www.chainalive.com
LIVE
November 7-8, Shanghai CHaINA’12 Live The Global Supply Chain Event for China CHaINA’12 is the largest Supply Chain event in China involving a combination of presentations, networking, workshops and exhibitors followed by an exclusive gala dinner. This must attend event is the ultimate opportunity for supply chain, procurement and logistics executives to learn from your peers from world's leading companies and make new contacts from the hundreds of professionals who will attend the event over the 2 days! 变 化 中 的 中 国 ： 提 升 价 值链，增加在全球经济中的竞争力。数以百计 的同僚会参会，所以今年是您扩大人际关系网络，树立中国供应链领袖 形象的绝佳机会。
Media Partners:
12
Publisher: Global Supply Chain Council Ltd. CHaINA Magazine is a FREE bi-monthly publication for the members of the Council. There is no charge for members and qualified readers to receive subscriptions in China. For your free subscription, extra copies or address changes, please email subs@supplychain.cn 出版商：Global Supply Chain Council Ltd. CHaINA杂志是为Council会员准备的免费杂志。我们协会会员 和业内专业读者都可以免费订阅。为了及时收到我们的杂 志，额外订阅或地址变更请发邮件至subs@supplychain.cn
Publisher Max Henry Chief Editor Cindy Tse Junior Editor Olga Mironova
Graphic Designers Jane Jin Susy Song Emma Xu Photographer Jimmy Kim Translator Carmen Ren
Contributing Writers Emile Dirks, Jason Inch, Alexander Gladstone, Glenn Leibowitz, Eric Roth, Olga Mironova, Pelham Higgins, Shawn Casemore, Julie Q. Zhu, Maurits Elen, Niels Zomer, Gavin van Marle
CHaINA Magazine is the only bilingual supply chain and logistics magazine with a strong focus on Greater China. In every issue, we write about the news, trends and best practices that will help manufacturers, retailers and distributors make better business decisions with their sourcing, production, logistics from, to, or within Asia. CHaINA是亚洲地区唯一一本专注于中国的供应链和物流行 业的双语杂志。在每一期，我们通过刊登新闻，行业动向 和实践经验来帮助制造企业、零售商和发行商进行亚洲内 外的采购、生产和物流形式的选择。
Distribution: 10,000 copies on print CHaINA Magazine is offered FREE of charge by direct post mail to qualified readers in Greater China who are involved in all aspects of supply chain management. It is also distributed through selected locations in major Chinese cities, including hotels, restaurants, service offices/apartments, business centers, airport lounges and other key locations. 发行量：每期一万本 CHaINA杂志通过直接向中国各供应链管理的专业读者发送 邮件来提供免费的阅读机会。同样也分发到中国的主要城 市并在酒店、服务楼，商务中心，机场大厅或其他中心地 带免费赠阅。
Target Readers Our target readers are R&D, sourcing, procurement, manufacturing, logistics, warehousing, transportation, retail, distribution and operations managers, directors, vice presidents and decision makers. A majority of our readers are end-users, shippers, and foreign-invested / local manufacturers and retailers. 目标读者 我们的目标读者有来自采购、制造、物流、仓储、运输、 零售和分销的各级管理人士。大部分读者是物流的需求 者，外资或国内的制造企业和零售商。
Magazine available outside China via subscriptions in both web, digital and iPad editions (price: US$15.99 per year) Go to www.chainamag.com and iTunes to subscribe. Stories Ideas, Comments & Feedback If you have an idea for a story, interview or case study, please contact the editor. We welcome feedback and comments about our content or any issues relating to your operations. Please send your email to editor@supplychain.cn 反馈和意见 如果您有任何新闻故事、采访或实践案 例，请与我们主编联系。如果您就杂志 内容或亚洲供应链管理有任何的意见、 建议或新鲜资讯，请发邮件至 editor@ supplychain.cn与我们取得联系。
Published in Hong Kong 香港出版
While most of the world is abuzz with talk of China’s rising labor costs and economic slowdown, we have decided to dedicate this issue of CHaINA Magazine to something that plagues business operating in China alike, in good times and bad – logistics. China’s logistics costs are projected to hit 18 percent of the country’s GDP this year, and is expected to exceed that of the US and European countries for the foreseeable future. In this issue’s cover story we sat down with more than a dozen logistics executives from industry-leading Cindy Tse Chief Editor firms operating in China about their strategies, to CHaINA Magazine discuss where they see the trajectory of logistics on the Mainland. We also breakdown a survey of supply chain execs conducted by the Global Supply Chain Council (GSCC) with Ceva Logistics, revealing interesting insights on industry trends. With much of the world turning to Low Cost Countries to get their firms through tough times, we took a hard look at trends today in procurement via the GSCC’s forum on Global Sourcing and IPO leadership. A number of procurement leaders from a range of industries shared with us what the current economic climate requires of a globally-minded procurement office. Here at CHaINA, we leave no rock unturned in the supply chain. For that reason, we explored the “final frontier” in the global supply chain – North Korea – to uncover what the current state of manufacturing and logistics looks like in the famously secretive state. And while wages in China continue to rise, we focus on two areas of manufacturing in China that require a close eye – increasing automation, and innovation in garments and apparel. Exclusive interviews with execs from Etam and AB InBev round out this action-packed issue. And as always, we want to hear from our readers. Write to us at editor@ supplