulating the logistics and transportation sector into the newly created Ministry of Transport. The central government has also injected huge sums of money into transportation infrastructure construction – totaling 15.7 billion USD of fixed asset investments in 2006 alone, according to a recent World Bank Report – but has
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INSIDEVIEW veered away from grassroots regulatory reforms needed to further stimulate the industry.
Adapting to bureaucracy
Privately, developers acknowledge that minimum density requirements and other regulations are mostly just a hassle rather Local Barriers to logistics investment than an actual barrier to investment. According to one Shanghaibased property developer, most firms have established long-standing At present, there are no standardized national relationships with local authorities who are willing to compromise on incentives for logistics investment, leaving local officials investment requirements in exchange for higher landprices. However, to adopt and interpret their own policies. Although most bureaucratic hurdles still pose a major strain on companies’ time and local authorities claim to welcome logistics investment resources, and developers are shifting their projects away from urban in accordance with the central government’s official centers and other densely invested areas in response. “In general, position, actual regulations vary widely based upon the we know which districts will be supportive of logistics developments individual priorities of each district. This means that and which won’t. It’s not worth pushing the issue with governments foreign firms interested in investing in China’s logistics that aren’t receptive,” said Andrew Hatherley, director of industrial and industry must first navigate a morass of discretionary logistics services at global real estate firm CB Richard Ellis (CBRE). requirements and loopholes. Smaller development Some logistics companies have also sought more innovative zones, many of which need logistics investments to solutions to expedite the bureaucratic process. For instance, support local industrial growth, lack the expertise to multinational freight forwarder Militzer & Muench (M&M) leveraged develop a targeted investment attraction strategy. its joint venture partnership with a company held by the Tianjin Strapped for any type of investment, they are eager Free Trade Zone Administrative Committee to develop the 40,000 to welcome all projects that have the capacity to enlarge square meter M&M Tianbao Asia Pacific their tax base. In the rare Logistics Center. According to M&M case that a development zone Bureaucratic hurdles still pose a Tianbao branch manager Jack Zhao, does attempt to implement the support of its government-backed regulations explicitly targeted major strain on companies’ time partner enabled M&M to obtain land at logistics investments, and resources, and developers are quickly, facilitating project development. national policy statements are shifting their projects away from Additionally, M&M has found that too vague to offer guidance for bureaucratic dealings in less developed local officials unfamiliar with urban centers and other densely western provinces have improved since the industry. invested areas in response. the central government instituted its “Go Meanwhile, some larger West” initiative encouraging companies development zones that do to move beyond the investment-saturated eastern coast. “Before offer incentives geared towards logistics firms, such 2000, renewing our permits each year involved lots of paperwork and as land discounts and tax rewards, fail to apply them might have taken 2 or 3 months. Now, we can complete the entire consistently. As soon as local governments become process online within a few days,” said Julian Zhong, chief of M&M sophisticated enough to establish differentiated Tianbao’s Urumqi Branch. investment policies, they are able to exercise greater Despite the inconsistencies that still plague China’s logistics discretion regarding the nature of investments they wish policy, there are some bright spots in the bigger picture. In general, to attract. More successful development zones tend market access for logistics firms has improved in recent years. “It’s to establish higher minimum capital and investment more an issue of finding a way to differentiate yourself from tough density requirements, which are designed to bar local competition than the government restricting entry,” said Justin low-return projects while targeting more lucrative Barrow, director of business development for Penske Logistics, ones. These requirements are problematic because a U.S. based 3PL. According to CBRE’s Hatherley, the central they tend to prioritize immediate gains, such as the government chose to deregulate the industry because it realized that increase in tax revenue generated by high-capital, highlower logistics costs could translate into efficiency gains for the entire density investments, over the long term advantages manufacturing sector. of a balanced, judicious growth strategy. Logistics Yet simply acknowledging the need for reform is not enough. infrastructure facilities, which generate little tax revenue Without more concerted action by the central government to ensure relative to the large plots of land they consume, face an local compliance with its policies, inefficiencies in China’s logistics automatic disadvantage under such requirements. industry will continue to impede the momentum of economic growth. Increasing land scarcity, especially in highly industrialized coastal regions, has only exacerbated the problem. In the past, local authorities might actively court a large multinational developer to invest in logistics infrastructure, hoping that the momentum from a big-name project might attract other firms to the area. However, this runoff from logistics investment has not materialized to the degree expected, and local governments have turned their attention more exclusively towards higher density investments. For instance, the Tianjin Technological-Economic Development Area (TEDA) sets a minimum investment density requirement of 500 USD per square meter for new logistics projects, which is slightly higher than the average development cost for a comparable facility in the region. A industrial park in Suzhou, a city which is attracting significant investment.
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SCMGADGETS
Cargo hauling scooters to offset gas prices? A new scooter concept by designer Elliot Ortiz - basically a moped with a hole in it - is designed to haul different types of cargo. While you might think Ortiz’s cargo scooter concept is craziness exemplified, mopeds are a good solution in many places across the world. They take up less road space than cars, are more environmentally friendly and are cheap to run. Scooter’s carrying big loads such as fridges and families are commonplace in China. One thing they lack is load-bearing abilities, and that’s what Elliot’s design is supposed to fix. It has a huge hole in the chassis which allows you to sling narrow loads inside. There’s even a DHL scooter concept in the gallery.
We’re not sure how close this concept is to realization, but we’re curious to know what you think.
If you have an opinion on this scooter concept, email us at: comment@supplychain.cn.
EXECUTIVETALK
Navigating the slippery slope:
Supply Risk Management (SRM) in China
With rising prices for energy, materials and labor, RMB appreciation, increasing factory operating costs, coupled with price pressure from competition and the customer, supply chains have added pressure to tighten efficiency and lower costs. As many companies rethink how they structure their Chinese operations into their overall global supply chain strategy, Supply Risk Management (SRM) is one process that is being recognized as a key success factor. In this interview, CHaINA Magazine spoke to Duane Bolinger, Managing Director of BBK Shanghai, a consultancy which provides companies with strategies to manage supplier and sourcing risk. He has over 30 years of experience in variety of senior management roles in the automotive sector, much of it in Asia Pacific region. What is Supply Risk Management? Duane Bolinger: SRM is an active, costeffective and focused process that proactively monitors and validates the financial and operational viability of a supply base, through the gathering and analysis of internal and external data and then implementing prompt measures to minimize risk within the supply chain. At the same time SRM provides a solid process to effectively manage undetected supply base risk
identified early allows time to work with the supplier to fix the problem or look to a new source to protect the customer from substantial revenue loss due to production interruptions or delays. A customer needs to evaluate its suppliers’ financial and operational challenges both prior to awarding the contract and on a regular basis thereafter. This requires understanding aspects of the supplier’s business that they might be hesitant to share, such as profitability levels. No SRM process is identical – each OEM/Tier 1 must implement a process consistent with its culture and corporate governance
ownership structures.
What are BBK’s observations of suppliers in China? DB: When reviewing the financial condition of existing suppliers in China, many customers with diligent SRM procedures have found that historical financial statements are less precise than North American or European equivalents. At the same time, many China suppliers have an overly optimistic view of their financial and operational capabilities. They often Do many companies in China use SRM or underestimate launch costs, working capital similar risk management strategies? requirements and capital expenditure needs. There is also a tendency to ignore DB: A recent Amcham study on labor and commodity price inflation manufacturing competitiveness, when developing business cases for a found that a majority of companies program bid. This can create risk within surveyed lack fundamental best a customers supply base on a post practices, such as Six Sigma and sourcing basis if potential pitfalls are Supply Risk Management, in their not understood and incorporated in the China operations. This appeared customer’s SRM process. common across all industries, Understanding the implications of computer, automotive, electrical quality shortfalls is also paramount equipment, industrial equipment, and when sourcing out of China into North chemical to name a few. America or Europe, or anywhere where shipping distances are significant. Most Who should have a strong SRM automotive component part shipments process? take 7 to 11 weeks to reach their DB: SRM is critical for companies FOB destination such as an overseas with the potential for supplier warehouse facility where safety stock problems that could affect requirements mean inventory can performance and delivery and for Duane Bolinger (left) Managing Director, BBK Shanghai remain another 1 to 3 weeks before companies who have an inability meeting a client final shipment. to source from another supplier to prevent What are some unique issues affecting With 8 to 14 weeks before the customer disruption. This may be due to suppliers with suppliers in China? takes delivery and payment terms ranging proprietary processes, the need to move DB: In China, automotive exports have from 4 to 6 weeks, a supplier might have customer owned tooling or simply the time to finance 12 to 20 weeks of sales. An necessary to contract with a new supplier. This increased significantly as American and European manufacturers take advantage of undiscovered quality issue can result in dead is particularly true when sourcing automotive China’s increasingly capable supply base to inventory in the pipeline and necessitate air and similar components where the customer provide quality parts at competitive costs. freight. Then depending on how much of is dependent on customized product being Expansion of sourcing activities for both the inventory is dead, the supplier can face received into just in time inventory systems. domestic consumption and export has created months of expedited costs and be subject the need to qualify the China supply base in to customer containment and quality review How does an SRM process deliver value? terms of financial viability prior to the initial costs. These are expenses the supplier may DB: An effective SRM process can identify sourcing decision. This is especially true be unable to afford, so maintaining quality is potential problems early on when more cost when many potential suppliers have untested vital. effective options are available. A problem capabilities and difficult to understand www.chainaonline.com
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NEWSROUNDUP
The Big Picture News relevant to business in China
CSR / GREEN Coke says two-thirds of China suppliers fail audits Coca-Cola, a major sponsor of the Beijing Olympics, said recently two-thirds of its suppliers in China last year were not compliant with company policies on things like workers’ rights and the environment. The soft drink giant said it had training and other remediation targets to bring errant suppliers up to standards, arguing in its 2007 Sustainability Report that working with them was better than cutting them off. Coke said 255 of the 371 Chinese suppliers it uses for things like packaging, ingredients and premiums, failed to comply in one way or another with a set of principles the company implemented in 2003 to promote respect for labour rights among its business partners globally. Forty-eight suppliers were labelled “significantly” non-compliant and viewed collectively as a “critical risk to operations,” 144 were categorised as “moderately” non-compliant with issues like systemic wage or overtime violations or blocked emergency exits, and 63 were in “minor” non-compliance. Coke says its network in China includes more than 10,000 distributors, 65,000 wholesalers and 1.5 million customers who sell its products to consumers. - Reuters
FOOD&PRODUCT SAFETY Intertek opens innovative food testing laboratory in beijing Intertek, the leading international provider in quality and safety services, opened a new, innovative food testing laboratory in the southwest area of Beijing, China to offer an array of services to manufacturers, distributors, and retailers who produce, import, buy and sell food products in Beijing and Northern China. The new facility will offer a multitude of testing services that help customers to ensure food quality and safety throughout the supply chain - from the farm to the fork. Services offered include time-sensitive testing on food samples, and other expert services and support. In the long term, the lab will support ongoing growth in the supply and sourcing of food products in China and surrounding Asian markets.
GO WEST Chongqing government opens up transport facilities to foreign investors The Chongqing government will host a three-day logistics infrastructure mission this autumn. This fact-finding visit, to be held 2023 October 2008, is aimed at showcasing
Chongqing is hosting a fact finding visit from 20-23 October
the city’s fast developing transport infrastructure to foreign manufacturers, third-party logistics companies, shipping lines and investors in transport facilities. Delegates will be able to inspect the city’s major transport facilities such as Cuntan and Wanzhou container terminals, the rail hub and air cargo logistics park, and visit the Three Gorges Dam shiplocks, a major shipping bottleneck along the Yangtze River. As more and more foreign manufacturers consider shifting plants to less expensive cities in the interior, the visit will also help companies evaluate Chongqing’s overall investment environment by visiting FIEs already located in the city.
LEGAL China makes Wal-Mart toe the labor line
253 of Coke’s 371 Chinese suppliers failed CSR audits
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Wal-Mart Stores (WMT) may stiff-arm unions in the U.S., but not in China. The giant retailer has just signed a new collective bargaining deal with the All China Federation of Trade Unions, the government-controlled union representing Wal-Mart’s Chinese workers. Under the agreement, which for now only covers two Chinese cities (Quanzhou in the southeastern province of Fujian and Shenyang in China’s northeast), Wal-Mart employees will get 8% pay raises this year and next. The deal is a victory for the government, which successfully forced Wal-Mart to unionize its 48,000 local employees in 2006. It’s also a sign that employers in China, both local and foreign, are starting to take labor, safety and environmental issues more seriously. www.chainaonline.com
NEWSROUNDUP
NUMBERS China’s banks reap hefty profits While most sectors and businesses are feeling the pinch of tough times, China’s banks are rolling in high profits. Shanghai Pudong Development Bank Co, partly owned by Citigroup Inc., reported its first half net profit soared 6.38 billion yuan (about 933 million U.S. dollars), up 149.62 percent from the same period a year earlier. Similarly, first-half year net profit for Shanghai-listed China Merchants Bank was 13.245 billion yuan (1.928billion U.S. dollars), up 116.42 percent year-on-year The surge in profits at the banks came on increasing loan, lower corporate income tax rate, and greater fee income, the mid-sized lender said in its half-year report. Sinopec expects net profit to fall 50% in first half year Sinopec, the country’s leading oil refiner, said on Thursday its net profit in the first half of the year was expected to decline by more than 50 percent. The company attributed the drop to big losses in its refining business. Chen Ge, a Sinopec official, said earlier that Sinopec lost about 3,000 yuan for each ton of production, due to the sharp gap in oil
Sinopec is losing money despite high fuel prices
prices on world and domestic markets. The situation became even worse as the world oil price continues to stay at a high level. The crude oil price topped 110 U.S. dollars per barrel in March, exceeding 120 U.S. dollars in May and has hovered around 140 U.S. dollars. Despite the 7.4 billion yuan of subsidy provided by the central government this year, the company saw its net profit reduced 65.78percent in the first quarter over the same period last year. China imports nearly 50% more motor vehicles in first 7 months China’s auto imports grew faster in the first seven months of this year, as
world auto giants turned to the Chinese market after the U.S. economic slump and rocketing oil prices drove sales down on U.S. and European markets, the General Administration of Customs said. Domestic demand for large-engine vehicles also strengthened as many people bought in advance of a consumption tax hike that is due to take effective on September 1, the administration added. Between January and July, China imported 247,000 motor vehicles, a growth of some 48 percent on the same period of last year. The growth rate was 14.6 percentage points higher than the year-earlier level. Most of the imports were luxury cars.
Legal Notice
If you purchased Air Cargo Shipping Services within, to or from either the United States or Canada from January 1, 2000 to September 11, 2006, your rights could be affected by a Settlement What are the Settlements about? Plaintiffs claim that Deutsche Lufthansa AG, Lufthansa Cargo AG and Swiss International Air Lines Ltd., along with numerous other air cargo carriers, conspired to fix the prices of air cargo shipping services in violation of U.S. antitrust laws and Canadian competition law. The Settlements provide an $85 million U.S. Fund to pay valid class member claims, and $5.338 million USD Canadian Fund that Canadian Class Counsel will request to have held in trust for future benefit of the Canadian classes. Who is a Class Member? You are a class member if you purchased air cargo shipping services, from ANY cargo carrier, for shipments within, to or from either the United States or Canada. This also includes services purchased through freight forwarders. All you need to know is in the Notice of Proposed Settlement, including information on who is or is not a class member. How do I get Payment in the U.S. Settlement? You must file a Claim Form. To obtain a Claim Form, and for information on deadlines, call the number below or visit www.aircargosettlement.com. What are my rights? If you do NOT want to take part in the U.S. Settlement or the Canadian Settlement, you have the right to “opt out.” To “opt out”
1.866.249.1588 1.941.906.4822
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of the U.S. or Canadian Settlements, you must do so by November 12, 2008. Class members have the right to object to the U.S. or Canadian Settlements. If you object, you must do so by November 12, 2008. You may speak to your own attorney at your own expense for help. For more information on how to “opt out” or object, visit www.aircargosettlement.com or call the number below. Final Approval Hearings to consider approval of the U.S. and Canadian Settlements and requests by the lawyers for attorneys’ fees and costs will be held at the United States District Court for the Eastern District of New York on December 12, 2008; the Ontario Superior Court of Justice on January 28, 2009; the Québec Superior Court on March 9-10, 2009; and at the Supreme Court of British Columbia on February 27, 2009. For more information on the locations and times of the Hearings, visit www.aircargosettlement.com, or call the number below. This is a Summary, where can I get more information? You can get complete Settlement information, including a copy of the full Notice of Proposed Settlement and U.S. Claim Form, and register to receive updates about the administration of the Canadian Settlement, by visiting www.aircargosettlement.com, calling the number below, or writing to Air Cargo Settlement, c/o The Garden City Group, Inc., P.O. Box 9162, Dublin, OH 43017-4162, USA.
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Supply Chain Management Relevant supply chain management news
RESEARCH & DEVELOPPMENT Pirelli joining with researchers in China to pursue ‘green’ low rolling resistance tires Pirelli is participating in an international research program aimed at developing a new generation of ecologically-friendly tires with the Silvio Tronchetti Provera Foundation and the University of Shandong in Jinan in China. The university researchers will work in cooperation with the R&D department of the Pirelli Group in China to produce low rolling resistance tires designed to help reduce a vehicle’s fuel consumption. These efforts are a continuation of Pirelli’s continuing goal of creating more “eco-compatible” tires, such as the company’s Cinturato, which was introduced in Europe earlier this year as its new “green” tire. The agreement between the Italian company and the Chinese university also includes two joint research initiatives with respective goals of realizing more consistent compound mixtures and studying low-temperature tire vulcanization. Pirelli has had a large industrial presence in Shandong for three years, producing tires for cars and industrial vehicles in the Yanzhou area through a $200 million investment endeavor that employs some 2,000 people. - Reported by ChinaTechNews
SOURCING
percent. China’s industry is reeling from an 18 percent rise in the value of its currency since 2005, as well as higher costs of labour, fuel, electricity and chemicals, along with a cut in domestic tax rebates, official moves to slow the economy, and pollution curbs. Labour costs in China are now double those in Indonesia, Vietnam, Pakistan and Cambodia, while labour costs in Bangladesh are only one-quarter those of China, said Yung. - Reuters Greater China VoIP suppliers moving upmarket Fifty-nine percent of Greater China’s VoIP phone manufacturers plan to increase export prices, according to Global Sources’ latest China Sourcing Report reversing the trend noted in the 2007 Report which showed 68 percent planned to decrease export quotes. Despite price increases, the majority of surveyed suppliers expect export sales to continue growing. “Fierce competition has driven half of Greater China’s VoIP phone manufacturers out of business over the past two years, especially those who relied mainly on competitive pricing to gain orders,” said Publisher of the report, Mark A. Saunderson. “Survivors in the industry have learned that they need to move upmarket to maintain profit margins,” Saunderson said. “This is good news for buyers who can expect to find higher end models with more value-added features coming out of Greater China.” - Xinhua PR Newswire
China’s VoIP phone manufacturers are raising margins to stay alive
China buys, Woolworth passes inflation onto consumer In Australia, Woolworths has extended its lead in the supermarket wars with Coles, reporting another huge jump in profits driven by lower costs and greater supply chain efficiencies reports the Herald Sun. Cutting expenses in an inflationary environment, the company added 28% to its half-year bottom line. It sounds like Woolworths’ managers are doing something right, if only by passing rising prices onto consumers. How long can Woolworths tighten its belt before customers complain or walk away is another issue. - By Al Robinson
Chinese textiles losing cost edge China’s textile industry, after surging to domination of world markets is losing its competitive advantage and some lowend operations are moving to emerging producers, said Leo Yung, director of Central Textiles (HK) Ltd. “Currently China is rapidly losing competitive advantage in costs to other Asian countries such as Bangladesh, Vietnam and India,” Yung told the Australian Cotton Conference recently. More than 70 percent of world cotton is now consumed in Asian countries, with China holding a dominant share of 42 20
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Woolworths profits are up despite inflationary times
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China to Top U.S.A In Manufacturing New projections indicate a weak dollar, failing trade agreements and an economy flirting with a recession will permit China to overtake the U.S. as the world’s leading manufacturer four years earlier than previously predicted. In an analysis undertaken for the U.K.’s Financial Times, Global Insight, a U.S. economics consulting agency, found China will account for 17 percent of manufacturing value added output and the U.S. will account for 16 percent. Such numbers indicate a steep drop from last year where the U.S. easily dominated, holding 20 percent of the world’s total manufacturing and China placed a distant second at just over 13 percent. News of China’s explosive growth in manufacturing has some economists fearing the impact the loss of U.S. dominance will have on a weakening economy. “There’s ample reason to believe that America’s loss of relative position in global manufacturing will result in steadily weakening absolute performance,” said Alan Tonelson, senior research fellow at the U.S. Business Council (USBIC).
MANUFACTURING
Diebold optimistic about growth in China With the closing of a U.S. manufacturing hub, withdrawal from one European market and consolidation of operations and services throughout the world, the world’s third-largest ATM manufacturer says it’s expecting 2008 to end on a high financial note. Tom Swidarski, Diebold’s president and chief executive, said the cuts are part of the company’s plans to reduce its global workforce by 5 percent (800 jobs) by the end of the year. Over the next several months, Diebold will move production of its Opteva line from Lexington, N.C., to Shanghai, China, and Hungary, where Diebold already has production facilities that manufacture financial self-service products.
signed a letter of intent recently to form a 50-50 truck joint venture. The JV will sell medium and heavy-duty trucks in China and in overseas markets under Foton’s Auman brand, the two companies said in a statement. “Construction, logistics and long-range hauling are all industries which continue to expand in China and internationally, and which will need reliable, high-quality, lowerend trucks,” Wendelin Wolbert, president of Daimler Trucks China, said in the statement. “This new joint venture will be the first SinoEuropean commercial vehicle operation with an aim to expand production in international markets,” Wang Jinyu, president of Foton, said.
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Chi Mei keeps LCD output plan, Vietnam plant on hold
South China car maker to raise production capacity FAW Haima Automobile Co. Ltd., a car maker in south China’s Hainan Province, began construction of a third factory which will double the company’s annual production capacity of 150,000 cars. Covering an area of 55.3 hectares, the factory’s production will include 150,000 cars and 200,000 sets of gearboxes annually upon completion in 2010. The company, with headquarters in
Daimler, Beiqi Foton agree in principle on truck JV Daimler AG, the world’s leading truck manufacturer, and Beiqi Foton, a major Chinese commercial vehicle company,
Haikou, the provincial capital of Hainan, sold 131,000 cars last year, up 62 percent from 2006, and is hoping to sell 180,000 cars this year. - Xinhua -
Chi Mei Optoelectronics Corp, Taiwan’s No.2 LCD maker, said its plans to reduce output in an industry downturn remain unchanged, and it has suspended a plan to build an LCD module factory in Vietnam. Two weeks ago, Chi Mei said it would follow the lead of several peers, such as AU Optronics Corp, and cut its output in the third quarter by about 15 percent from the second quarter after demand for PCs and flat-screen TVs slowed. This news comes despite signals that the display market could have hit a bottom in July and demand is picking up this month. - Reuters
FAW Haima is doubling production capacity
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NEWSROUNDUP Chinalco titanium plant JV approved Chinalco, the parent of listed Aluminum Corp of China Ltd, said it has won approval from the National Development and Reform Commission (NDRC) - China’s top economic planning agency - to set up a joint venture titanium plant in the northeastern city of Harbin with UK-based Aricom Plc. Chinalco said in a statement published on the State-owned Assets Supervision and Administration Commission that the first phase of the project will yield annual capacity of 15,000 tons. Total investment is projected at 2.2 billion yuan ($322 million). The plant is expected to be operational by 2010. Seeking Closer Shores Steadily rising costs are forcing U.S. businesses to rethink a core tenet of their corporate strategies - the assumption that profits are always higher on the other side of the world. The switch from off-shoring to “insourcing” or “near-shoring” - bringing production closer to end-consumers and shortening transportation networks to cut fuel and transport costs - is still more in its early stages. But in the long-term, the trend could have enormous implications for the shippers, logistics providers, forwarders and transport operators responsible for managing global supply networks. Experts say it’s not likely to bring much manufacturing back to the United States. Instead, higher costs and price volatility may make global trade even more global, and local, by forcing companies to fragment supply chains to source from multiple markets and serve consumers in regions worldwide. “I could say the supply chain design is now upside down,” Procter & Gamble’s head of global supply, Keith Harrison, told The Financial Times in June. “The environment
Chinalco is setting up a J.V. with U.K. based Aricom Plc
has changed. Transportation cost is going to create an even more distributed sourcing network than we would ave had otherwise.” Linpac Pakaging opens its first production plant in China LINPAC Packaging, a division of leading UK-based packaging and supply chain specialist LINPAC Group Limited, has opened a new factory in China. The new facility complements the three existing LINPAC Viscount factories in the People’s Republic. LINPAC has invested substantially in a modern production plant at Changzhou in Jiangsu province, about 150km from Shanghai, where it will be manufacturing high quality PVC stretch wrap film for food packaging. Employing 60 permanent staff, the facility has been purpose-built on a 20 000 sq metre site, with the capacity for extension to 50 000 sq metres if required. It was officially opened on 12 June 2008. Another LINPAC Group division, LINPAC Viscount, has manufacturing operations for plastic pails and containers at Changzhou, Guangzhou and Langfang in China, as well as at locations in Malaysia and Thailand.
LOGISTICS Baosteel to construct coal supply chain in East China China Securities Journal reported that Baosteel has held a conference with officials from coal mines, railways, ports, ocean shipping etc in Jiangsu’s Lianyungang in East China for setting up a coal supply chain in the region Baosteel has revealed that its coal contract fulfillment rate decreased this year due to natural disasters, strained railway transport, priority of thermal coal transportation and grain transport from southern regions to the northern ones. Coal miners promised at the conference that they would support Baosteel in terms of coking coal and would raise contract fulfillment rate to ensure BaoSteel’s coal supply. Hacis welcomes CEVA Logistics (Hong Kong) Limited Hong Kong Air Cargo Industry Services Limited (Hacis) recently welcomed CEVA Logistics (Hong Kong) Limited as its new
Linpac Packaging will be making more PVC stretch wrap film in China
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customer of Airport Direct Export Service. A contract signing ceremony between CEVA and Hacis was held at SuperTerminal 1 on 28 July 2008. Hacis is appointed to be the service provider to handle export cargo operations for CEVA, a leading global supply chain management company. The scope of service includes physical cargo handling, warehousing of export cargo and tendering of export cargo to cargo terminals. Hacis commenced operations with CEVA in August 2008. UPS looks to China for M&A Top global logistics firm United Parcel Service hopes to buy a firm in China and boost staff there in coming years. Trying to drive growth beyond a U.S. market that accounts for more than half its revenue, UPS will be opening two $180 million transport hubs in China and wants to nearly quadruple its staffing there in the next few years, hoping to serve growing demand for delivery services within a relatively untapped market. Shares in TNT, Europe’s No. 2 mail and logistics firm, leapt more than 6 percent on Monday after a Sunday Telegraph report that UPS was planning a 10 billion euro ($15.2
CEVA Logistics recently became a customer of Hong Kong Air Cargo Industry Services Limited (Hacis) Rongsheng Shipbuilding and Heavy Industries will build 12 large ore carriers for Companhia Vale do Rio Doce (Vale)
billion) bid. UPS has doubled its headcount in China over the past 18 months to around 5,300, but expects that number to increase by at least 1,000 annually over the next 3-4 years, said Dan Brutto, the president of the company’s international business. It’s now looking for acquisitions within the world’s fourth largest economy, despite fears that Chinese growth will taper off over 2008 and 2009.
Brazil, China sign shipbuilding agreement Have Pict Brazilian mining giant Companhia Vale do Rio Doce (Vale) signed a 1.6 billion U.S. dollars agreement with Chinese Rongsheng Shipbuilding and Heavy Industries to build 12 large ore carriers, Vale announced Monday. The ships, each with a 400,000 deadweight tons capacity, are the largest ore carriers
Transport costs could alter world trade On the high seas, giant vessels stuffed with furniture, toys and electronics are slowing down in a bid to conserve fuel. Customers are pulling packages from costly air shipments and sending them by ship instead. And some are beginning to wonder what an era of persistently high oil prices will mean for the multinational corporations that have come to rely on globe-girdling supply chains. The end of cheap oil heralds a potentially dramatic reshaping of the globalized trade flows that have emerged in the past two decades. Rising transport costs are suddenly a key factor in decisions about both where to place factories and how much inventory to stockpile. For now, the trend seems to favor the United States. Swedish furniture maker Ikea opened a new plant in Virginia. Midwestern steelmakers are thriving. And consumer products giant Procter & Gamble is considering new distribution centers. All, some say, because the cost of moving things from far-away places is beginning to trump the savings involved in using far-away, low-wage workers. “Globalization is reversible,” says Jeff Rubin, an analyst at CIBC World Markets in Toronto.
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NEWSROUNDUP to be built in the world. The fleet will have an estimated capacity to carry 30.2 million metric tons of iron ore per year, which represents 31 percent of Vale’s shipments to China in 2007. According to Vale, the new ships have high safety standards and will reduce the high cost of long haul maritime transportation of iron ore to steelmakers. The first of the carriers is due to be ready in early 2010, while all 12 carriers should be ready by 2012. The fleet will be part of Vale’s BrazilAsia shuttle service, which currently has six large ore carriers. - Xinhua Yatfai Logistics Group inks deal with DSM Plastics Engineering (Jiangsu) Limited Third party logistics player, Yatfai Logistics Group, recently announced the signing of a major logistics outsourcing service agreement with DSM Plastics Engineering (Jiangsu) Limited, representing a major step forward for Yatfai in the Chinese logistics market. The agreement, which was signed in June 2008, will see Yatfai providing a wide range of services for DSM including the physical handling of raw material and finished goods, order processing and lot management among other services. The signing of this contract is a big milestone for the company in winning more value-added service business, an area set to grow exponentially in China given the push towards optimizing operations and creating greater efficiencies in the face of an economic slowdown. “We are very proud to have established a strategic partnership with DSM. It is in line with our corporate vision and mission and a great step for Yatfai in moving towards becoming a professional third party logistics service provider” said CEO Chen Ting.
RETAIL Higher food prices not hitting margins for McDonald’s McDonald’s revenue has risen fourfold in the past five years and China’s contribution to global revenue has doubled, said Tim Fenton, McDonald’s President for Asia Pacific, Middle East and Africa. Fenton declined to give specific revenue figures. McDonald’s will open at least 125 new stores in China this year, bringing its total in the country to 1,000. The company intends to open at least 150 new stores next year, and will keep the rate of growth in China stores around 15% per year going forward, said China Chief Executive Jeffrey Schwartz. McDonald’s has raised menu prices in China twice this year, by a total of just over 5%, Schwartz said. That is not nearly enough to compensate for food inflation of more than 20%, but profit margins in China are still rising, Fenton said. That is because comparable store sales have risen at “double-digit rates” for two years in a row, and because McDonald’s is only now beginning to use its China supply chain at full capacity, he said.
Adidas aims to open 6,300 stores in China by 2010 and will grow sales to 1 bln Euros
Adidas says Olympics may boost China sales to 1 billion Euros Adidas AG, the outfitter of China and 15 other teams at the Beijing Olympic Games, forecasts sales in the world’s most populous nation will top 1 billion euros ($1.55 billion) in two years. The company, which last month opened its largest global store in Beijing’s premier dining district, is the biggest sportswear brand in China and counts the country as its second- biggest sales market after the U.S., said Chairman Herbert Hainer. Emerging markets including China and India are increasingly important for the world’s second-largest maker of sports gear, after the dollar’s decline and the U.S. economic slowdown crimped second-quarter North American sales 20 percent. Adidas may open 6,300 stores in China by the end of 2010, compared with 5,000 at the end of 2008 and 4,000 in 2007, its China retail vice president Frederic Seiller said. The company competes in China for market share with larger rival Nike Inc. and local retailer Li Ning Co. - By Eugene Tang, Bloomberg Li & Fung pays $330 mln for U.S. handbag importer
China’s contribution to McDonalds global revenue has doubled in the past 5 years
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U.S.-focused consumer goods exporter Li & Fung will pay $330 million to buy U.S. handbag importer Van Zeeland to become a leading handbag supplier in the United States. Li & Fung, which counts U.S. retail behemoths Wal-Mart Stores Inc. and Target among its clients, is ramping up acquisitions as it grows its proprietary brands businesses, and seeks to hit a turnover target of $20 billion by 2010, up from roughly $12 billion now. New York-based Van Zeeland is a leading importer of mid-tier and department store www.chainaonline.com
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Beijing orders online shops to get business licence from August 1
A B. Makowsky handbag, one of the labels acquired by Li & Fung in its recent acquisition of U.S. handbag importer, Van Zeeland
handbag brands including its flagship labels Kathy Van Zeeland Handbags, B. Makowsky and Tignanello which are sold at Macy’s and JC Penny, among other locations. Li & Fung -- which sources everything from toys to clothes to beauty products-said the deal will significantly strengthen its presence in the fashion accessories market. Li & Fung also announced it has inked deals to acquire the buying offices of toy retailer Toys R Us, and apparel brand Timberland, as increasing numbers of firms look to outsource their sourcing arms to cut costs. www.chainaonline.com
Online businesses which make a profit in Beijing will be subject to the government’s business-license regulation from August 1, which would make the national capital the first to pilot the e-commerce regulation in China. Online taxpayers are defined as those shops with online registration based in Beijing and making profits through Internet sales. Beijing’s new regulation excepted those online shops selling or exchanging personal use items from the real-name business registration. China’s e-commerce has been on a fast track in recent years. Leading e-commerce portal Taobao.com saw transactions rise to 43.3 billion yuan (6.3
billion U.S. dollars) in 2007. - Xinhua IKEA heads to Nanjing IKEA has opened a new store in Nanjing. The USD54m investment covers 60,000 square metres, including three complete homes, Nanjing Daily reports. The store in Nanjing is the Swedish furniture maker’s sixth in China, and features 65 sample rooms, three complete homes, 6,000 products and a restaurant. IKEA said it has invested USD54m in the new site and expects a yearly revenue of RMB440m. The company announced it will open new stores in Dalian and Shenyang, and a second outlet in Shanghai in the “near future”.
Ikea’s new Nanjing store is its sixth in China SEPTEMBER/OCTOBER 2008
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Industrial Property PCH International warehouses at Mapletree Yangshan Bonded Logistics Park PCH International, held the opening of their first warehousing facilities in Shanghai at Mapletree Yangshan Bonded Logistics Park on 18 August 2008. The successful opening was attended by the Irish Ambassador Declan Kelleher, their customer - Grafton Plc, Yangshan and Lingang Group officials, along with representatives from the landlord, Mapletree. Mapletree’s Yangshan Bonded Park was their chosen location for a massive warehouse facility, part of a cooperation agreement with Irish and UK company Grafton Plc (a USD$5 billion building and plumbing supply company) to set up a logistics and fulfillment hub to allow Grafton plc to source and supply products directly from Chinese manufacturers to their retail operations in the UK, Ireland and mainland Europe.
High Tech
China’s cell phone sales predicted to grow 17.6% for 2008
China’s Gasgoo.com in talks on stake sale to IDG
China, the world’s largest cell phone exporter, is expected to maintain momentum in both production and marketing of mobile phones in the remaining of this year, said CCID Consulting, an IT industry consulting company. The company predicted that China would produce 605 million cell phones for the whole of 2008, a growth of 16.9 percent over last year, and sell 205 million at home, up 17.55 percent. The foreign sales would amount to 400 million units, up 16.79 percent. Nokia,
Gasgoo.com, a Chinese business-tobusiness e-commerce startup specialising in auto parts sourcing, is in initial talks with IDG Ventures and several other potential investors to sell as much as a 20 percent stake, its president said on Tuesday. Other firms that have expressed an interest in the firm include the investment arms of Japan’s Softbank Corp and Lenovo Group Ltd, the world’s No.4 PC maker. Gasgoo.com, 60 percent controlled by Chery Automobile, China’s fourth-largest car maker, started to offer auto parts sourcing services in early 2007, linking global industry giants to hundreds of Chinese parts suppliers. “China only supplies about 3 percent of global auto parts sourcing needs currently. The ratio will be significant higher in the coming years.” - Reuters
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Samsung and Motorola claimed nearly two thirds of the Chinese cell phone market, with the Finnish company Nokia taking a 41.02 percent share.
India China’s loss can be India’s gain in textile market A fall in the export of textile and apparel from China to the United States during January-June, even as the value of India’s shipments remained unchanged, is sparking hopes of a shift in US orders from the world’s most populous nation to this country. India, Vietnam, Cambodia and Bangladesh are among the few countries whose exports of textile and apparel to the US rose during the first six months of 2008 while the world’s biggest economy goes through a downturn. Official US statistics show that the country imported textiles and apparel worth www.chainaonline.com
NEWSROUNDUP $24.37 billion during Jan-June 2008, a 5.1% drop compared to $25.7 billion in the corresponding year-ago period. From 2004 to 2007, the country’s imports rose from $ 46.93 billion to $ 53.12 billion. India’s exports to the US in the first six months this year remained barely changed at $1.42 billion from $1.41 billion while Vietnam’s grew to $824 million from $668 million. Bangladesh’s shipments went up to $832 million from $811 million. The value of Chinese textile exports, on the other hand, fell from $9.7 billion to $9.5 billion, while Pakistan was down to $1.42 billion ($1.68 billion) and Sri Lanka $201 million ($245 million). Turkey clocked exports of $264 million from $313 million in the first six months of 2007.
Vietnam Is Vietnam the next China? Despite inflation of 25% and recent worries of a looming financial crisis, Vietnam is the new poster child for global sourcing. For the past decade, the former Cold War hotspot has produced annual GDP growth of 7.5%. Intel Corp. is among the latest arrivals, investing $1 billion in a semiconductor factory near the capital, Hanoi. “Vietnam is a great place for sourcing,” says Robert Gladden of Deerfield-based private-equity firm Pfingsten Partners LLC, who for the past 10 years has tapped that
country as well as China, Taiwan and India. “You’ve got a hardworking workforce that produces excellent quality and spectacular pricing.” Mr. Gladden points to his experience sourcing marine antennas from a factory in Bac Giang, a province in the Red River Delta between Hanoi and Haiphong Harbor. He had been using a South Korean supplier, but the move to Vietnam improved profit margins by “20% or more,” he says. The attraction of Vietnam is obvious. Aside from abundant cheap labor, there is the rapidly improving infrastructure — roads, rails and harbors — necessary for moving product in, out and around the country. There also are the two decades of “Doi Moi” (New Changes) reforms, which have given Vietnam one of the world’s most open economies. All that free enterprise (bilateral trade with the U.S., for example, has grown from almost nothing in 1994 to $10.6 billion last year) has helped boost living standards. The proportion of households with electricity is 94% — double what it was two decades ago. Nearly all children attend primary school, and the country’s literacy rate is higher than 90%. But Vietnam is not the next China. And it never will be. China’s population — the engine of its growth — is 15 times bigger than Vietnam’s. Nor does the country have the raw materials or skilled workers to compete with its gargantuan neighbor.Still, for many
manufacturing companies looking to source a limited number of products, Vietnam is a viable option. - By Thomas Mucha -
Despite the hype, Vietnam is still no match for China
China Focuses on Developing Nations With all the concern in most Western countries about off shoring to China, product quality/safety issues, etc., many are overlooking China’s growing economic focus on and trade ties with developing nations. Perhaps surprisingly, China actually exports about the same level of goods to developing nations as it does to industrialized ones, as shown in the graphic below; it also imports substantially more from those countries than industrial economies. Some believe this strategy of courting developing countries for trade and the resulting reduction in China’s reliance on developed economies for exports is a key factor in why China was content to let the Doha global trade agreement talks die last week in Geneva. (See Doha Trade Agreement Looks Dead, After Seven Years of Efforts.) “China’s trade with other emerging markets -- from Asian neighbors like Indonesia and Malaysia to the Persian Gulf and Africa -- has been booming, even as its exports to the U.S. have slowed sharply this year,” the Wall Street Journal says. “China has been particularly active in developing economic ties with Africa, with its companies building infrastructure projects there and striking large mining deals.”
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An investor walks past the price monitor at a private securities company in Shanghai, June 2008. The Shanghai Stock Exchange’s Composite Index has lost over 50% over the past year. With inflation hitting a 12 year high several months ago, GDP growth slowing and exports decreasing, all signs point to a Chinese slowdown. 28
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COVERSTORY
Managing through the lean times
F
or this feature, we did a brief survey among executives working in manufacturing, sourcing, retail, consulting and other sectors in China about their thoughts on rising costs in China and how they are coping in an inflationary, recessionary environment. We asked companies three questions: are you feeling increasing inflationary or cost pressure in your business and if so, what type; how are you coping with added costs and are you seeing any impact from a US or Global recession? By Russel Beron
For most companies, cost pressures are being felt from all sides. The phrase “perfect storm,” comes up in most discussions to describe the current environment: rising labour costs, export rebate cuts, increasing commodity and energy costs, record oil prices, coupled with RMB appreciation and an impending U.S. Recession. The silver lining to the cloud is that companies are forced to look for efficiency in their operations and lean times are the opportune time for supply chain management to shine. China’s economy is still growing unabated, at a rate of 10.1% for the three months ending June 30th. While this is a decline from the previous quarter of 10.6% it still makes China one of the fastest growing global economies. Where pressure is coming to bear is on average Chinese who are facing rising costs in food, housing and other daily living costs. The government has been trying for the past year to rein in these costs. Officially, the CPI rose 6.3 per cent in July, down from 7.1 per cent in June and 7.7 per cent in May. According to Phillip J. Hatch, CEO of Ventoro, a consultancy which helps companies in the West offshore their operations, payroll costs have had to increase to reflect rising living costs: “Internally, our employees are coming back to us with requests for pay raises as they struggle to cope with their growing living costs- this increase in our payroll cost has had an impact on our bottom line.” Official inflation has hovered in the 7% range, down from above 8% earlier this year which represented a 12 year high. Of course you need to take into www.chainaonline.com
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account government controls, which mean official rates are artificially low. RMB appreciation is continuing at an unrelenting pace and is having a domino effect outside mainland China. “In Hong Kong, we are facing imported inflation as the HK dollar and US dollar are linked. The appreciation of the RMB is pushing up the CPI
“In Hong Kong, we are facing imported inflation as the HK dollar and US dollar are linked. The appreciation of the RMB is pushing up the CPI and is reflecting on labor costs and profit margins.” David Au, INTTRA and is reflecting on labor costs and profit margins,” said David Au, General Manager, Hong Kong and South China, INTTRA. Rising costs When we asked companies if sthey areisexperiencing cheap even dumbercost wh pressure, the response was almost unanimous among co t re igh ” T m kins manufacturers, retailers, consultants service Al and h other h providers. “Cost is definitely increasing mainly due to the d f a a o in increase in fuel costs. The intense competition and slowdown in upply cha n decisio s, o servers GDP growth in China has affected most businesses and passing agr eDue the to price oil stomost on cost to consumers is difficult. theoneed clearc high inventory most major carwatched makersby in shippers China are providing of nergy purchase incentives to consumershe in rising order cost to spur sales,”i said Teo Aeng Kyet, Head of pling China hroughout Business Proton the ma a large factu Malaysian car manufacturer. Salary and labour costs, pushed Murp up y in response to consumer goods price increases, are one key cost driver O he pri f oi many companies have identified as an ongoing issue. “As a j t gh y, v la il services company that is operating in a very competitive labour eople are wai ing o seethe w market with limited supply, salary cost is where we feel happens with energ , said Ke n most inflationary pressure,” said Damon R Paling a partner at withinthe barrelPricewaterhouseCoopers based Shanghai
for more than a 48 hour period,” Chemical and plastics companies such as Grace, heavily reliant on oil are feeling the pressure: “Most of our raw materials are derivatives of crude oil or natural gas, crude oil price almost doubled from early 2007,” said JP Sexton, an executive at Grace. Food prices for most products have also risen as consumer goods manufacturers such as yoghurt maker Danone feel the pinch. Terence Tiew of Danone noted that “The cost of raw materials (like flour, palm oil, dairy products, etc. ) and packing materials especially the plastic packaging have been inflated due to the crude oil impact.”
Rising Costs, Expectations
Senior executives expect supply chain costs to rise sharply in key areas Freight transportation costs APRIL
JULY
% CHANGE
Increase 1-5% Increase 6-10% Increase 10%+
33.1% 33.4% 20.1%
10.7% 33.1% 52.5%
116.2%
Fuel, energy costs Increase 1-5% Increase 6-10% Increase 10%+
19.1% 442% 30.2%
8.6% 37.1% 48.3%
59.9%
Raw materials costs Increase 1-5% 29.7% Increase 6-10% 31.4% Increase 10%+ 28.0%
15.3% 35.7% 42.8%
52.9%
Source: RSM McGladrey Manufacturing & Wholesale Distribution Survey
is anc
Slow ng demand Despite the headlines of banks failing and people “As a services company that is operating in a very losinga their still not official tion of is ommercial transa $100 barrehomes, ) we seea US recession competitive labour market with limited supply, salary but being felte across utiv the fo ocean m u mp the e effects o ma are y com One big sign of tough times is cost is where we feel the most inflationary pressure.” a decreasing i re as idemand g dp from the West. According to Phillip Hatch of Ventoro Damon R Paling, PricewaterhouseCoopers pp ii i l $ 0 d Ch i “Larger orders and general demand from the west Bluemner s id ship Kue , economic analyst or th ators an Ma ufacturers Of course another big cost driver most companies cited is down, as companies and consumers in the US rom rvice s ocia i n I cost rnational T nary expec ation whatpurchases. as one of the biggest culprits are material increases. and Europe taperi their Until provide we see an featured analysisspending, of the co orces manufac urers to stu yChina in- o ar-shoring Aaron Landis, Vice President of International Operations, increase in both corporate and consumer shipment le ” For that ll intents and pu poses tran we rta will ion see costssluggish have to (if any) the Printing Solutions International noted “Costs have increased growth in Asia substantially as a result of inflation, and Adding complexity of this is the I picture s much more becomeRenminbi neutral appreciation efore you re goin a whol to sa the e reversal of level. high demand for wood and petroleum based resources. Chinese government which is notorious for ing changing f the in-sho trend the current trends ” he said Costs for paper increased dramaticallyBint the part of the policies couple p ay a big ofr years rol i fue early co ts ar pa tyear of t tio Ch on ea dime. actor Over thetolast and costs for polypropylene products we make rose so quickly export VAT rebates have been cut, driving thin a a s N ng, pa kl h g nd i during the run on oil that we were pressed to nail down prices margin manufacturers out of business. Most recently
f
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SEPTEMBER/OCTOBER 2008
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the government implemented forex regulations which are forcing companies to account very closely for their forex transactions. “Foreign Exchange Controls, are specifically aimed at slowing the export oriented production sector of the PRC economy,” said Beng Ti Tan of Baker & Mackenzie, Hong Kong. “Coupled with other milestone legislation - PRC Employment Law, the Enterprise Income Tax Law etc. - the costs of operating within the PRC has increased significantly.” “Recently, the Chinese government is concerned about environmental protection and labor protection so that the country can continue to growth healthily. The end result is a reduction of exports in South China and companies have to transform to use high technology to reduce labor cost and to add more values to their products,” said David Au, General Manager, Hong Kong and South China, INTTRA. An economic slowdown and increased living costs in China obviously have raised concern about the much vaunted Chinese middle class, the great hope of many retailers. Much ink has been spilled about this greatly misunderstood middle class. Obviously the potential is huge; it’s more a matter of tapping it. Household products manufacturer, Electrolux has high hopes for the market, but is witnessing discouraging signs. “We are seeing a slowdown in the Chinese market for new housing, which has affected the demand for medium to high end household appliances,” commented Viktor Arak of Electrolux. Supply risks As if the perfect storm is not enough, other players are using the current environment to justify their own price increases. Hsien-Hui Tong, Vice President, Emerging Technologies at Wassax Inc., Singapore, commented that “With companies increasing prices due to [regulatory] factors, it was easier for [suppliers] to slip in additional increases based on projected changes in policy. Then, when the commodities hit their highs, it was even easier to hide further price jumps in pricing as the market prices became unstable for finished goods.” E-sourcing company Bravosolution had a similar experience with suppliers. “It is very frequent that suppliers ask for price increases and justify them directly by raw materials price increase,” says Gillaume de Roquefuil of Bravosolution. Roquefuil notes that it is important to talk with suppliers www.chainaonline.com
directly and understand the rationale behind their price increase. “Quite often, we succeed in reducing the price increase required by the suppliers which only “tried its chance” to get more money from
“It is very frequent that suppliers ask for price increases and justify them directly by raw materials price increase.” Gillaume de Roquefuil, Bravosolution Western customers.” Another strategy companies should be using, if they don’t already is benchmarking. “We benchmark costs by sourcing from more suppliers by category. If the inflationary pressure goes on, however, this will reduce competitiveness of Chinese suppliers for our overseas market,” said Ling Siow Chang, Head of Commercial, Vodafone China.
Dow Chemical – coping with a downturn Ken Bryan, Asia Pacific Supply Chain & Customer Services Director, The Dow Chemical Company Are you seeing rising costs? “In the first half of 2008, Dow’s feedstock and energy costs rose more than 40 per cent over the same period last year. Over the past five years, Dow’s bill for hydrocarbon feedstock and energy has surged four-fold, from $8 billion in 2002 to an estimated $32 billion-plus this year. This has a significant impact on our businesses and product margins, as well as fuel and freight costs.” How are you coping with cost Increases” “Dow is approaching this challenge on multiple fronts. On May 28 and June 24 of this year we raised our prices, up to 20 per cent and up to 25 per cent respectively. The increases were necessary to offset the continued increases in global energy costs and restore margins.” Have you been impacted by a U.S. Recession? “The US recession has had two impacts to Dow’s supply chain operations. The first is the decrease in the number of ocean shipping containers flowing from the Pacific into North America resulting from the decrease in US demand for goods imported from Asia. Shipping companies have responded to this demand drop by moving some of their container capacity into the Europe-Asia trade lanes from the Asia-US trade routes. This has resulted in higher demand for ocean shipping containers moving out of the US. This rising demand by exporters such as Dow is further magnified by a strong demand for containers to haul commodity exports like scrap paper from the US to Asia.”
SEPTEMBER/OCTOBER 2008
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COVERSTORY Far reaching impact One impact evident at consulting company, Pricewaterhousecoopers is delayed decision making: “Certainly, in the last 2 - 3 months, the speed at which decisions are made has slowed. Those executives that hold budget approval for discretionary spend on accounting, tax and business advisory services are taking more time to make decisions about exactly which services to purchase,” says Damon R Paling of PwC Asia. The effect is similar in the Industrial property arena. Matt Janney, who works in DTZ’s Industrial and Logistics division commented that “Recently, we have seen some spillover from the US and global recession into China. Some companies appear to be recalibrating their expansion plans and taking a wait and see approach given the current climate. Conversely, there are clearly companies who have taken this opportunity to shift strategies and focus more on the China market, where the economic situation is comparatively less affected.” But succeeding in China, as many foreign companies know who have entered the China market and had to leave with their tail between their legs - is not a walk in the park and is harder now than ever.
“A reduction of imports from the US implies a reduction in logistics cargo volume which means investment on new logistics facilities is more conservative, However, strong China import growth may counter this factor.” Vincent Cheung, BPS For BPS, a company which provides logistics property solutions a U.S slowdown spells risk for their business. “A reduction of imports from the US implies a reduction in logistics cargo volume which means investment on new logistics facilities is more conservative,” says Vincent Cheung of BPS. “However, strong China import growth may counter this factor.” Staying afloat Companies are having different reactions to the price increases, while some can raise prices; many say they have to absorb the increases as their customers will not stand for higher prices. Other companies such as auto manufacturer, Proton, have to be more innovative: “We have to reduce unnecessary cost and restrategize our business. We are focusing our business in smaller cities where it is less competitive and cities near to our production facilities in order to keep logistic cost down.” said Teo Aeng Kyet, Head of Proton’s China business. For some companies such as CPS, it is business as usual: “Fortunately our business has been growing rapidly and the negative impact of cost pressure has not affected growth,” says Aaron Landis. “We’ve lost some of the small jobs where benefits to overseas customers have been
“We have to reduce unnecessary cost and re-strategize our business. We are focusing our business in smaller cities where it is less competitive and cities near to our production facilities in order to keep logistic cost down.” Teo Aeng Kyet, Proton 32
SEPTEMBER/OCTOBER 2008
eroded by the strong Yuan, but this has mostly been for the US market where the dollar is weak. Our business in Europe, Australia, South America and China has enjoyed excellent growth in the past year.” Other companies have been hit hard and have had to restructure. According to JP Sexton at Grace, “We are going through an internal reorganization which includes eliminating positions. Corporate executives are sending out price increase announcement letters to customers and we have to place a tighter control on inventory and negotiate for better payment terms.” Cost cutting is not always complicated and might mean getting back to the basics. Dr. Frank Henze, Chief Executive Officer, Global-X Hong Kong Ltd., had the following tips: “Reduce energy consumption; use the metro instead of taxi; go by train rather than flying for a 6-8 hour train ride; compare prices or look for cheaper sources; increase efficiency through better workflow, better knowledge management and improve leadership.” Emerging markets The effects of price increases from China on a regional level are mixed. Despite the hype over India and Vietnam, it seems these countires are far from ready to fill China’s shoes. Other Asian countries are wrestling with their own problems. “Political instability in Malaysia and Thailand with economic instability in Vietnam wrecked havoc on the ability of factories there to steal business from China,” says Hsien-Hui Tong, Vice President, Emerging Technologies at Wassax Inc., Singapore. “India, facing their own inflationary pressures actually had prices that moved up in tandem with China.” Additionally, Vietnam and India lack adequate infrastructure and are known to have different challenges in terms of doing business. Marnix Etterna of consulting firm, Alvarez Marsal, expressed some dim views about India relative to China, which helps to put the issue into perspective: “Labor costs in China are rising, but our impression is that in India they are rising even faster, so despite rising labor cost, China is actually getting relatively more competitive compared to India.” Still, as many pundits suggest, it is not just China, but China plus one (or two or three). There is also talk of an ASEAN free trade agreement which potentially could strengthen Asia as a regional trading partner. The opportunities go beyond manufacturing to business process outsourcing and other value added activities. The question for many companies is unfortunately still, where do I go to find and maintain lower costs? www.chainaonline.com
COVERSTORY Certainly some companies are looking at their home or nearby as a safe bet. Pilar M. Dieter of Alaris Consulting supports this view: “Our recent experience has been that companies from the US and Europe are taking a step back in their overall global strategy in an effort to focus on sustaining and/or improving operations in their own country.” For North America, Mexico is still a viable option.
China: Signs of tough times • Foreign direct investment from the European Union into China fell steeply last year from €6bn in 2006 to €1.8bn ($2.7bn). India saw a huge increase last year from €2.5bn in 2006 to €10.9bn. • China’s currency has strengthened 20 percent against the dollar since 2005 • Beijing has cut many tax rebates formerly available to foreign companies. • Higher fuel prices have pushed the shipping cost of a 40-foot container to the U.S. to around $8,000, up from $3,000 a few years ago.. • Annual wages in China are rising above $2,000, sending some manufacturing to cheaper places like Vietnam, Cambodia and Sri Lanka. • The Economist Intelligence Unit expects China’s GDP growth to slow to 9.8% in 2008 and 9% in 2009, due to weaker exports. • A mismatch between coal and electricity prices has resulted in power shortages, which could reach 10-18 gw this summer. Moving west Another option for companies in China who can make a business case out of it is to “Go West.” The government has been pushing companies to move west with marginal success, despite incentives like lower taxes and cheaper land and labour costs. Companies like Intel, Motorola and Ford have successfully made the push inland, but others have decided against it. According to Bill Dodson, General Manager of Asia Base A/S, this might be changing. “Costsensitive Western manufacturers in China for the first time and those that have been around for a while are increasingly choosing locations further inland for their primary operations. We are seeing clients choosing destinations like Xuzhou, in North Jiangsu Province, and Inner Mongolia to establishing facilities.” Port cities along the Yangtze River are also a viable option says Dodson. “Wuhan, as it deepens the parts of the Yangtze River within its jurisdiction, builds its international airport, and continues construction of its highway, is seeing increasing interest from Western investors in high-tech, R&D and automotive industries.” Optimizing operations Taking a closer look at efficiencies in a company’s operations is another cost-saving strategy, which in a time where going “green” is a big advantage, can have other benefits. In a time of thin margins, Walmart has been able to alter the way its products are made and transported. One example for Walmart www.chainaonline.com
is through making detergent more concentrated, Wal-Mart suppliers can use smaller plastic containers, which use less petroleum, making more space in boxes, leading to less use of cardboard, which also makes it possible to transport more units on each ship or truck, which then reduces the amount of gasoline used in transit. The result is that Wal-Mart can maintain its margins, and reduce its resource consumption as well as that of its suppliers. According to Johnny Browaeys, Regional Manager, ERM China, things are changing in China from an environmental and regulatory perspective. “More than once we have seen clients take recommendations to shift their business model and even build their business while helping local authorities in China address specific challenges. The importance of risk management is obvious, with all spotlights on China and China’s environmental and social challenges, global companies can build or break their reputation in China.” Is the glass half-full or half empty? Some companies see an opportunity in the face of a dark horizon. Of course for supply chain management, whose goal is to create greater efficiency, lean times are an optimal operating environment.
“Changes in the global economy create new business opportunities for those who know how to grab them,” Johnny Browaeys, ERM China “Changes in the global economy create new business opportunities for those who know how to grab them,” says Johnny Browaeys, Regional Manager of ERM China an environmental consulting company. China these days is attracting more clean energy investment then the UK. Global energy and commodity prices are also triggering a new wave of investment from foreign and Chinese players alike to acquire untapped resources and technologies to secure our future.” Shanghai based training company, ClarkMorgan Corporate Training is another company purportedly unaffected by cost cutting. “Some of our clients are US based, and they have reduced some training, however, a number of contracts have been generated from the US recession because jobs are moving to China to save costs and the staff filling these jobs need training. One client in mind is Marvel Semiconductors,” says Morry Morgan the company’s General Manager.
“The only impact we see is in Chinese companies eyeing attractive US companies for M&A activity due to the weakening of the dollar. ” Gerry A. Mattios, Atos Consulting For Chinese companies rich in cash, a U.S. slowdown also spells opportunity. “The only impact we see is in Chinese companies eyeing attractive US companies for M&A activity due to the weakening of the dollar. Hence some vertical integration that can secure supply, says Gerry A. Mattios of Atos Consulting, an IT company which was one of the Olympic sponsors. A whole lot of high paid individuals spend their time predicting the future and companies would love to pin a number on how long a slowdown will last. “We do not anticipate a long term global economic concern,” says Joseph Koo, a Director, in the Technology Solutions Group, in Asia at Hewlett Packard. In reality it’s anybody’s guess what will happen. It seems the best thing companies can do is monitor their costs and keep looking for ways to drive efficiency across their operations, a strategy that can work in both rich and lean times. SEPTEMBER/OCTOBER 2008
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SPECIALFEATURE
T
How to put the brake on rising costs in China?
riple digit price increases are painful but unsurprising to manufacturers and their customers in China. Baosteel, China’s largest iron and steel maker, along with Australian mining group Rio Tinto, recently agreed on price increases of 79.88 percent for Pilbara blend fines and Yandicoogina fines and 96.5 percent for Pilbara Blend lump for the contract year starting on April 1 2008. Since 2004, this is the fifth price increase, resulting in a more than 300% price increase over that period.
Accompanying rising ore costs are of course soaring oil prices, a USD/CNY exchange rate that are having American buyers in China tear their hair out and the unrelenting rise in labor costs. As the following charts show, all these indicators are following the same upward trend.
0.15
Australian Ore Brazil Ore Australian&Brazil Ore
300%
0.14
200%
0.13
100% 0% 2005
2006
2007
2008
0.12 2005
Source: collected by LowendalMasai
Chart 1 -- Ore Price Rise Against 2004 Eric Zhang is a Senior Sourcing Leader at Lowendalmasai. He has a MBA from Shanghai Jiaotong University and a degree in Mechanical Engineering. Prior to working at LowendalMasai, he worked for CRC, a leading provider of railway and metro vehicles for 6 years.
$
2006
2007
2008
Source: www.oanda.com
Chart 2 -- CNY/USD Ex Rate History
￥14,000
120
￥12,000
18%
80
￥10,000 200408
200505
200601
200609
200707
200803 Source NYMEX
Chart 3 -- Light Crude Oil Price History
￥8,000
1st Half of 2007
1st Half of 2008 Source: National Bureau of Statistics of China
Chart 4 -- Avg. Semi year Wage of urban workers in China
Fine combing supplier costs
Automotive manufacturers were early users of lean manufacturing to drive efficiency and cut costs
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SEPTEMBER/OCTOBER 2008
If you haven’t already asked yourself, it is worth looking at whether your suppliers are paid reasonably. Do your suppliers make efforts to absorb the cost impact instead of simply passing the cost on? Buyers in China often complain about the frequent request for price increases by their suppliers and are often give the same reason, material cost impact. One solution is to look at suppliers as a team or an interest group. The more you sell, the more the supplier can benefit. Although you want the supplier to profit enough to guarantee their capability on product quality improvement and management, you still have to ask yourself if they are working to reduce costs, especially when everyone is under pressure from global material cost increases and www.chainaonline.com
SPECIALFEATURE Designing for cost savings Redesign to cost is another tool not enough companies take advantage of. One Japanese provider of heavy industrial machinery launched a “redesign-to-cost” project in 2006 where they examined the cabinet of a heavy machine from a function and cost perspective. The team found the frame of the cabinet, which was welded by square pipes, was unnecessarily costly. A re-design replaced the square pipes with shaped pipes which substantially reduced the number of welded parts, eased the assembly of outer boards, reduced labor time and the total weight. This change reduced costs by 20% and the lighter cabinet meant lower diesel oil consumption on the machine’s regular operation. The design for many products has not been revisited and may be antiquated, costing more than necessary. New technology might bring dramatic improvements and more cost efficient options to design new products. The benefits of lean
One of Baosteel’s smaller “cold press” steel rolling facilities.
severe competition. Many levers exist to ensure suppliers contribute instead of simply transferring the cost impact, to ensure they are paid reasonably. Business cases tell us that, levers such as bidding and global sourcing work very well. In one case a Japanese pharmaceutical company launched an “in-bound bidding + global sourcing” project last year which saved more than 10% over using existing suppliers. The global sourcing aspect identified more than 18% savings after considering the possible investment to develop a new foreign supplier. The gain from in-bound bidding and global sourcing varies among industries and countries. Many business cases show 5% savings by in-bound bidding are easy to realize and around 10% savings are possible through global sourcing. In some cases, more than 50% savings are possible. Containing logistics costs Logistics, especially in China, can look both insignificant and chaotic. Perhaps because of this, many companies didn’t bother to examine this area and unknowingly leak money. The Report on National Logistics Status in 2007 issued by the China Federation of Logistics and Purchasing said China’s national logistics cost accounted for 18.4% of GDP in 2007, while the rate in the USA, Japan, Germany is around 8%. There is always potential to identify cost savings here. In one case, a mid-size producer of Garden tools, present in 5 countries in Europe through more than 1,500 specialized shops, realized 20% savings by optimizing their logistics network. This optimization included re-designing distribution routes and re-negotiating with logistics service suppliers. Similar potential is available in China. Logistics optimization is a powerful tool for companies who have a big number of clients and suppliers and a large volume of material and goods to transport.
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“Lean Thinking” has been popular in Japan and in the automotive industry in many countries due to the stellar results achieved by Toyota. Before this theory, Ford was using standard mass production similar to the way they produced their first car, the Model T. Today few manufacturers can use a “one-for-all” solution for their products. “Lean Thinking” focuses on eliminating waste in both time and money in a company’s entire business process. One local Chinese producer of a rechargeable battery – ranking # 2 in the world - implemented a conservative “lean thinking” project within one factory in 2007, producing amazing results. After the implementation, 3,000 staff were able to produce the same output that 5,000 staff used to; a productivity increase of 66%. As labor costs in china increase, the typical advantage of manufacturers fades. Lean thinking is able to offset some of these cost increases. Aside from some of the above suggestions, there are also other creative tools which can be used to reduce cost such as financial management and examining tax payments. Such tools can improve cash flow, shorten the accounts receivable period, avoid excess tax and dispose of useless capital equipment in a timely manner. It seems the days of the easy harvest in China are over, but while costs are likely to keep rising, companies still have an opportunity to relieve cost pressure and pass some savings onto consumers.
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A N I N T E R N AT I O N A L B U S I N E S S A D V I S O R Y F I R M
ᇾଇࡄݚഌ༇ር܋ය
Keeping Supply Chains Strong How much would the sudden loss of a critical supplier cost you? We can tell you with confidence that it’s a price you don’t want to pay. As a leading provider of Supply Risk Management (SRM) services to the world’s largest OEs and Tier 1 suppliers, BBK has the tools, experience and resources to help develop, refine and/or implement proactive SRM processes that keep costs down and supply chains strong. Be proactive in protecting your production. Keep moving forward with BBK.
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17/F Lippo Plaza 222 Huai Hai Middle Road Shanghai, 200021, China
www.e-bbk.com Tel: +86.21.5396.5600 Fax: +86.21.5396.5602
Move Forward
Filling the Gulf
The Bahrain Twin Tours, a landmark in the small Middle-Eastern country. The country is hoping to become a regional logistics hub through developments such as its new Bahrain Logistics Zone.
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T
he Middle East is booming. Driven by the global demand for oil, the region is rapidly diversifying, establishing itself as a major player in almost every conceivable industry. With an enviable location for trade with established economies in the West and a growing, cash-rich consumer base of its own, logistics is no exception. In this article, we take a closer look at the growing options for logistics operators into the Gulf region. SEPTEMBER/OCTOBER 2008
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REGIONALFOCUS The economies of the Arabian Gulf generate headlines around the world daily. Business is booming, with property and construction sectors achieving an astonishing rate of growth, driven by oil and gas output and a growing financial services industry. The iconic buildings in development in Dubai, Bahrain, Abu Dhabi, Qatar, Kuwait and Saudi Arabia are testament to the region’s confidence and worldchallenging attitude. Under the surface, this economic growth is pushing growth in industries across the board. Retail growth reflects rising salaries and friendly tax regimes, while IT, recruitment and other support industries are barely managing to keep up with the overnight growth of many of the Gulf’s organisations.
A high growth market The logistics industry is certainly no exception to this. The Gulf, unsurprisingly, has one of the fastest growing logistics industries in the world as companies around the globe use it as an important stopping point on trans-Asia cargo routes. Beyond this, the region is an increasingly crucial market in itself, with a young, growing consumer base with a great deal of ready cash and a host of international retail organisations jostling to provide them with luxury and high-end goods. This growth in demand requires a requisite growth in facilities and logistics services, and it is this aspect which forms one of the most complex challenges for organisations with logistics needs in the region. Good shipping links to China, Japan, Singapore and other major Far East economies already exist. But with oil prices and associated costs at a high, companies are keen to find the most efficient way to serve these markets. The opening of the region’s largest port and industrial zone complex to date, the Jebel Ali Free Zone, gave the Gulf a major shipping port for logistics operations for the first time. Until now, however, these facilities have been the only ones in the region and complex logistics organisations have therefore been largely restricted to the UAE. 38
SEPTEMBER/OCTOBER 2008
While facilities in the UAE provide the sheer space required to service the region’s economies, many of the Gulf’s major and emerging markets lie at a significant distance from this port, including the northern part of the Kingdom of Saudi Arabia, Kuwait, Iran, Bahrain and Qatar.
Bahrain: A new logistics hub Bahrain, traditionally one of the most forwardthinking
and business-friendly economies of the Gulf’s, is doing what it can to capitalise on this niche. The Bahrain Logistics Zone, which was announced in 2007, sits alongside the new Khalifa bin Salman port specifically to provide value-adding logistics services. Its position is clear – offering a central hub to more efficiently serve the market of the Northern Gulf. The Bahrain Government is investing over $7.6 billion in developing the infrastructure necessary to meet this goal. The theory makes good financial sense for logistics organisations. Rather than running motherships to the UAE and then employing relatively expensive feeder ships to markets in the North, using a central hub in Bahrain allows more economical mothership journeys to a more attractive central point. From here, feeder ships can run to the region’s ports and trucks can quickly access markets surrounding Bahrain through its
Logistics zones in the Arabian Gulf Sites with noteworthy sea-facing logistics facilities in the region include: • Jebel Ali Free Zone (Dubai, in operation) • Bahrain Logistics Zone (Bahrain, under construction) • Khalifa Port Industrial Zone (Abu Dhabi, planned) • Sohar Free Trade Warehousing Zone (Oman, planned) • Rakisa Economic City (Kingdom of Saudi Arabia, planned)
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REGIONALFOCUS
Key Gulf markets Bahrain’s market catchment extends significantly beyond its borders, due to its location and healthy trade agreements with neighbouring territories.
Market
Imports
Kingdom of Saudi Arabia
$42 billion
Kuwait
$18 billion
United Arab Emirates
$99 billion
Iran
$45 billion
India
$176 billion
Pakistan
$23 billion
* Source: CIA World Factbook, est. figures 2007
causeway with Saudi Arabia. The cost and time savings of employing this model can be substantial. Hassan Ali Al Majed, Director General of the General Organisation of Sea Ports Bahrain, is one of the key movers behind the creation of the Bahrain Logistics Zone. “We already see very high demand for plots and warehouses at the Zone,” he says. “In fact, at a very early stage we recognised a need to hand-pick our tenants to ensure that the space is utilised in the best way possible. For us, tenants should not merely rent space, but should add to the economic benefits that the logistics industry can create. Our perfect tenant is one which is engaged in genuine value-added activity – testing and repair, packaging and re-packaging and so on.” Recent figures back this assertion. The Bahrain Logistics Zone is currently five times over-subscribed, with CEVA and Danzas amongst those already signed-up as tenants. Despite this, the team are still reviewing and attracting top-tier applications from companies who they see as a close fit for the Zone. Hamad Fakhro, Assistant Director General for the Bahrain Logistics Zone, explained the thoughts behind this strategy. “Bahrain’s Government is investing hugely in the Kingdom’s business sectors, and
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the logistics industry is part of that. It underpins that investment. Given our location and the links we have to the Gulf’s biggest markets, we would be foolish not to create the right infrastructure and environment for logistics companies to capitalise on that where possible.” “The Bahrain Logistics Zone is relatively small, which means we cannot afford to hand out tenancy to companies who cannot make full use of the facilities provided by the Zone. We want to match the Government’s investment by giving space to clients who will contribute back to the nation’s economy. This means providing jobs for Bahrainis, engaging in services which add value to other activities at the port, and promoting direct investment into Bahrain.” “In logistics, being in the right place at the right time is everything. That is where I feel we are today with all the development we are doing on our country’s port, airport and road infrastructure, on developing business and industry, and of course at the Bahrain Logistics Zone – the right place, at the right time.” The growth of Gulf economies, and the changing face of their consumers and businesses, is an opportunity for many producers and logistics organisations in the Far East. With the market still in its infancy, these organisations are facing a lack of choice while the Gulf’s logistics facilities catch up with demand. Against this background, Bahrain’s approach, at least, is a welcome development for those looking to access this major market.
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INSIGHT
Are you getting paid enough? Executive recruiter, Hudson recently released their 2008 salary survey. We took a look at their Manufacturing and Industrial Report which compared salaries of similar executive positions across Hong Kong, Singapore, Shanghai and Japan. Highlights:
HONG KONG
Salary inflation of between 20-50% is evident, as well as “flexible” naming in job titles. Preference is still for local talent who have worked in MNC firms. It is difficult for a foreigner or “Chinese returnee” to get the best job unless they have significant experience or are already China oriented (speak the language). There is a trend for technical focused positions like Research & Development. Sales and Commercial roles are still the hottest jobs in the sector. Sourcing roles are still in strong demand. Movement “East” is confirmed. Jobs seem to be gravitating to “lower cost” cities/ Tier 2 cities such as Chongqing, Chengdu, Xian, where labour and land are cheaper. In general Shanghai will continue to see strong growth in executive labour requirements and as such no relent on salaries
Operations Director
SHANGHAI
JAPAN
Years of
HK$
S$
RMB
JPY
Experience
Annual package
Annual package
Annual package
Annual package
8
Logistics Director
Manufacturing Director
SINGAPORE
15
880K
1.32M
185K
280K
400K
700K
12M
18M
920K
1.38M
200K
280K
500K
800K
12M
18M
10
880K
1.32M
150K
260K
500K
900K
12M
15M
15+
920M
1.38M
150K
180K
600K
800K
12M
15M
920K
1.7M
200K
280K
450K
500K
12M
18M
770K
880K
120K
180K
300K
500K
8M
880K
1.32M
120K
180K
500K
800K
10M
920K
1.38M
100K
180K
250K
500K
8M
12M
575K
978K
90K
180K
250K
350K
8M
12M
575K
920K
80K
160K
200K
350K
8M
12M
15+
8
Regional Quality 10 Director Head of Procurement
Manufacturing Manager
Plant Manager
Supply Chain Manager
10+
5
10
8
Purchasing Manager
Logistics Manager
10
15
10
8+
5
10
12M
15M
Comparison table of selected positions (Hudson, Manufacturing & Industrial Salary Report, 2008)
SHANGHAI – FENGXIAN DISTRICT 120,000 sqm for China domestic & international logistics 上海奉贤库－12万平米的物流中心开展国内和国际业务 Operations start in August 2008 Strategic location for Distribu ion, FMCG, Retail, Automotive, Fashion, International Supply Chain and High-Tech
For space and service inquiries, please contact Sinotrans Logistics Ltd. frederichoudoyer@sinotrans.com • lirenzhi@sinotrans.com • www.SinoTransOne.com
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SEPTEMBER/OCTOBER 2008
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Danger!Danger!
PRODUCTRECALLS
The U.S. Consumer Product Safety Commission is charged with protecting the public from unreasonable risks of serious injury or death from more than 15,000 types of consumer products. Below are just a few of those products.
IMS recalls car chargers used with halogen spotlights due to fire and burn hazards The U.S. Consumer Product Safety Commission (CPSC) in cooperation with International Merchandising Service Inc. (IMS), of Fullerton, California announced a voluntary recall of about 210,000 Car Chargers used with Power System Plus 3 Million Candlepower Spotlight. The car charger is incompatible with the spotlight’s battery, which can cause it to overcharge inside of a vehicle and pose a fire or burn hazard to consumers. Manufactured in China, the product is sold at Sears and K-Mart retail stores.
Cooper Lighting recalls emergency and exit Lights Cooper Lighting Inc. Georgia conducted a voluntary recall of about 9,000 “SureLite” and “AtLite” Exit and Emergency Lights. The lights can malfunction and not stay illuminated in the event of a power failure. The recalled emergency and exit lights are installed in commercial buildings such as hotels and office buildings. The products were manufactured in China and sold to authorized distributors Cooper Lighting is contacting customers directly and is providing a free replacement product.
MEGA Brands recalls Magtastik and Magnetix Jr. pre-school magnetic toys
Six Retailers Agree To Stop Sale and Recall Simplicity Bassinets Due To Strangulation Hazard Retailers across the USA were urged to protect the health and safety of babies by recalling nearly 900,000 dangerous Simplicity bassinets. CPSC warned parents, caregivers and consumers to immediately stop using convertible “close-sleeper/bedside sleeper” bassinets manufactured by Simplicity Inc., of Reading, Pa., due to a serious safety risk. Retailers including Wal-Mart Stores Inc., Toys “R” Us Inc., Kmart Corp., Big Lots!, J.C. Penney and Target have voluntarily agreed to recall the product and provide a refund or store credit to consumers.
RE CA LLE D
Steam Cleaners recalled by Thane International due to burn hazard The CPC and Thane International Inc., of La Quinta, California announced a voluntary safety recall of about 134,000 H20 Portable Hand Held Steam Cleaners. Steam can escape from the handle and trigger of the steam cleaner, posing a burn hazard to consumers. Manufactured in China and sold by television infomercials nationwide and at www.thane.com the steam cleaners were offered as a bonus item with the purchase of an H20 Mop. Consumers contact Thane to receive a $30 coupon for the purchase of another Thane product or to receive a free replacement steam cleaner.
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MEGA Brands America Inc., of Livingston, N.J. announced a voluntary recall of about 1.1 million Magtastik and Magnetix Jr. Pre-school Magnetic Toys. Magnets in the small flexible parts of the animals, vehicles and building sets can detach and pose an aspiration or intestinal hazard. Manufactured in China the product is sold at Wal-Mart, Target, Toys R Us, K-Mart and other toy stores. Consumers should stop using the recalled toys immediately and return them to MEGA Brands for a free replacement toy.
Fire and Burn Hazards Prompt Recall of Gas Grills Sold at Lowe’s Stores Lowe’s Home Centers, Inc. announced a voluntary recall of about 24,000 Perfect Flame Double Lid Four Burner Gas Grills. The cooking chamber of the grill can melt and/ or ignite, posing a risk of fires and burn injuries to consumers. Manufactured in China by Lucas Innovation Inc the products are sold exclusively at Lowe’s stores in the USA. Consumers should immediately stop using the recalled grills, disconnect the propane tanks, and return the grills without the propane tanks to any Lowe’s store to receive a full refund.
SEPTEMBER/OCTOBER 2008
41
DON’T MISS OUT!
List your company in the most comprehensive supply chain services directory in China
VENDORS DIRECTORY 2008 •Logistics Service Providers • IT & Software Solutions •Real Estate Services •Consulting Firms
• Material Handling Equipment
A comprehensive bi-lingual listing of vendors, service and equipment providers, consultants and IT solutions providers for the supply chain and logistics industry n Companies are listed according to their specific service offering LowendalMasa
n In-depth company profiles including contact details and full description of services and solutions
ï
n Lega status in China 企业性质 Business Consu ting Compa 商业咨询公司 y n China head office 中国代表 处总部 1505-1506 H i Tong T we , 689 Gua gdong Shanghai, 20000 Roa , 1 上海市黄浦区广东 路689号海通证券 1505/1506室, 大厦 200001
n Free and complete online access at www.supplychain.cn
) +86 21 6 41 1255 7 +86 21 6 41 1253 8 www.l wenda lmasaichin
.cn
u K y c ntact s
C eme t Homo le ) +86 21 6 41 1255 7 +86 21 6341 1253 + chomo l @ wenda masa chin .cn Hou Xun ) +86 21 6 41 1252 7 +86 21 6341 1253 + xhou@l wenda masai china.cn
Who should list in the 2008 VENDORS DIRECTORY?
u Highlights
Any China-based company that provides services or solutions to the supply chain and logistics industry should be listed.
How much does a company listing cost? A 12-month company listing costs only RMB4,000 (or RMB2,500 for China Supply Chain Council members). Because the Directory is re-printed every three months, we give companies the opportunity to update their profile online, meaning your company information will always be up-to-date.
朗达玛赛
n Corpo ate HQ 公司总部 Pari , France 法国 n Estab ished in China 在中国成 20 4 立于
• More than 15 years f expe ience • Consoli ted p o form turnover: 56,5 mil ion € fo the yea , ending march 3 th 2007 • 435 emp oyees around the wo ld • ,500 a tive clie ts, 55% of them i ted on the CAC 40, 43 f the Fo tune 500 • 18 ffices in the wor d • 1996: Found ing f Ma aï by Thier y Fournier and François-X vier Ter y • 1996-20 4: 120 expe ts in 6 ffices in Europe, in Japan and t e United States a d 7 sou ing ffices in deve oping cou t ies • 20 4: openin g f the fir t ffice in China in Shang hai • 2006: acquis ition y L wenda group f Mas l ï. Masaï becom L wenda Masaï es
22
u Company
Introducti n
Lowe dalM a aï China is a consultan Optimiz ion y compa y and Oper specia ized tional Perfor Purchasing in Co t mance. ts , Global So ter itories are rcing, Value Supply Chain Str tegic Ana ysis, ndu Optimiz tio trial Process . G obal S urcing and p je ts includ (purchasing e a tr tegic m turity, s Analysis of vings p tentia inn v tio , LCC pote tial , LCC oppo capacity and tunities uch compensat so utions like ion), and as hosting and LCC organ office set up isational Lowe nda Masa abroad. ï China helps c ie qua ific tion, t , in the the contr a se e tion, tualis ation best Chine , and the the se supp lier devel opme . t of the
u Services
nd Soluti
ns n ine with contin uous effo ts to funct ion has achie ve a majo r role to pl y in imple savin g , the Purch asing co t optim iz tion pr me ting a je t. c mpa y-wid both consu wend a Masa tan y and e ï China bring opera tiona made so ution toget her l suppo rt in to the comp order to provid any’s need e a tai orGLOBAL SOUR . CING • G obal Sourc ing tr tegy / Diagnosis • Supplier Sele tion / Qua ificatio Developme n/ t • Sourcing Oper tions amp-Up • Internationa l Purchasing Office Set-U p / Organisation Coaching / CO T O TIM ZATION • Supply Chain Design / Optim iz tion • Retail Life Co t Optim iz tion • Design To Co t • Ana ytical Co ting OFFSHORE PURCHASI NG OFF CE • Added-Valu e Ho ting
CONS U TING F RMS
Who reads the 2008 VENDORS DIRECTORY? The Directory is read and used by key decision-makers in companies that regularly buy and use supply chain and logistics services and facilities in China. These are the people that decide which supply chain and logistics service providers to use in China.
How is the 2008 VENDORS DIRECTORY distributed and promoted? Targeted at qualified decision-makers, the directory is distributed free-of-charge to subscribers of CHaINA Magazine and companies based in mainland China who request a copy (companies are only asked to cover the mailing cost). In 2008, we will print more than 10,000 copies, which will be given out at more than 100 supply chain and logistics-focused events each year.
To find out more about how the VENDORS DIRECTORY can contribute to your marketing needs in China, please contact: Wendy Yu
) +86 (21) 5102 1617/18 + directory@supplychain.cn
8 www.supplychain.cn
EVENTUPDATE
China’s cold chain not cold enough By Chaina Staff
A
ccording to one estimate, China lost almost RMB 70 billion (US $8.63 billion) in discarded fruit and vegetables last year, meaning about 30% of the output went to waste. The efficient and safe transportation of goods requiring “cold” transportation and storage has long been an issue in China, where standards are lacking and no one is willing to step up to the plate to resolve the issue. There are few or no country-level laws or regulations governing food safety in the areas of storage, transportation, distribution and retail. “The bottom line is that government involvement is the factor currently missing here in China,” said Dominique Binckly, vice president of Psion Teklogix Inc. a Canadian manufacturer of technology for use in extreme environments, at the China Supply Chain Council’s Cold Chain Summit on 9th July.
A need for standards A number of companies have been calling for higher standards, but the response from the government has not been positive. Zhang Qianming, chairman of the China Food Industry Association Food Logistics Council, the food industry’s regulatory body, admitted not long ago that “the development of cold chain standards is very slow compared to the growth in the logistics industry.” In stark contrast of the inactive role the Chinese government has
played in the set-up of cold chain standards nationwide, there have been breakthroughs in other Southeast Asian countries. Singapore launched TR 24: 2007 Technical Reference on Cold Chain Management for Vegetables – the first such national standard for the ASEAN region. The new standard sets guidelines for temperature and humidity, for the storage and handling of vegetables throughout the entire cold chain – from transportation and distribution routes, right up to the retail outlets and ultimately, the consumers. This standard is the third milestone in Singapore’s efforts to develop cold-chain standards for the fast-moving consumer goods industry.
Shared responsibility However as many people at the conference noted, the responsibility should not only be on the government’s shoulders. Cade Chen from DKSH, a pharmaceutical distribution company, remarked, “Governments should set up the industry standard and force companies to abide by the standard, but it is really up to business to build-up the hardware.” According to Chen, “Some companies are doing fairly well but most of the companies are in a position where their operations need to improve.” This applies as much to the pharmaceutical industry as it does to food and beverage. “The Pharmaceutical industry has higher requirements on exactitude in terms of transportation, but currently pharmaceutical transportation is lagging behind.” The general conclusion was that government and businesses need to balance the responsibility in improving cold chain standards. “Companies should invest,” said Dominique Binckly, “The role government plays here is to make the standard. Companies should monitor their own standards.”
The way forward The ingrained gap between the interests of manufacturers and logistics players and the government’s reluctance to drive standards are ultimately to the detriment of consumers who face the implications of poor quality and an unsafe cold chain. The Olympics brought the hope of higher quality and safety standards, but whether these standards will continue to improve post-Olympics is up in the air. Bill O’Brian, President Greater Asia, Havi Food Services
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SEPTEMBER/OCTOBER 2008
43
EVENTUPDATE
Advice on sourcing in risky markets Jim Ridgwick, Sourcing Practice Leader, China at Deloitte Consulting presented an overview of Deloitte’s annual survey, titled Managing Sourcing Risks in Emerging Markets. Ridgwick advises on global sourcing strategy, supply market analysis and broader supply chain issues, as well as leading many tactical and strategic sourcing programmes. This year, Deloitte’s survey focused on trends related to the risks of sourcing from China and other emerging markets. The report is timely given the series of wellpublicized product quality failures over the past year, which has brought questions of risk and risk management into the forefront. The study relied on the views of 650 global executives, looking at how manufacturers from developed and developing countries view and handle their exposure to risk stemming from sourcing in emerging markets - and how the most successful companies are working to manage this risk and turning it to a competitive advantage.
Update on New Foreign Exchange Measures As part of a regular series of workgroups on different topics, the China Supply Chain Council recently organized an event to discuss recent changes in Foreign exchange and VAT regulations, Beng Ti Tan, a lawyer from Baker & McKenzie based in Hong Kong and an expert on tax, customs and international trade law gave an update on the new laws and their implications for businesses operating in China. This lunch discussion focused on the recent developments by the State Administration of Taxation and the State Administration of Foreign Exchange to further regulate export oriented production in the PRC. Part of the reason for these new regulations, says Tan,
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SEPTEMBER/OCTOBER 2008
- Event Title: Managing Sourcing Risks in Emerging Markets - Event Speaker: Jim Ridgwick, Sourcing Practice Leader, China, Deloitte Consulting - Date: August 7, 2008
One case study the report covered was the Heparin drug scare, which led to the death of over 20 people. The USDA did an intensive study of the drug, looking into its origin and it found that Chinese suppliers at the bottom of the chain were using substandard sources for their supply, which obviously caused quality issues. This scare put a hold on the sale of the drug and impacted many companies, highlighting some of the issues involved in supplier management. Many of the companies present at the workgroup felt that China was less of a risk compared to India and other emerging markets. Interestingly many of them also felt that their companies were ahead of the curve in terms of supplier management and their companies were at a low risk in terms of product recall. Unfortunately it seems likely that the companies which would benefit most from Deloitte’s analysis would not be attending such workgroups.
- Event Title: Impact of Recent Foreign Exchange, VAT and Export VAT Refund Developments - Event Speaker: Beng Ti Tan, Baker & McKenzie, Hong Kong - Date: August 13, 2008
is “concern over ‘hot money’ that cannot be clearly traced to goods leaving the country. Participants were presented with several case studies to illustrate the implications on production and budgeting in their own companies. The discussion covered the following issues from an export sale perspective: Deposit Laws for Foreign Exchange, Deemed Domestic Sale VAT and Customs Valuation of Exported Goods. Basically, the new regulation requires that a total limit of not more than 5% of the previous year’s export value can be held in deposits at any given time. Effectively, this prohibits export oriented businesses from receiving deposits on their projects. The regulation seems too radical to be true, but the banks are following it and are apparently not releasing foreign capital to export companies. Therefore companies will have to comply The new laws come into effect as of October proving you can always trust the Chinese government to throw a wrench into your company’s yearly financial planning. However, Tan warns, any advanced payments made after July 14, 2008 will fall under the new guidelines. This topic was also covered in greater detail in an article by Beng Ti Tan and Edrick Guo on page 62 and 63 of the magazine.
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EVENTUPDATE
A closer look at Indirect Spending - Event Title: Leveraging Indirect Spend in China - Event Speaker: William Hilborn, Simon Chuang, Tyco Electronics - Date: August 5, 2008
As part of a regular series of workgroups on key topics in China’s supply chain, the China Supply Chain Council held a workgroup on “Leveraging Indirect Spend in China” focused to procurement and sourcing managers and directors. Workgroup participants included procurement managers from companies such as Air Products, SPS and other large companies.
“Indirect spending” in companies covers things like office supplies, equipment, HR, Finance and legal expenses, facility services and travel related expenses. These expenses have often not been looked at closely as companies have focused on manufacturing and direct spending. This is especially true in China where companies have been under pressure to grow quickly and worry about costs later. Simon Chuang, Regional IPO Manager, China, Tyco Electronics and William (Bill) Hilborn, Global Commodity Director for Indirect Spend, Tyco Electronics explained Tyco Electronics strategy for Indirect Spend. As the Regional IPO Manager in China, Simon’s team helped TE achieve and exceed its LCC spend goal in the past three years. Hilborn is an industry veteran who has been with Tyco Electronics/AMP for 32 years starting in sales and International Marketing. Two years ago he assumed global responsibility for indirect spend and aligning local, regional and global supply base strategies. In bigger companies indirect spending can add up to hundreds of millions of dollars in costs. With China maturing and costs and efficiency under pressure in leaner times, businesses are looking at indirect spending more closely and companies such as Tyco Electronics have dedicated teams with big savings goals in this area. According to Hilborn and Chuang, Tyco Electronic’s goal is to handle “50% of the global indirect spend in low cost countries.” The workgroup revealed that Indirect Spend was sometimes managed by purchasing and other times by departments outside
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of Purchasing. The speakers outlined how purchasing can take control of this spend, develop a better understanding of the indirect supply base and decided on a foundation for purchasing strategies and processes. Tyco’s goal is to save around 5% of their global spending of $8 billion through indirect spend savings. If you do the math, that’s a few hundred million dollars. Tyco Electronics has established templates in supplier assessment for certain categories and continues to work on other potential areas to optimize indirect spending. They established a structured data warehouse and platform for spend capture/analysis globally, spending years to ensure data integrity so as to develop the right tools to address indirect spend. The workgroup also addressed how other large companies are dealing with the indirect items and services they need to support their China Operations. For multi-billion dollar companies such as Air Products, Indirect Spend makes up about 7-10% of their total spending budget, a significant amount. Questions covered included: who is managing this spend and how capable is the supply base to support the spend on a local vs. country wide basis? Participants shared their experience about the indirect side of the business identifying current business practices and strategic directions.
SEPTEMBER/OCTOBER 2008
45
EVENTUPDATE
SCM Simulation Game
All hands on the supply chain Global supply chains are increasingly complex. Companies who excel at managing their Supply Chain can provide better service at lower costs and react more rapidly to change than their competition. SourceMakeDeliver®, the supply chain simulation game, gives participants a chance to test their supply chain mettle. By Russel Beron
While I have visited many company operations, talked to a lot of people who manage supply chains and written a lot about supply chain management, I’m the first to acknowledge that I am no expert in this area. I write about it as an outsider, from what Anthropologists call an “Etic”
or neutral outsider point of view. Certainly supply chain management can seem like a foreign culture at times, which is why I was keen to participate in SourceMakeDeliver®’s one day simulation game, whose goal is to give participants an opportunity to manage and experience an entire supply chain. Around 30 individuals gathered for the game which was conducted in the ballroom of a hotel. Participants came from a variety of companies such as Sinotrans, Bosch, Electrolux, Qualipac, Continental Automotive and DSM Sourcing to name a few. We were required to produce products, plan for delivery and manage our cash flow just like a regular business. We were divided into three competing teams, with each team broken down into three business units – Source (Marketing and Sales) Manufacturing (Make) and Deliver (Logistics). SourceMakeDeliver® is a complex simulation game developed by leadership and management consultant Jerome 46
SEPTEMBER/OCTOBER 2008
Maybon and local supply chain expert Chris Deans. The one day event, organized by the China Supply Chain Council was designed to give participants a taste of the game. Usually the event takes at least 2 days and is customized to the specific needs of the company. It serves to bridge the different divisions of a company, giving them a feel for the complexity of the supply chain and a chance to experience functional areas outside of their normal job. “Once people get busy with the game,” says Deans, “Everyone begins to see for themselves how decisions and activity in the Supply Chain impacts the market. The lights begin to come on in people’s minds.” The game is designed to replicate a real manufacturing operation which has to take orders for products, produce them efficiently, deliver them on time and profitably. Of course Once people get one of the biggest challenges busy with the game, most of us were confronted everyone begins to see with was communication. Managing the supply chain for themselves how meant ensuring that each decisions and activity unit of the team participated in the development and in the Supply Chain execution of the strategy impacts the market. and exchanged information as problems arose. Another insight that most of us learned the hard way was that planning is extremely important, very difficult and requires flexibility. At first the game seemed quite complex, but by the end of the day most of us felt like we were fully engaged in the operations and had a handle on how to better manage our own operation. While our group placed second, we felt confident that had the game continued over the usual two day course, we would have triumphed, given our strength of strategic planning and execution. Who says being an editor has no practical applications?
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COMPANYPROFILE
Getting to the source
In this interview, CHaINA spoke with Alex Angelchik, President of New Times Development, Hong Kong, a major sourcing company based in Hong Kong. Mr. Angelchik talked about Newtimes’ strategy, operations and how they are dealing with ongoing challenges by working with companies like supply chain software provider, Core Solutions to automate their operations. What exactly is Newtimes? Alex Angelchik: Newtimes is a group of companies specializing in sourcing of products, mostly soft goods, although we do some hard goods and furniture products for some of our offices. We are definitely one of the largest sourcing companies in the world for apparel and have about 1,500 employees worldwide. George Ling, our Chairman, founded the company about 37 years ago and is still running the company today. In HK we have 3 main companies and some subsidiary companies underneath us. Newtimes Development is specialized in North America, mostly the United States. We handle accounts like Polo Ralph Lauren and Diane Von Furstenberg. We also do business with a number of other brands and retailers in the U.S. We do everything from design to distribution, a whole range of services for apparel and soft goods. For the brands you mentioned such as Polo Ralph Lauren, do you do design as well as manufacturing? AA: Typically our customers have their own designers but they use our product development people to put the garment together. So it’s a very interactive process. The development process is the most critical part of the business to get things running properly. Can you explain more about how you work with your customers? AA: We have a lot of small business groups within our offices that really cater to each customer. Because we specialize in middle to high-end products the product development teams that work on each account have to be very specialized in that market. Our overhead structures are probably higher than our competitors because we don’t centralize a lot of our staff and we offer more customized service; 48
SEPTEMBER/OCTOBER 2008
that is our competitive advantage. By the end of the month, we’ll have 20 sourcing offices in Asia, India and Middle East and in addition to that we have 22 quality control hubs with QC and QA people. What percentage of your global sourcing comes from China? AA: From my division I would say that we probably still produce 50 percent in China. Corporately we do maybe 60 percent in China. Our Chairman and I both really believe in the continuation of China as a main supplier. How have rising costs affected your business? AA: The last period has been pretty tough. We have seen increases in labor and textiles; certainly in cotton and synthetic fibers. And, as you know there has been quite a bit of inflation in China. Certainly our offices in Indonesia and Sri Lanka, with inflation in China, are better able to compete now. Isn’t it difficult to shift operations to other countries when companies have already invested in operations in China and Vietnam? AA: Usually it’s not a shift, it’s more of a gradual process and as a good sourcing company, we should smell a pricing or delivery problem before they happen and should be offering buyers a new direction. But most of our customers have not moved their production out of China; they have just moved the price sensitive items out. And China is not going away. I think certainly after the Olympics are over, the Chinese government will change the direction on some of their policies, they kind of went too far. How are you dealing with labour issues, such as rising costs and the impact of the new labour laws? AA: I can’t attach a specific percentage to it but certainly there’s been increasing costs. One of the issues in the past has been getting workers. Textiles are kind of dirty industry and the Chinese want to move away from that. Additionally, local labor laws are increasing costs. Then you have inflation affecting your electricity,
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COMPANYPROFILE gas, oil consumption at the factories, and we also have additional environmental factors. A lot of the industrial textile industries have moved north, they are outside of the main cities which are more expensive and controlled. Are increasing costs being passed on to the consumer or are suppliers having to find ways to reduce costs? AA: Manufacturers in China, whether textile or finished goods manufacturer have had to absorb cost increases for probably the last five years and in 2008, we really got to the breaking point. Now real costs are increasing. Remember, there has been such FOB price depreciation over the last 10 years and a lot of Chinese manufacturers have become incredibly efficient and have been able to absorb most costs. Today, I think a lot of wholesalers and the importers in the United State are eating their margins and are re-engineering their products to make up for the increased costs. In today’s economy, you can’t keep raising your prices. It’s all happening in an extremely bad time. Have you looked at Western China, where there are lower labor costs and government incentives for manufacturers? AA: Yes, we continue looking at it, but some manufacturers don’t want go there. When you are doing dresses, suits and more technically complicated products, it’s hard to go to the new frontiers. For more basic items, we certainly keep going to Western and Northern China, and other new places, and we are always looking to
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find new factories we can use. It usually takes 3 seasons of extensive training to get a new supplier working a hundred percent to our satisfaction. I understand that you have worked with Software provider, Core Solutions to implement a new solution for your business. Can you tell us how such a solution helps to facilitate your sourcing processes? AA: We hired Core Solutions to implement a software package to automate and regulate our product development process in the first phase. The system basically lets us computerize our fabrics, our trims and creates an interactive process between us and the buyer. It really automates some of the processes. In the past we used Excel Spreadsheets and other customer databases to keep track of product development. With Core Solutions, we are able to automate that, so we save a lot of time. With labor costs increasing in HK, it is extremely helpful so we don’t need to add additional head-count to do spreadsheets, that’s a huge cost for us. Eventually the system will connect into a consumer portal which will allow customers to do web-tracking. They will be able to track not only finished goods WIP, but fabric development, trim development and sample development; so they’ll have a complete picture. Also we are hoping to cut down the emails. Core Solutions allows us to give to our people time to think about what they are doing; that’s important. How do you see yourself staying competitive in this market, given rising costs, a recession in the US and so on? AA: Well, the one thing we have seen in the last 12 months, across all of the brands we service, is that products that are designed and manufactured well and delivered on time are still selling. So I think we stay competitive by helping our customer’s brands. We focus on the products that are working for them by improving them, and making sure we service them properly. For Newtimes, the only way we can keep competitive, is to offer better services.
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SPECIALREPORT
Making risks in emerging market sourcing work for you
I
Kevin Gromley Kevin is Managing Director for the Asia-Pacific regional manufacturing industr y practice of Deloitte and leads the Strategy & Operations consulting practice in China. Email him at: kegromley@deloitte.com.cn.
t could be termed the year of the recall. From tainted toothpaste to contaminated dog food, scores of products recalled due to safety and quality issues. These products had one thing in common: they were all sourced in emerging markets—setting off alarm bells for customers around the world. With significant financial and reputational impact at stake, these are alarm bells are hard to ignore. But with complex global supply chains and sourcing now further away from corporate headquarters, just how are manufacturers handling the risks inherent to sourcing in emerging markets?
That’s what Deloitte Touche Tohmatsu’s (“Deloitte”) Global Manufacturing Industry Group set out to discover. In our “Innovation in Emerging Markets. 2008 Annual Study” on product safety, product quality, and environmental standards in emerging markets, we surveyed more than 650 global executives from a range of manufacturing sectors. There are no easy answers to this problem and myriad facets to explore. Nonetheless, we discovered that rather than trying to avoid risk, the most successful companies – those who are achieving or exceeding their cost and operational goals when sourcing from emerging markets - are working to manage it. And some are even turning it to competitive advantage. Taking action Executives surveyed were well aware of the risks of sourcing in emerging markets. Strikingly, a quarter of both developed and developing market executives reported that their company had been involved in a product recall in the past five years. This had significant financial, revenue/market share and reputational impact. (See Exhibit 1). And more than 50 percent of developed market executives felt sourcing in emerging markets was a risk—with 20 percent saying it was a significant risk. This concern carried over to developing / newly-developed market executives, especially in China: about three-quarters of respondent executives from Chinese companies said product safety is an extremely important factor when global manufacturers select a Chinese supplier. There is also general agreement over what impact these risks are likely to have. Executives from both developed and developing markets believed cost increases were very likely, as companies respond to the demand for more stringent standards. In particular, they anticipate greater transparency as a result of customers seeking more sourcing information to allay fears about safety, quality, and
Impact of product recall Percent of executives responding “very significant” (6 - 7 on 7-point scale) base=executives at manufacturers who have experienced a product recall within the last five years 50%
Direct financial costs Impact on revenues/market share Impact on reputation Developed market manufacturers
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environmental standards. [See Exhibit 2]. But it’s by looking at the most successful companies that we can get the clearest picture of how to address risk in emerging market sourcing. From their responses to our study, it is apparent that the most successful companies had a much better overall understanding of the risks involved. The ability to not only recognize the risks but to manage them through proactive measures appears to be a key to success. In general, more successful companies were truly committed to mitigating risk by seeking higher standards and levels of control. Almost 70 percent of executives at more successful companies said they were extremely likely to source more from emerging markets with stricter standards, while 61 percent said they were very likely to produce more from company-owned facilities in emerging markets—compared to 51 percent and 39 percent, respectively, for executives at less successful companies. [See Exhibit 3]. A good example of this success is Audi, which sources the parts it obtains in China mainly from branches of its own European suppliers. This way it can help guarantee quality as well as a smooth supplier process.1 Hyundai has also worked to maintain its manufacturing quality by building its own factory in India to produce cars that meet all
Likely impact of concerns about product quality, safety, and environmental standards over the next three years Percent responding “very significant” (6 - 7 on 7-point scale)
41% 21%
More information provided to customers on production and raw meterials
34% 27% 41%
Emerging market manufacturers
Higher operationg costs Developed market manufacturers
48% 54% 41% 59% Emerging market manufacturers
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SPECIALREPORT
According to Deloitte’s “Innovation in Emerging Markets” study, a quarter of both developed and developing market executives reported that their company had been involved in a product recall in the past five years. Responses to increased concerns over product safety, quality, and environmental standards in emerging markets Percent responding “very likely” (6 - / on / - point scale) Source more from emerging markets with stricter standards Produce more in emerging markets in company facilities Source more from developed markets All developed market manufacturers Less successful manufacturers
58%
68%
51% 47% 61%
the supplier. They invested more time in up-front supplier due diligence and discovery. And these companies have been engaged more rigorously in other risk management activities, such as more frequent visits to suppliers; a willingness to address managerial skills and working conditions; significantly increased testing levels; and more visits to facilities and approval of subcontractors in their contracts. [See Exhibit 4].
39% 34% 39% 30% Very successful manufacturers
EU emissions and safety standards.2 The company Coast Products decided the best way to help ensure quality was to directly invest in the Chinese factories producing its products. Coast then brought in its own product quality monitors to assess if standards were being met.3 Some companies have taken even more drastic measures, such as Yushan Press, which produces stickers, catalogs, posters, and shopping bags. In order to better monitor suppliers and the quality of their goods, Yushan relocated to Shanghai – a higher-cost market – to increase visibility and take advantage of improved infrastructure and skilled labor market.4 Putting more effort into the selection of vendors and suppliers may also play a part. Successful companies went beyond the basics adhered to by most developed market executives when choosing suppliers—quality, cost, and reliability—and placed much more emphasis on the overall reputation of
Importance of factors when developed market manufacturers select an emerging market supplier Percent of developed market executives responding “extremely significant” (6 - 7 on 7-point scale) Overall reputation Quality of products/raw materials Cost Reliability Product safety Fast delivery schedule Flexibility Environmental record Product development capabilities Working conditions/labor practices Product design capabilities Corporate citizenship
1 “Audi purchasing chief: Europe remains primary parts source,” Automotive News, 23 July 2007. All developed market manufacturers Very successful 2 “Global Forum Special; India’s global reach,” Fortune, 29 October 2007. Less successful manufacturers 3 “The China Code; Manufacturing in China seemed like a good idea. Then came poisonous pet food, faulty tires, and toxic toys. What to do now,” BusinessWeek Online, 20 August 2007. 4“Keeping tabs on quality; In the wake of Chinese product recalls, a local company relocates to Shanghai to keep a closer eye on its suppliers and goods,” Vancouver Sun, 24 September 2007.
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manufacturers
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SPECIALREPORT Turning it to your advantage
more in terms of safety, quality, and environmental standards. Add to this pressure the reality that Chinese companies, like many It’s true that all of the above actions are going to others in emerging markets, sub-contract much of their work—and translate into higher operating costs; but executives it only raises the complexity of compliance. Companies in developed at the more successful companies are more likely markets have little visibility into the subcontractors used by their to anticipate and accept these higher costs. Even suppliers: only 35 percent of developed market executives surveyed more important, they view the entire risk scenario in our study say they perform extensive monitoring of subcontractors. in emerging markets as an opportunity to stand As this is where many of the problems have emerged, developed out from the competition by providing guarantees market companies will need to take a more active of meeting strict standards—which role in reviewing subcontractors and including may allow them to command higher Only 35 percent of them in their monitoring programs. Going prices. developed market forward, these companies will most likely seek This may seem problematic— out emerging market suppliers that can provide executives surveyed and even impossible—to many more transparency regarding their subcontractors manufacturers. But to compete on in our study say they in addition to overall higher standards. cost alone is short-sighted when the perform extensive Take Baxter International. When their potential for brand-crippling damage blood-thinning drug heparin was recalled, the monitoring of is so real. Companies that raise contamination was traced to a Chinese factory standards are likely to find that their subcontractors. that supplied only one, albeit key, ingredient. competitors quickly follow suit. To Baxter then sought out Shenzhen Hepalink maintain an advantage, companies Pharmaceutical. Shenzhen Hepalink has undergone rigorous need to execute quickly and be prepared to continue inspections and built its factory specifically to meet FDA standards. to upgrade. Shenzhen Hepalink also monitors its suppliers, sourcing only from Becoming the high-standard supplier of choice those that are government-regulated and follow strict rules to Even more pressing than the cost competitiveness minimize contamination . of developed manufacturers is the dynamic that So, just as their developed market counterparts have an is now surfacing for supply sources like China opportunity to stand out from the competition, Chinese companies— that are no longer the most cut-rate on the block. and companies from other emerging markets—can also differentiate With the stiff competition from Vietnam and India themselves by meeting higher standards. By communicating this to in terms of cost, Chinese companies should stakeholders, they may command—and receive—a premium for their seriously consider the impact of product safety and guarantees. Maintaining their status as the outsourcer of choice, overall sustainability. This is not only an issue from Chinese companies can work to carve out a niche as the locale of customers in developed markets, but increasingly high standards, quality control, and environmental responsibility. from China’s local customers, who are demanding
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KNOWHOW
The Tao of
Supply Chain 101
manufacturing
Back to The Basics! Chris R Deans is a seasoned supply chain executive, with over 25 years of experience in the Energy, Forest Products, Government and Consulting Industries. He can be reached at: crdeans@hotmail.com
Lean is all the rage. You hear it everywhere you go. Lean Manufacturing. Lean Supply Chains. Lean Organizations. The foundational principles of Lean are noteworthy: create an intense focus on value-added activity and eliminate waste in its various forms from all business processes. Reduce inventories and reconfigure intermittent manufacturing factories into productive kanban work cells. Cut costs while increasing productivity, quality, customer service and profitability. No wonder so many companies are scrambling to implement the Lean philosophy in their organizations. Let’s take a quick look at this long overdue business strategy in this edition of ‘Supply Chain 101—Back to the Basics.’ Early lean Although there is historical evidence of “rigorous process thinking in manufacturing” as early as 1450 in the “Arsenal of Venice,” the original idea of using interchangeable or standardized parts for manufacturing is generally credited to the French artillerist Jean Baptiste Vaquette de Gribeauval in the mid-1700’s. Eli Whitney, the US inventor of the cotton gin, popularized de Gribeauval’s ideas in the United States in 1799. Although never actually practicing it himself, Whitney is nevertheless credited with inventing American manufacturing and setting the foundation of the first American Industrial Revolution by conceptualizing and popularizing the combination of 3 technologies: powered machinery, division of labor and interchangeable parts. It wasn’t until 100 years later however, that Henry Ford famously applied
these concepts to successfully mass manufacture automobiles in 1910. Charles Sorensen, VP of Production for Ford Motor Company, later applied Ford assembly-line techniques to the Willow Run B-24 Bomber factory in 1940. The Willow Run factory made over 8,800 B-24s. At its peak, this facility was capable of manufacturing a perfectly serviceable B-24 bomber every 60 minutes, a stunning manufacturing accomplishment that did not escape the attention of the Japanese during World War II. After the war, with the rest of the world’s industrial infrastructure bombed into oblivion, American manufacturers in the post-war economic boom and for the next 30 years focused almost exclusively on production volume. Meanwhile Japanese industrialists, including Toyota Motor Company’s Taichii Ohno and Kiichiro Toyoda studied Ford’s manufacturing model. They
welcomed guidance from radical thinkers W. Edwards Deming, Joseph Juran and Phillip Crosby, the fathers of the Quality Movement. Vastly improving on Ford’s model, they developed the Toyota Production System (TPS), the precursor to what is considered Lean Manufacturing today. The pillars of lean TPS is built on two pillars: “Just-InTime” (JIT) production and “Jidoka.” Among other things, JIT refers to the manufacturing and conveyance of only “what is needed, when it is needed, and in the amount needed”. JIT is about minimizing all forms of inventory and establishing pin point precision in all delivery lead times. Inventory is considered “muda”, or waste, and all waste is to be eliminated. Jidoka refers to the ability of a line worker, a quality issue, or an equipment malfunction to stop a production line, something never lightly done. In their book “Lean Thinking“ (1996), James P. Womack and Daniel T. Jones distilled the Lean Manufacturing philosophy into five fundamental principles: • Specify the value desired by the customer • Identify the value stream for each product/feature providing that value; eliminate all of the waste (normally 80% to 90%) currently deemed necessary to provide it • Design continuous-flow processes through the surviving value-added steps where possible • Introduce “pull manufacturing” techniques between all steps where continuous flow is possible • Manage towards perfection so that the number of steps and the
Willow Run was capable of manufacturing a complete B-24 bomber every 60 minutes
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KNOWHOW
amount of time and information needed to serve the customer continually decreases. Time and information = inventory, and inventory = cost The corollary disciplines Lean will not be successfully implemented overnight. It is not a black box solution that can simply be plugged into any situation. Good Lean implementations are the result of careful analysis and a thoughtful application of appropriate Lean practices and disciplines. Change Management will be the most difficult aspect to master because Lean requires your organization to think about business in new ways. There are a host of supporting initiatives and disciplines that surround Lean, including the
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following: • 5S – “Sort, Straighten, Sweep, Standardize and Sustain”. Lean process triggers are visual and work best in neat, orderly environments • Value stream mapping – A dispassionate detail analysis of the value-add for a product or service • Kaizen – Continuous process improvement • Kanban – A technique used in pull manufacturing systems where visual signals trigger actions • TQM, Six Sigma, et.al. – Quality Improvement initiatives
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3PLFOCUS
An
Olympic
size freight solution DB Schenker is one of the leading international providers of integrated logistics services with operations in over 130 countries, and even a special service offering such as DB SCHENKERglobalsportsevents providing logistics solutions for international sports events such as the Olympics. DB Schenker was one of the first foreign 3PL’s in China. CHaINA Magazine spoke with Andrew Jillings, CEO, Schenker China Ltd., and Steve Dearnley, CEO, Schenker Asia Pacific, about DB Schenker’s strategy, operations and challenges in their China operations.
How long has DB Schenker been in China? Andrew Jillings: The first DB Schenker operation was opened in 1966 in HK, and then we opened the first DB Schenker office in 1985 in the mainland. We have a long history here and now we have 4,500 people in China, with 60 offices. A lot of foreign 3PL’s have yet to find the right business model for China, how has DB Schenker adapted their business to the market? Steve Dearnley: While DB Schenker represents the global transport and logistics activities of Deutsche Bahn, with over 88,000 employees, we also strongly believe in adapting global best-practices and business models to fit the local markets. We have had the advantage of being an early mover in this region and market, such that over time with our long history here, we have been able to finetune our business models in the local markets. Nonetheless, the competitive environment is still keen as ever, and we are still focused on very clear strategies of leveraging our strong base of European and American customers with APAC requirements, as well as looking to grow and develop Asian-based customers in the region and to the rest of the world. 56
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3PLFOCUS
Andrew Jillings, CEO, Schenker China Ltd.
So you are serving the same companies that are exporting out of China as well? SD: Yes. With the integration of leading American 3PL BAX Global a few years ago into DB Schenker, this expanded our base and involvement with a lot of the Fortune 500 companies in recent years, not only in China but across the region. So is your China strategy one of localization? AJ: We adapt from global corporate standards into effective localized strategies. This is possible only because we have a strong local organization and also we have a good management as well, right across the regions in China. We have built from the ground up, particularly in the last 10 years, a strong training division and we’ve run many training programs to ensure competency levels are at its peak, which are relevant regardless of whether it’s for local, regional or global markets. How does DB Schenker differentiate itself from its competitors in China? AJ: We are involved in different sectors and have a very established platform across China. In addition to that, we are also very strong in services for fairs and exhibitions. We have a projects division; an oil and gasoline division; a house and removal division among others. So there are a lot of facets to our business in China. And at the same time, we are part of a global network, connecting the growth markets in America, in Europe and in Asia, with our own strong networks for distribution, through high level quality standards. SD: Aside from our mainstay of providing integrated logistics and multi-modal freight solutions and services for companies across industries and vertical markets, we have very strong niches due to our experience and history in developing unique expertise and competencies such as for global sports events like the world cup and the Olympics. For instance, as you know, we are the official exclusive supplier for freight-forwarding and customs clearance to the Beijing 2008 Olympic Games. Aside from the National Olympic Sports Associations and Council requirements, we also manage www.chainaonline.com
Steve Dearnley, CEO, Schenker Asia Pacific
the requirements of the many broadcasting companies and their broadcasting equipment from international broadcasters all over the globe, as well as the multitude of companies involved with such a mega-event, such as power supply equipment, hospitality materials and consumables. It must be difficult to negotiate through the logistics headaches of the Olympics? AJ: Such iconic events are always challenging, and it is great to have such an opportunity to test our capabilities and mettle to meet these challenges especially since we’ve been working on this Olympics project for 3 years now. We have a big team of people in China working on the games; in addition we handle a number of big corporate clients who are also heavily involved with the Olympics. The complexity as such goes beyond the norm of clockwork manufacturing and production logistics efficiency, but to also deal with an extremely diverse spectrum of customers and stakeholders, such as institutions, government authorities, associations and so on. Is your Olympics involvement more of a marketing exercise? AJ: The Olympics is an iconic institution. To be involved is certainly an honour for us, but also it is a great litmus test of our capabilities in the local market to fulfill the business requirements of our many customers. SD: In fact, DB Schenker has a long history of providing services for the Olympic Games; we did Sydney, Salt-Lake, Athens, Torino, and we even did the recent World Cup in Germany. DB Schenker’s Olympic involvement is more importantly a strong sign of support to the Olympics movement, values and ideals, which we also embrace in the organization, using it to perpetuate the values to our fellow colleagues. Everyone talks about staffing and talent issues in supply chain in China, is that an area you are concerned about? AJ: We used to have a lot of challenges, but these days we have a lot of young graduates joining us. At the beginning, you trained a lot of these people but they leave. It’s amazing though how many actually SEPTEMBER/OCTOBER 2008
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3PLFOCUS come back. So we are starting to see the differences. SD: Throughout the organization, one of our key goals is to ensure that we have very good training and development programmes to grow our staff. In fact, in a recent industry survey that covered a range of logistics and forwarding companies, we scored 7 percentage points lower than the industry average in terms of staff turnover.
have deep-water ports and air-freight is not easy. We know a number of vendors that are opening their operations in Northern Vietnam. We have a pretty strong operation in Southern China and we are very, very well-established in Guangzhou. We also have a well-established operation in Vietnam. So actually we’ve been working with some vendors in Vietnam to make sure we can provide the service to truck goods there to the gateway in Guangzhou. Then we can fly things out of Southern China. It’s a symbiotic relationship. We have heard a lot about railroad developing from China going through Europe, what is your strategy in this area? AJ: We run two trains actually, and there’s lot of interest since the transportation time from Beijing to Hamburg is 15 days. I think the key thing one needs to look at is how the products are delivered on a door-to-door basis. Particularly if you look at the automotive market, the potential of running a train directly to the store, that changes the game a little bit, if you can do it in 16 or 15 days, I’m sure a lot of companies will be interested.
How are you dealing with ongoing fuel cost increases? AJ: Our businesses have pretty thin margins and obviously we are majorly concerned with fuel cost increases. Ultimately it will impact to a large extent, the cost of doing our business. Already, the increases will be absorbed by the vendors, ocean carriers and airlines. But it also depends on the product and the particular market. A lot of companies are examining the benefits of operating in lower cost countries. However, a lot of the benefits are being eaten up by transport costs. A recent manufacturing competitiveness report talked about how 70 percent of manufacturers in China are looking at moving to Vietnam and are starting to set up operations there. Are you seeing increases in shipping to Vietnam? SD: I think what we are seeing here is an increased investment going into Vietnam. But in the last few months, issues such as 24 percent inflation, has certainly put a damper into the rate of development and investment. I think Vietnam is more like a supplement to China and the two countries can work hand in hand, they have very similar investment climates. AJ: If you look at the European importers, the benefit of Vietnam is that the sailing time is a lot faster from Vietnam than that from China. However, the logistics infrastructure is still not prime, as they don’t
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Any final comments on your strategy going forward in China? AJ: As I mentioned, while DB Schenker has been historically strong on the automotive side, BAX has a really strong footprint on the electronic side and a lot of experience in running VMI (Vendor Management Inventory). I think the combined organization has allowed us to add more depth and competency to what we are doing.
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EXECUTIVEINSIGHT
Advice
from the top
In this fourth article in the Executive Insight Series, global recruitment firm Michael Page International talks to Serge Cofrade, an advisor to multinational companies on developing their sourcing capabilities in China, about his views on career development. Serge Cofrade’s primary responsibility to multinational companies is to provide advice on how to upgrade their current capabilities, including supplier relationships and staffing, to enable them to supply products to Europe and North America. Prior to his current position, he spent more than 15 years in the automotive industry in Europe and then China. In addition to his work experience as a procurement and supply chain specialist for companies such as Valeo and China Sourcing Company Limited, he has acted as Managing Director for several joint ventures in China. What is the most rewarding aspect of working in the Supply Chain profession? Serge Cofrade: The procurement and supply chain profession is, from my point of view, one of the most interesting and diverse industries to work in. You can have a very extensive range of responsibilities within one company. It covers the lifespan of a product from design right through to marketing, so you get exposure to all the different aspects of a business like the technical side, quality control, manufacturing, marketing and finance. It is equally rewarding for me, after having worked many years in the profession, to see the procurement and supply chain function receiving higher levels of investment and attention. It is now considered a strategic business function because of its growing impact on organisational performance and the P&L statement. As more companies focus on cost management and operational efficiency to maximise profit margins, I believe it will continue to grow in importance. What do you look for when hiring new staff? SC: While a strong technical background will always be mandatory, I believe in our profession a lot can be learned on the job. So, I look for professionals with the right personality and cultural fit. As a supply chain employee, you are required to represent the company externally and build relationships with suppliers so you need to have strong interpersonal skills. Communication skills are also essential to liaise with business stakeholders. I also seek people who have an open mind and a can-do attitude.
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As procurement and supply chain continues to evolve as a value-adding business function, I expect people with these sorts of skills to become even more highly sought after. What are some of the factors that have made you successful in your career? SC: If I had to name three factors that have contributed to my success, they would be the ability to listen, analyse and perform with passion. Most of the time, we get caught up in the busyness of life running from one thing to the next and we forget to slow down and actually listen to
others. If you don’t know how to listen you have almost no chance of understanding a project and all the right parameters. It’s also important to analyse what you are asked to do in your job. Don’t be afraid to
ask questions or conduct extra research about a particular situation or project. From my experience, any great achievement has been the result of a deep analysis and thorough preparation. Finally, you need to be willing to achieve results and have the right attitude to be successful. You can listen and analyse but if you don’t have the passion to achieve, then there won’t be any conclusion or outcome. You need to be results driven. How important is professional development and training in career progression? SC: Professional education is important and you need to continue learning to grow in your career. I encourage young professionals to seek out opportunities to develop their skills and undertake training in areas of interest. However, in the procurement and supply chain profession I believe practical experience is equally important for career progression. A lot of people working in other business functions move into procurement and supply chain and learn from the ground up. It’s the type of industry where you can really learn a lot from your peers and getting involved in various projects.
For further advice on career development or for general information on current employment opportunities, please contact Olly Riches at Michael Page International on +8621 3222 4758 or email ollyriches@michaelpage.com.cn.
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MOVERS&SHAKERS
&hakers
Changed jobs in the post month? Hired someone new recently? comment@supplychain.cn
Movers
With supply chain talent at a premium, CHaINA keeps an eye on which executives are moving where.
Brian Fenerty,
Practice Leader, Automotive Group, MRI China
Brian Fenerty was recently appointed as the Practice Leader of the Automotive Group at MRI China. Brian began his recruiting career in Tokyo, Japan in 1994 and has worked in Japan, Chile, the United States, and China. Brian has worked with both start-ups and established firms around the globe and is most at home in a candidate driven, highly competitive market place At MRI China Brian is part of the Industrial Group and manages the Auto Team. Prior to his role at MRI China he was the General Manager of a successful regional firm and led teams across Asia. MRI Worldwide Executive Search Group is part of Management Recruiters International (MRI), the world’s largest search and recruitment organization. MRI utilizes the combined power of over 1,100 offices worldwide to find and place talented people.
Ben Cornish,
Senior Vice President, Chief Operating Officer, AMB China
AMB Property Corporation has appointed Ben M. Cornish as Senior Vice President, Chief Operating Officer for China, a new position within AMB responsible for the company’s expansion in China. A veteran of numerous industrial and retail real estate developments in Asia since 1997, Cornish was most recently president of GMS China, a developer of retail properties throughout China. Previously, he was in charge of China real estate development for Wal-Mart International, where for five years, he served as managing director for the Southeast Asia Division of Koll Development, and developed warehouses for Trammell Crow in both the U.S. and China. AMB Property Corporation is a leading global developer and owner of industrial real estate. The company’s presence in China includes approximately241,100 square meters of operating and developing properties in Shanghai and Beijing.
Mirek Dabrowski,
Director of Logistics, DSV China
As of July 2008, Mirek Dabrowski was appointed as Director of Logistics, DSV China. Mirek will be heading contract logistics activities in China where DSV has already developed a presence in 6 mainland cities serving customers in engineering/manufacturing, hi-tech and the fashion industry. Mirek brings over 8 years experience in the Chinese logistics market, where he has held a variety of commercial and operational positions with major international 3PLs. He spent the last 5 years with DHL Exel Supply Chain in as VP, Business Development Greater China. DSV is a leading global supplier of transport and logistics services which recently acquired ABX Logistics, giving it a turnover of over 6.5 bln euros in 2007. DSV Air & Sea has been present in China since 2001 and currently employs over 400 people in 11 branch offices.
Nis-Peter Iwersen,
VP Procurement Asia Pacific, Schaeffler China
From Aug 2008, Nis-Peter Iwersen was appointed VP Procurement Asia Pacific for the Schaeffler Group based in their headquarters in Shanghai. Iwersen has over 12 years of experience in China, arriving in 1996 to set up two green field manufacturing & sales companies in China. In his prior position he served as VP Procurement China for the Danfoss Group for 4 years, where he set up and managed three Danfoss International Procurement offices in China to improve the supplier and cost base. Before that, he was Global Procurement director of a business unit with factories in Mexico, China and Demark. Schaeffler Group is a leading German manufacturer of rolling bearings and linear products worldwide and is a major supplier to the automotive industry with 66,000 employees in more than 180 branches worldwide.
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Our blog section features recent entries from Blogs relevant to China’s supply chain.cn
BLOGWATCH
China Environmental Law
http://www.chinaenvironmentallaw.com
China’s Rural Pollution Problem August 11th, 2008
As the environment in China’s eastern cities stabilizes or sees marginal improvement, the focus of China’s anti-pollution efforts is shifting to the countryside. The problems of domestic, industrial, and agricultural waste in rural areas are enormous: Domestic wastes are largely untreated and responsible for a lack clean drinking water for hundreds of millions of rural residents. 280 million tons of household garbage, 9 billion tons of domestic sewage and 260 million tons of human excrement were generated - and mostly dispersed on site or at will - per year. Rural factories and mines typically have not been well-regulated from an environmental standpoint, and continue to dispose of large amounts of often toxic wastes into the air, water, and soil. The threat of pollution from factories is increasing as some factories move inland to avoid stricter regulation along the coast. China is the world’s biggest, and one of its most inefficient, fertilizer and pesticide users. Every year, China uses more than 360 kg of fertilizer per hectare of land, 3.3 times more than the United States and 1.6 times more than the average for EU countries. But only 30 percent of it is used effectively, compared to 60 percent in developed countries. This means, that much is swept away by runoff, causing eutrophication of surface water (such as the algae choking Dianchi Lake, Taihu Lake and Chaohu Lake) or polluting underground water systems. Pollution from livestock breeding is also a huge problem. According to China Daily, while 2.7 billion tons of livestock excrement was generated annually, only 20 percent of rural breeding farms had adequate (if any) pollution treatment facilities.
3PL Wire
http://www.3plwire.com
The high cost of fuel - The tipping point By Splatty • Aug 27th, 2008
Let’s face it, there is absolutely no bigger topic in the world of logistics than the current price of fuel. With the price of crude oil recently down from its high of $140 per barrel, the cost of gasoline now just under $4.00 per gallon, and the price of jet fuel causing airlines to jettison aircraft, reduce jobs, and eliminate unprofitable lanes, at what point will high energy prices cause companies who outsource manufacturing to offshore locations start bringing manufacturing back closer to home? According to a report by MIT’s David Simchi-Levi, the tipping point for many companies to start looking at “nearshoring” is directly tied into the price of oil. Once oil reaches a certain threshold, companies may benefit by sourcing closer to home. Although the manufacturing unit costs are in many cases higher, those costs are offset by the increased shipping costs from offshore locations. Many of the customers I currently deal with are still manufacturing all or at least a great majority of their products in China, especially those companies dealing in retail goods. However, over the past couple of months I have seen a slight increase in companies requesting quotes for transportation out of Mexico and South America. These companies are mostly looking to benchmark South America based supply chains and the corresponding total landed cost of goods with their current China based supply chain. www.chainaonline.com
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REGULATORYUPDATE
A Chinese clerk exchanges currency for a customer at a currency exchange office of Shanghai Zhangjiang ICE Foreign Exchange Ltd. in Pudong, Shanghai. New Foreign Exchange Measures are forcing companies to account closely for any remittance into and out of China. The new regulations affect all advanced payments made after July 14, 2008.
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REGULATORYUPDATE
?
I$ your foreign currency accounted for
V
arious measures have recently been promulgated in China to impose requirements on foreign currency receipts and remittance into and out of the PRC. Exporters should therefore be mindful of the content and implications of these measures as the receipt of foreign exchange from their transactions and their ability to make payment may be affected. By Tan Beng Ti / Edrick Guo, Baker & McKenzie, Hong Kong.
Measures for the On-line Inspection of the Collection and Settlement of Foreign Exchange for Export Transactions (the “Foreign Exchange Measures”). The Foreign Exchange Measures were jointly promulgated by the State Administration of Foreign Exchange (“SAFE”), the Ministry of Commerce and the General Administration of Customs on 2 July 2008 and it came into effect on 14 July 2008. SAFE also issued various notices to set out the implementation details of the Foreign Exchange Measures. The objective of the Foreign Exchange Measures is to improve the administration of the collection and settlement of foreign exchange in the export of goods by enterprises. This is intended to be achieved by the set up of a comprehensive online inspection system and the imposition of certain obligations on enterprises which collect foreign currency in the export of goods.
The inspection system The primary role of the inspection system is the determination of the amount of foreign currency that an enterprise is allowed to receive when goods are exported (“Receivable Value”). The Receivable Value is determined in different ways, depending on the nature of the transactions involved.
Tan Beng Ti
Tan Beng Ti and Edrick Guo are lawyers based in Baker & McKenzie’s Hong Kong of fice. They advise companies in the PRC on indirect tax, customs, international trade law and national regulatory matters both from a planning as well as a compliance perspective.
Categories of transactions • Category 1: general trading, turnkey processing (i.e. where a manufacturer takes title to the raw materials used in processing), “Border Transactions of Small Value”, exports made to facilitate projects involving Chinese entities and / or foreign entities in an overseas tender, or other trading transactions. • Category 2: toll processing (i.e. where raw materials are consigned to a manufacturer, as opposed to being purchased by the manufacturer). • Category 3: transactions in which advance payment is made for goods, including those where goods are made on credit with payment made prior to delivery. • Category 4: transactions where no Customs Export Declaration Form is required for the exported goods.
Edrick Guo
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REGULATORYUPDATE • Category 5: transactions where goods are exported through import/export agents. Toll processing transactions It is worth mentioning that the determination of the Receivable Value for Category 2 transactions is more complicated. It is determined by the ratio of the verified foreign currency incomes to the total price declared to the Customs on an exports verification sheet (which is determined by SAFE’s sub-bureaus based on local conditions and is known as the Toll Processing Ratio). Toll manufacturers should note that if the foreign currency they receive exceeds 25% of the permitted ratio, their names will be submitted to the relevant local SAFE sub-bureau which, presumably, would scrutinise their foreign exchange operations more closely. Penalties would then be levied on manufacturers who violate the PRC foreign exchange controls regime. Transactions involving import/export agents The import/export agents should responsible for the collection and settlement of foreign currency in Category 5 transactions, and not the enterprises engaging the agents. This however is not a legal requirement but an encouraged practice.
Operation of the inspection system Under the system, an enterprise is required to deposit the foreign currency which it collects in the export of goods (including advance payments) into a “to-be-inspected” export foreign currency account (the “to-be-inspected account”) which is opened in the name of the enterprise in a designated foreign exchange bank. Thereafter, the bank is required to log onto the inspection system and settle or transfer out the foreign currencies in accordance with the Receivable Value stated in the inspection system. Only after the inspection system requirements are fulfilled does the bank have permission to transfer the funds to the enterprise’s The bank is not allowed to settle or transfer out foreign currencies exceeding the Receivable Value. Interest will accrue on any amount deposited in the bank as a demand deposit and the current applicable interest rate for the Bank of China is 1.15%.
Notice of the State Administration of Foreign Exchange on the Issues concerning the Implementation of Registration of Foreign Debt under the Trade in Goods of Enterprises (the “Foreign Debt Notice”) The Foreign Debt Notice imposes certain registration requirements on foreign debts that accrue due to advance payments or deferred payments on (a) individuals who engage in foreign trade and (b) enterprises with the capacity to engage in foreign trade, which are established in bonded zones and engage in trade on a non-bonded basis. Failure to abide by these registration requirements is punishable under the Foreign Debt Notice. Advance payment for exports “Advance payment” in the Foreign Debt Notice refers to a transaction where payment for goods is made prior to the actual delivery of the goods to China. Effective from 14 July 2008, an enterprise involved in advance payment transactions must register newly concluded contracts via the Internet or at the local foreign exchange bureau. It must then perform the formalities for the withdrawal of the advance payment after its receipt. The registered advance payment has to be cancelled if the transaction is abandoned or for other 64
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reasons does not go through and the funds are returned to the overseas purchaser. Failure to register such advanced payments or advanced payment arrangements may result in penalties being levied. Deferred payment for imports “Deferred payment” in the Foreign Debt Notice refers to a transaction where payment for goods is made after the goods are imported into China. An enterprise is only allowed deferred payments amounting to 10% of the total amount paid for imported goods in the previous year. Effective from 1 October 2008, an enterprise involved in deferred payment transactions must register newly concluded contracts via the Internet or at the local foreign exchange bureau.
Implications of the new regime for manufacturers, exporters and importers 1. Toll manufacturers would be subject to additional scrutiny through the Toll Processing Ratio under the inspection system. They should pay closer attention to the value of exports declared to the Customs when exporting these goods under the toll arrangements undertaken. We suggest toll manufacturers to: • Identify the Toll Processing Ratio benchmark in the locality of establishment • Determine what the value of exports should be under the relevant provisions • Clarify with local authorities what the consequences of being ‘named’ are, if possible • Monitor the fluctuation of the Toll Processing Ratio over time. 2. It appears that the import / export profile of an enterprise is taken into account by the PRC authorities under the Foreign Debt Notice. However, there is little transparency on how specific quotas and caps for each enterprise is set. Exporters / importers should: • Assess the import and export profile of your company • Discuss with local authorities on the possible quotas and caps to be imposed • Explore options which allow for greater flexibility in operations and the application of product or industry specific exemptions (such as those applicable for tenders, shipbuilding and other large scale equipment transactions). 3. Enterprises that heavily rely on import/export agents should keep a close eye on what the agents are doing on their behalf. Contractual obligations as to foreign exchange controls responsibilities under the contract should also be clearly defined. 4. The registration of advanced payments and deferred payments with local authorities must be done in a timely manner.
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Stars&Duds
STARS&DUDS
Our stars and duds section takes a look at some of the inviduals and companies in and around China that are on their way up and others who are on their way down or out.
Olympic sponsor stars and duds So much ink has been spilled over the Olympics that we felt a final word was necessary. After seeing a post on Richard Brubaker’s, All Roads Lead to China blog we decided to focus our Stars and Duds report on winners and losers among the corporate sponsors of the Beijing Olympic Games. These are the medals we’d like to give. By Richard Brubaker and CHaINA Staff
Stars (Gold) Gold to Lenovo Lenovo’s sponsorship in the Beijing Games made perhaps the most sense of any of the brands on the logo board as it will potentially provide them with the greatest opportunity for accessing the global market. Sure, China’s market is important to them as their home base, but the games gave them a chance to get out from under IBM’s logo and rebrand themselves on a global scale.
Gold to Li Ning Ambush marketing at its best. While not an official sponsor of the Olympics, Li Ning’s run around the Bird Nest roof won much
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acclaim. We figured that getting in front of the billions of global viewer -- without spending 100 million dollars – coupled with getting your logo on many athletes clothing, is worthy of a gold medal. Gold to Puma Puma is another company that was able to capitalize on the games without spending big dollars on sponsorship. Jamaïcain runner Usain Bolt, after becoming the new 100 meter Olympic champion for 100 introduce his “Golden Theseus II” shoes to the world in front of the camera. How much is that moment worth? The story is made more interesting by the fact that Adidas and Puma were founded by two brothers of the same family in Germany, Rudolf and Adolf Dassler. While Adidas has become the larger brother, worth 10 billion euros, Puma has become a hipper alternative, a fashionista brand, more innovative in its marketing.
Bronze Medal McDonald’s and Coke Two of the strongest brands in the world, these two firms have penetrated further than any other global firm around, Coke perhaps further than McDonald’s. The measurable gain for them is going to be marginal at best. Where their 100 mln USD in sponsorship money might make business sense is in a defensive manner. The money is essentially
preventing their competitors from growing in markets that they have dominant positions in. The verdict is still out: future gold medal winners?
Duds (No medals) The companies we felt were not worthy of medals are those that spent millions of dollars only to receive a questionable return on investment. Sinopec and CNPC Having 2 of the 3 largest oil firms as Olympic sponsors smacks the “green” Olympics in the face, but aside from that, any gains in revenue from supplying oil to the Olympics are surely being wiped out by the NDRCs pricing policy that is killing them. This is clearly a political sponsorship that did not bring the bacon home. State Grid We are not sure where the benefit would be from this unless they are somehow ramping up a services platform for other countries holding major events. Certainly their recent losses from power shortages also show that political sponsorships don’t always come through. SEPTEMBER/OCTOBER 2008
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LOGISTICS SERVICE PROVIDERS
LOGISTICS SERVICE PROVIDERS Arvato Services China 162, Luoxiu RD, Shanghai, 200231 P R.C 中国上海市罗秀路162号，邮编200231 +86(0)21-54630606, ext 580 www.arvatoservices.com.cn
Agility 19/F Broadway Centre, 93 Kwai Fuk Road, Kwai Chung, NT, Hong Kong, China 香港新界葵涌葵福路93号 百汇中心19楼 +852 2211 8668 www.agilitylogistics.com ALLWINGS LOGISTICS 1688 Sichuan North Road, 26/F Fude Business Centre South Shanghai 200080, People‘s Republic of China +86 21 6306 3134 www.alls-sh.com APL LOGISTICS 5F Raffles City Office Tower, 268 Xizang Zhong Road, Shanghai 200001 上海西藏中路268号来福士办公楼5 200001 +86 21 2301 2800 www.apllogistics.com
BDP INTERNATIONAL Unit 2102-2106, Shanghai Bund Int’l Tower, 99 Huangpu Road, Shanghai 200080, China 上海市虹口区黄浦路99号上海滩国际大厦 2101-2110室 邮编：200080 +86 21 6364 9336 www.bdpinternational.com BIRKART GLOBISTICS Room 618, Ocean Towers, 550 Yanan Dong Lu, Shanghai, 200001 上海市延安东路550号海洋大厦618室, 200001 +86 21 5352 4766 www.birkart.com
CEVA LOGISTICS 上海长宁区延安西路1118 号龙之梦大厦2608室 +86 21 5258 6611 www.cevalogisitics.com
To take out an ad in CHa NA, contact KAMAN CHENG tel: +86 (21) 5102 1617/18 • email: kaman@chainamagazine.com
滇 Go Kunming Whe her you're going to Kunming on business or for leisure you'll need to know how to get around, where to stay and the top places for food, drinks and fun. GoKunming is the only English-language website serving he needs of visitors to and residents of Kunming, China's 'Spring City'. Filled with useful listings, an insightful blog that is updated daily plus forums and classifieds, GoKunming makes it easy to get the most out of one of China's top second-tier cities.
LOGISTICS SERVICE PROVIDERS China Arts&Crafts Building, 103 Jixiangli, Chaoyangmenwai, Beijing, 100020 北京市朝阳区朝阳门外吉祥里103号中国 工艺大厦B座2层 邮编:100020 +86 10 6552 8822 www.chindex.com CROWN WORLDWIDE Crown Building, No. 59, Lane 729-75 Sui De Road, Shanghai 200331 上海市绥德路729弄75支弄59号 嘉柏大厦 邮编：200331 +86 21 6250 8820 www.crownworldwide.com DAJ N LOGISTICS 3000#South Lia-hua Road, Prologis Logistics Park,Minhang,Shanghai,201109 莲花南路3000号，普洛斯闵行物流园区内。 邮编：201109。 +86 21 6309 8336/3430 6999 www.dajin.com.cn DERET LOGISTIQUE Suite 1703 Shanghai Bund International Tower, 99 Huangpu Road, Shanghai, 200080 上海市黄浦路99号 上海滩国际大厦 1703室，200080 +86 21 6307 5086 www.trans-access com cn DHL 18/F, Tomson Commercial Building, 710 Dong Fang Road, Shanghai 200122, China 上海市东方路710号汤臣金融大厦18楼邮编 200122 +86 21 5058 1111 www.dhl com
LOGISTICS SERVICE PROVIDERS IDS LOGISTICS 8/F Tower Block, LiFung Plaza NO.2000 Yishan Road, shanghai 201103 上海市闵行区宜山路2000号利丰广场 主楼8楼，201103 +86 21 2416 4700 www idslogistics.com IPS L MITED 01-11 YouYou International Plaza 76 Pujian Road, Pudong Shanghai, China 200127 +86 21 6165 9288 www ipssupplychain com KERRY EAS LOGISTICS 北京市朝阳区东三环北路霄云路21 号大通大厦，100027 No 21,xiaoyun Road,North Dongsanhuan Road,Chaoyang District,Beijing,100027 +86 10 6461 8899 www kerryeas.com KUEHNE & NAGEL Block 1, 11-16F 1868 Gong He Xin Road Shanghai 200072, P R. China 共和新路1868号大宁国际商业广场 第一幢11-16楼, 邮政编码：200072 +86 21 2602 8000 www kuehne-nagel com LINFOX ROAD TRANSPORT 26-F, Cross Region Plaza, 899 Ling Ling Road, Xuhui District, Shanghai 200030, China 上海市徐汇区零陵路899号飞洲国际广场26 楼F座 +86 21 5150 6699 www linfox.com
ELEE Elee Shanghai Offce 375#, Kefu Road, Nanxiang Town, Jiading District, Shanghai, China 中国上海嘉定区南翔镇科福路375号 +86 21 39124360 www.eleechina.oom
LINKSTAR LOGISTICS 49A, #199, North Riying Road, Waigaoqiao Free Trade Zone, Shanghai, 200131 上海市外高桥保税区日樱北路199号49A, 200131 +86 21 5046 1666 www linkstarlogistics com
FM LOGISTIC 2099 Xinqun Road,Pinghu EDZ, Zhejiang Province. 浙江省平湖经济开发区新群路2099号 +86 573 8527 3072 www.fmlogistic com
LOG FASHION 375 Kefu Rd, Nanxiang Town, Jiading District, Shanghai, 201802, China +86 13917614568 www logisfashion.com
HAVI FOOD SERVICES 6 Xingsheng Jie, Beijing Economic & Technological Development Area, Beijing, 100176 100176北京经济技术开发区兴盛街6号 +86 010 6788 3335
MENLO Golden Eagle Mansion, 1518 Min Sheng Road, Tower A 13th Floor, Shanghai, P.R.China 中国上海浦东新区民生路1518号金鹰大 厦A座13楼
HMG GROUP Suite B-E, 10F International Shipping & Finance Building,No.720, Pudong Avenue,Shanghai, China 中国上海浦东大道720号国际航运金 融大厦10楼B-E座 +86 21 5036 8000 www.hmglog.com
PTL 1603, Kun Yang Plaza, No. 798 Zhao Jia Bang Rd, Shanghai, China 200030 上海市肇家浜路798号坤阳国际商务广场 1603室 邮编200030 +86 (21) 6445 3190 www ptl-group.com
ID LOGISTICS Room 19D, Dong Tai Plaza, No.309 Tanggu lu,shanghai 上海市塘沽路309号19D +86 21 6306 7083 www.id-logistics com
RUNBOW LOGISTICS Office #207, Building 39 No. 2688 Yindu Road 201108 Shanghai, China +86 (21) 5443 1002 www runbow-logiitics com
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Chief Operating Officer A leading manufacturer in the electronics industry with subsidiaries across Mainland China and Hong Kong. The company’s specialisation is the production of fuses, batteries, and power distribution systems.
Xiamen Role ◆ Generous Relocation Allowances ◆ Rapidly Growing Business Reporting directly to the President, in this newly created role you will provide overall leadership for managing the factory operations including administration, production process, quality, material planning, supplier management and other activities like business development and product development. In order to achieve the company’s objectives, you will control the production flow and operations, always making sure productivity and efficiency are operating at maximum capacity. Alongside this, it will be necessary to maintain excellent relationships with various PRC departments and ensure all domestic and international quality standards are met.
The successful candidate will be a bachelor/diploma holder preferably in a Production, Electronics or Operational Management field with a minimum of ten years solid experience in an electronics manufacturing managerial role. You will be proficient in PRC labour law, customs and taxation requirement, import and export regulations, preferably with IPO experience in China. This role is open to all candidates with a native level command of written and spoken English and Mandarin (Cantonese is a bonus but not essential). In return, the company is prepared to help the successful candidate in every way to relocate to Xiamen, including accommodation and a family allowance.
To apply for these positions, go to www.michaelpage.com.cn/apply quoting ref:H205240 or call Gareth Bibby on (+86 21) 3222 4758. Data collected will be used for recruitment purposes only. Shanghai Tian Cai Network Co. Ltd., under license from Michael Page International Group PLC.
LOGISTICS SERVICE PROVIDERS SCHENKER Room 3802-3806, Raffles City (Office Tower) No.268 Xi Zang Zhong Road, Shanghai 200001, P.R.China 上海市黄浦区西藏中路268号来福士广场 3802-3806室邮编：200001 +86 21 6170 8888 www.schenker.com.cn
7th Floor, Contract Logistics Division, Sinotrans Plaza A, A43, Xizhimen Beidajie, Beijing 100044 北京西直门北大街甲43号 金运大厦A座7层 合同物流事业部100044 +86 10 6229 5600 www.SinoTransOne.com
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LOGISTICS SERVICE PROVIDERS
LOGISTICS SERVICE PROVIDERS
SCHNEIDER LOGISTICS UC Tower,Suite 1605,No.500 Fu Shan Road,Shanghai,China 上海浦东福山路500号城建国际中心1605室 +86 21 5058 7970 www.schneider.com
WERNER GLOBAL LOGISTICS South 23/F Harbour Building 1 Fenghe Road, Shanghai, China 上海市浦东新区丰和路1号港务大厦南23楼 +86 21 3887 9520 www.werner com
SHENZHEN ST-ANDA LOGISTICS 18/F, Times Plaza, No. 1 Taizi Road, Shekou, Shenzhen, PRC 518067 深圳蛇口太子路1号新时代广场1801室 邮编518067 +86 755 2681 9188 www.st-anda com
YATFAI LOGISTICS GROUP 39H, Fortune Building, 88 Fuhua San Road Futian District, Shenzhen, Guangdong Province, P.R.C. 广东省 深圳市 福田区 福华三路88号, 财富大厦 39楼 H座 +86 0755 3336 6898 www.yatfai.com
TOLL AUTO LOGISTICS D1/E2, 31F, East Building, Hi-Tech King World, No. 668 Beijing East Road, Shanghai Postcode 200001 China 中国上海市北京东路668号 科技 京城东楼31楼D1/E2 邮编：200001 +86 21 5308 2266 www.tollgroup com UPS 23F and 33F China Insurance Building, 166 Lujiazui Dong Road, Pudong, Shanghai, 200120 上海市浦东新区陆家嘴东路166号中国保 险大 厦23楼,200120 +86 21 3896 5599 www.UPS.com
ACCENTURE Shanghai 上海 30F, Central Plaza, No. 381 Huaihai Road, Shanghai, 200020 上海市淮海中路381号中环广场30楼 邮编：200020 +86 21 2305 3333 www accenture cn BAKER & McKENZ E 14/F, Hutchison House 10 Harcourt Road Hong Kong 香港夏悫道10号和记大厦14楼 +852 2846 1888 www bakernet com
YRC LOGISTICS Room 1307-08 Lan Sheng Building No. 8, Huai Hai Road (M) Shanghai 200021, P.R.C. 上海淮海中路8号兰生大厦 1307-08室 邮编： 200021
+86 21 6137 7668 www.yrclogistics.com
CONSULTING FIRMS
BARKAWI A 705, Dong fang Road, Eton Place, Pu dong New District, Shanghai, P.R. China 200120 东方路裕景国际商务广场A705室 +86 21 6859 9686 www barkawi.com CHA NALYTICS G9 Gamma Tower, Sigma Soft Tech Park, 7 White Field Main Road, Bangalore, Karnataka, India, 560066 +91 80 4125 4309 www chainalytics.com DELOITTE CONSULTING Room 2701-2704 Bund Center, 222 Yan An Road East, Shanghai 200002 上海市延安东路222号外滩中心 2701-2704室200002 +86 21 6141 8888 www deloitte com
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CONSULTING FIRMS DEMAND MANAGEMENT SYSTEMS PO Box 6180, Norwest Business Park, Baulkham Hills BC NSW 2153 Sydney, 2153 Australia +612 9659 4555 DESCARTES SYSTEMS 4106 China Development Bank Tower, No.500 Pudong Road (S), Shanghai, 200120, P R. China 中国上海浦东南路500号国家开发银行大厦 4106室 200120 +86 21 6109 5785 www.descartes.com DRAGON SOURCING Suite 1502, Jin Tian Di International Mansions 998, Renmin Road Shanghai, 200021, P R.China 上海市人民路998号今天地国际大厦 1502室, 20002 +86 21 61413955 www.dragonsourcing.com ESTABLISH Room 609, Tian An Centre No. 338 West Nanjing Road Shanghai 200003 上海南京西路338号天安中心609室 邮编 ：200003 +86 21 6359 1980/0486 www.establish cn HUDSON Unit 2302, 23/F Hongyi Plaza 288 Jiujiang Road Shanghai, China 200001 上海市九江路288号 宏伊国际广场23楼2302室 +86 21 2321 7888 www.hudson com BM GLOBAL BUS NESS SERVICE BM 中国有限公司 北京市朝阳区工体北路甲 2号 盈科中心 BM 大厦，25层 邮编：100027 +010 6361 8888 www.ibm com/cn/zh/ NTEGRATED DECISION SYSTEMS CONSULTANCY No 511-1-302, Jingsong Wu Qu, Chaoyang District, Beijing, China 100021 中国北京100021 朝阳区劲松五区511-1-302 +86 134 6675 0455 www.idsc com sg LLOYD ‘S REGISTER 20F Ocean Towers, 550 Yan An Dong Road, Shanghai 200001 上海市延安东路550号海洋大厦20楼， 邮编：2000012 +86 21 5158 5700 shanghai-eandt@lr.org
CONSULTING FIRMS LOGISTICS RECRUITMENT 2B, Apollo Building No. 1440, Yan An Road © Shanghai 200040 上海市静安区延安中路1440号 阿波罗大厦2B 邮编： 200040 +86 21 6248 8606 www.logisticsrecruitment.com.cn LOWENDALMASAI 1505-1506 Hai Tong Tower, 689 Guangdong Road, Shanghai, 200001 上海市黄浦区广东路689号海通证券大厦 1505/1506室, 200001 +86 21 6341 1255 www.lowendalmasaichina cn MANPOWER 36F, Xinmei Union Square, 999 Pudong Road (S), Shanghai, 200120, China 上海市浦东南路999号 新梅联合广场36楼邮编200120 +86 21 5878 2618 www.manpower.com.cn MB SIM TECHNOLOGY Bldg. 8, 865 Changning Road, Shanghai 200050, P.R. China 上海市长宁路865号8号楼5楼, 200050a +86 21 6240 5529 www.mbtech-group com MICHAEL PAGE INTERNATIONAL 601-603 Shanghai Kerry Centre 1515 Nanjing Road (West) Shanghai 200040, China 上海嘉里中心601- 603 南京西路1515号， 上海， 200040 +86 21 3222 4758 www.michaelpage com cn
PricewaterhouseCoopers Zhong Tian CPAs Limited Company 11/F PricewaterhouseCoopers Center, 202 Hu Bin Road, Shanghai 200021, China
中国上海市湖滨路202号普华 永道中心11楼 +86-21-2323-8888 www.pwccn.com 7 ROCK 7/F Crystal Century Tower, 567 Weihai Lu, Shanghai 200041 上海市威海路567号晶彩世纪大厦7楼 200041 +86 21 6288 8766 www.sevenrock.com
CONSULTING FIRMS SUPPLY CHAIN CONSULTING Suite 404, 20 Donghu Road, Xuhui District, Shanghai, CHINA 200031 +86 21 5404 0818 www.supplychain-consulting.com TUV RHE NLAND 5-6/F AZIA Centre, 1233 Luijiazui Huan Lu, Shanghai,200120 上海市陆家嘴环路1233号汇亚大厦5/6楼, 200120 +86 21 6108 1188 www.chn.tuv.com
REAL ESTATE SERVICES AMB PROPERTY CORPORATION Suite 2908, Plaza 66 II, 1366 Nanjing Road West, Shanghai 200040, China 中国上海南京西路1366号恒隆广场二座 2908单元 +86 21 6135 1688 www.amb.com BARLOWORD OPT MUS 35/F UOB Plaza 1, 80 Raffles Place, Singapore, 48624 , 48624 Singapore +65 6248 4722 www.barloworldoptimus.com
BAOWAN INTERNATIONAL LOGISTIC +86 21 3379 4008 www.blogis.com.cn BRAVOSOLUTION BravoSolution China CO., Limited 19F-08, 129 Yan An Road West, Chinese Overseas Building Shanghai 200040, PR China 上海市静安区延安西路129号华侨大厦19楼 08室,200040 +86 21 6145 8500 www.bravosolution.com CB RICHARD ELLIS +86 21 2401 1200 www.cbre.com.cn COLLIERS NTERNATIONAL PROPERTY CONSULTANS 16/F Hong Kong New World Tower, 300 Huaihai Zhong Road Shanghai, 200021, PRC 中国上海淮海中路300号 香港新世界大厦16楼 邮编 200021 +86 21 6141 3688 www.colliers.com/china
REAL ESTATE SERVICES DTZ 42-43F,Plaza 66, Tower 2, 1366 Nanjing Road West, Shanghai 200040, China +86 21 2208 0213 www dtz.com/cn
Suite 805, Kerry Centre, 1515 Nanjing Road (W), Shanghai, 200040 上海市南京西路1515号嘉 里中心805室 200040 +86 21 5298 6622 www.gazeley.com GOODMAN GROUP 2107 - 2109, Shui On Plaza, 333, Huai Hai Road (M) Shanghai 200021 P.R.China 上海淮海中路333号瑞安广场2107-2109室 邮编：200021 +86 21 6133 2000 www goodman.com GSE 27C Industry Building, 18 Cao Xi Bei Lu, Shanghai, 200030 上海市徐家汇漕溪北路18号实业大厦27C, 200030 +86 21 6427 9180 www gsegroup.com JONES LANG LASALLE 25F, Plaza 66 Tower 2, 1366 Nanjing Road West, Shanghai 200040 上海市南京西路1366号恒隆广场2期25楼 200040 +86 21 6393 3333 www joneslanglasalle.com.cn KNIGHT FRANK 莱坊 Rm 1208 Evergo Tower, 1325 Middle Huaihai Road, Xuhui District, Shanghai 200031 中国上海市徐汇区，淮海中路1325号，爱美 高厦1208室，200031 +86 21 6445 9968 www knightfrank com NEW CITY INVESTMENT MANAGEMENT Room 2602 Bank of Shanghai Tower, 168 Yin Chen Middle Road, Shanghai, China, 200120 上海银城中路168号上海银行大厦2602室, 200120 +86 21 3896 6388 www newcitycorp.com
SourceMakeDeliver
®
Game Simulation
The Council invites you to discover the benefits of this learning solution on September 25.
CLASSIFIEDLISTINGS
MagicBusCreative Grant-oh! Buchwald
Portrait photos • Event coverage • Product shots • Onsite/Facility photography
MATERIAL HANDLING EQUIPMENT +86 (21) 6317 8830 www.bps-group net LOSCAM PACKING EQU PMENT LEAS NG Room 508, No. 707 ZhangYang Road, Pudong, SHANGHAI 200120 上海市浦东新区张扬路707号508室 200120 +86 21 6104 8156 www.loscam com
phone: +86 136 4165 6924 email: magicbuscreative@mac.com www.flickr.com/photos/gmartini
CHEP REAL ESTATE SERVICES
IT SOLUTIONS AND SOFTWARE Huaihai Zhong Lu, Shanghai, 200021 Shanghai, 200021 China 上海淮海中路333号瑞安广场21楼2110室
MAPLETREE LOGISTICS TRUST MANAGEMENT Suite 801, AZIA Center,1233 Lujiazui Road, Shanghai 200120 上海市浦东新区陆家嘴环路 1233号汇亚大厦 801室， 200120 +86 21 5840 0658 www.mapletreelogisticstrust.com
PROLOGIS Room 2708 Azia Center, 1233 Lujiazui Ring Road, Shanghai, 200120 上海市陆家嘴环路1233号汇亚大厦2708 室, 200120 +86 21 6105 3999 www.prologis.com IT SOLUTIONS AND SOFTWARE EMPTORIS Emptoris, Inc. PO Box 173 Clementi Central Post Office Singapore 911206 +65 6778 6395 www.emptoris.com JDA SOFTWARE 2905 United Plaza, 1468 Nanjing Xi Road, Shanghai 200040 上海市南京西路1468号 中欣大厦2905室 200040 +86 21 6289 7979 www.jda.com MANHATTAN Unit 2110, 21/F, Shui On Plaza, 333
www.manh.com REDPRA R E Cloud-9 Mansion 7F 711 No.1118, West Yan‘an Road Shanghai 200052, P.R.China 中国上海市延安西路1118号 龙之梦大厦7楼711室 邮编：200052 www.RedPrairie.com SEEBURGER 1409B Cimic Tower800 Shangcheng Rd. Shanghai, PRC, 200120 中国上海浦东新区商城路800号斯米克大厦 14层1409B, 邮编：200120 +86 21 5835 4735 www.seeburger cn TRADECARD F1101-02, Block A, Hailrun Complex, No 6021 ShenZhen Blvd, ShenZhen. P.R.C. (518040) 香港亚太贸易卡有限公司深圳代表处 深圳市福田区深南大道6021号喜年中心A座 1101-02室（518040） +86 755 8830 9030 www.tradecard.com UNISYS Unisys (China) Co., Ltd. 优利系统(中国)有限公司 Unit 601, Level 6, Tower E1, Oriental Plaza, Dongcheng District, Beijing 100738 P.R.C 北京市东城区东方广场东一办公楼6层 601室 100738 +86 10 8518 3232 www.unisys.com MATERIAL HANDLING EQUIPMENT BPS GLOBAL GROUP Unit 3104,Tower 1 Kerry Everbright City 218 West Tian Mu Road 200070 Shanghai, China 上海市闸北区天目西路218号嘉里不夜城第 一座3104室 邮编200070
40/F, Suites 8-10, 2 Grand Gateway, 3Hongqiao Road, Shanghai, 200030 上海市虹桥路3号港汇 二座40楼08-10室邮 编：200030 +86 21 6127 2488 www.chep.com LXE Room 03B,5/F Office Tower Huaihai Road(C) 200031 Shanghai, China 上海市淮海中路1045号淮海国际广场办公楼 0503室 +86 (21) 6124 9688 - 866/862 www.lxe.com SCHOELLER ARCA SYSTEMS Schoeller Arca Systems 舒乐阿卡 Shanghai China 上海 中国 Unit 5/A Guangdong Development Bank Tower No. 555, Xu Jia Hui Road 广东发展银行大厦5楼A座 200023 +86 21 6390 1261/62 www.schoellerarcasystems.com
To take out an ad in CHaINA, contact Wendy Yu tel: +86 (21) 5102 1617/18 email: wyu@supplychain.cn
COMPANYINDEX Adidas AG..............................24,57 Alvarez Marsal.............................32 AMB Property Corporation............60 Atos Consulting ...........................33 AU Optronics Corp .......................21 Baker & Mackenzie................30, 44 Baosteel.....................................22 BAX Global..................................57 Baxter International......................52 BBK Shanghai..............................15 Beiqi Foton..................................21 Big Lots! .....................................41 Bosch.........................................46 BPS............................................31 Bravosolution ..............................31 CB Richard Ellis (CBRE)................13 CCID Consulting...........................26 Central Textiles (HK) Ltd ...............20 CEVA..........................................39 Chery Automobile ........................26 Chi Mei Optoelectronics Corp .......21 China Merchants Bank..................17 China Sourcing Company Limited..59 Chinalco .....................................22 CIBC World Markets.....................23 Citigroup Inc., .............................17 ClarkMorgan Corporate Training....33 CNPC .........................................65 Coca-Cola .............................16, 65 Coles..........................................20 Companhia Vale do Rio Doce (Vale)..........................................23 Continental Automotive.................46 Cooper Lighting Inc......................41 CPS............................................32 Daimler AG..................................21 Danone.......................................30 Danzas .......................................30 Deloitte.................................44, 50 DHL............................................60 Diane Von Furstenberg.................48 Diebold .......................................21 Dow Chemical.............................30 DSM...........................................46 DSM Plastics Engineering ............24 DSV China...................................60 DTZ ............................................31 Electrolux..............................31, 46 ERM China...................................32 FAW Haima Automobile Co. Ltd.....21 Ford Motor Company....................54 Fullerton .....................................41 Gasgoo.com ...............................26 Global-X Hong Kong Ltd ...............32 GMS China..................................60 Grafton Plc..................................26
China Supply Chain Council announces the launch of SourceMakeDeliver®, a unique hands-on business simulation created specifically for the Chinese market that will engage your TeAam to effectively implement your Supply Chain strategic vision. • How does your Supply Chain capture the dramatic growth of your market? • What do you need to effectively implement your Supply Chain strategy? • How do you engage your people to deliver the right product at the right time to the right place at the right price?
COMPANYINDEX Hewlett Packard ...................................... 33 Hudson .................................................. 40 Hyundai .................................................. 51 IBM ........................................................ 65 IDG Ventures ........................................... 26 Ikea . ................................................ 23, 25 International Merchandising Service Inc. .... 41 International Operations ........................... 30 Intertek .................................................. 16 INTTRA ................................................... 29 J.C. Penney ............................................ 41 JP Sexton ......................................... 30, 32 K-Mart .................................................... 41 Kmart Corp.,............................................ 41 Lenovo Group Ltd . ............................ 26, 65 Li Ning ................................................... 65 Li&Fung Research ............................. 12, 24 LINPAC Group Limited ............................. 22 Lowe’s ................................................... 41 Mapletree ............................................... 26 Marvel Semiconductors ........................... 33 McDonald’s ....................................... 24, 65 MEGA Brands America Inc.,....................... 41 Michael Page International ....................... 59 Militzer & Muench (M&M) . ........................ 13 MNC firms .............................................. 40 Motorola . ............................................... 26 MRI ........................................................ 60 Newtimes ............................................... 48 NIKE ...................................................... 57 Nike Inc. ................................................. 24 Nokia ..................................................... 26 PCH International .................................... 26 Pirelli . .................................................... 20 Polo Ralph Lauren ................................... 48 Pricewaterhousecoopers ......................... 31 Procter & Gamble ................................... 22 Proton .............................................. 29, 32 Puma ..................................................... 65 PwC Asia ................................................ 31 Qualipac ................................................. 46 Rongsheng Shipbuilding and Heavy Industries . .................................... 23 Samsung ................................................ 26 Schaeffler China . .................................... 60 Schenker ................................................ 57 Sears ..................................................... 41 Shanghai Pudong Development Bank Co ... 17 Shenzhen Hepalink Pharmaceutical ........... 52 Simplicity Inc........................................... 41 Sinopec . ......................................... 17, 65 Sinotrans . .............................................. 46 Softbank Corp ........................................ 26 State Grid ............................................... 65 Target .................................................... 41 Technology Solutions Group ..................... 33 Thane International Inc.,............................ 41 TNT ....................................................... 23 Toys “R” Us Inc.,....................................... 41 Tractus Asia Ltd. .................................. 12 Trammell Crow . ...................................... 60 Tyco Electronics . .................................... 45 United Parcel Service .............................. 23 UPS ....................................................... 23 Van Zeeland ............................................ 24 Ventoro .................................................. 29 Vodafone China ....................................... 31 Wal-Mart Stores (WMT) . .. 16, 24, 32, 41, 60 Wassax Inc.,............................................ 31 Woolworths ............................................ 20 Yatfai Logistics Group . ............................ 24 70
SEPTEMBER/OCTOBER 2008
EVENTSCALENDAR 2008
Sept
MON
1thru 5
2008
Sept
WED
10 2008
Sept
THU
11 2008
Sept
WED
24 2008
Oct
THU-SAT
16thru 18
2008
Oct
MON-THU
27thru 30
Logistics 2008 Technology and Sept Equipment Expo Trade Show Shenyang Venue: Shenyang Int. Expo Center Organizer: Ministry of Commerce, P.R.C
5
Sourcing Forum Networking Event Workgroup Nanjing Organizer: European Chamber
Enter the Green Dragon - China's Built Environment
2008
Sept
FRI
6 WED-FRI
10thru 12
Sept. 25
Value Chain Goes Green Conference Shanghai Venue: Grand Hyatt Organizer: Amchamber Shanghai Reliable Order Promising Workgroup Shanghai Organizer: Council
2008
Sept
FRI
26
Basics of Supply 2008 Chain Management Oct Training Training HK Organizer: Council
MON-THU
20thru 23
International Fair for Material Handling and Logistics Trade Show Shanghai Venue: Shanghai New Int. Expo Center Organizer: Hannover Fairs Shanghai
Oct. 28
4th Int. Container & 2008 Intermodal Sept Transportation Development Forum Tianjin Venue: Renaissance Tianjin Teda Hotel Organizer: Zenith Integrated Communications
WED
10
The 3rd Shandong International Material Handing and Logistics Expo Trade Show Shandong Venue: Jinan International Expo Center Organizer: Jinan Municipal
Sept. 11
2rd Supply Chain 2008 Business Simulation Sept in China Training Shanghai Venue: To be confirmed Organizer: The Council
TUE-THU
TUE
14
Chongqing Logistics 2008 Fact-finding Mission Conference Chongqing Organizer: Chongqing Municipal
Chemicals & Dangerous Goods Logistics Forum Conference Shanghai Venue: Shanghai New Int. Expo Center Organizer: Hannover Fairs Shanghai
August WED-FRI
22thru 24
2008
Oct-N
FRI-SUN
31thru 02
Roadshow in Hangzhou Site Visit Hangzhou Organizer: The Council
How to improve the Cool Chain in China by applying the CCQI standard? Seminar Shanghai Organizer: The Council
23thru 25
Customs 2008 Practitioners Group Oct (CPG) Workgroup Shanghai Organizer: The Council
Supply Chain
2008 International Sourcing Fair Trade Show Shanghai Venue: Shanghaimart Organizer: ISF China
In-Direct Spend Management Workgroup Shanghai Organizer: Council
China International Automatic Identification Expo Trade Show Binghai, Tianjin Venue: Tianjin Binghai Int. Expo Center Organizer: HK Paper Communication Exhibition Services
Freight Forwarding China 2008 Summit Shanghai Venue: Shanghai New Int. Expo Center Organizer: JC Logisitcs Website Website
www.chainaonline.com
YOU NEED TO MOVE AT THE PACE OF TECHNOLOGY. YOU NEED MARTIN SCHLUECHTER. When does Agility’s Martin Schluechter consider a job done? When he develops a customized tracking software interface that shows product availability in real time? When he overcomes a sudden DSL modem shortage in the U.S. by flying in crucial components from Singapore? For Martin Schluechter, and more than 32,000 other Agility employees in over 100 countries around the world, success isn’t measured in products delivered or processes streamlined. Success occurs when our partners achieve their goals. It’s an intimate approach to logistics that demands individual attention and personal ownership. It’s how Martin Schluechter brings Agility to high-tech companies.
Martin Schluechter Department Head, LAX Key Account Agility Los Angeles
agilitylogistics.com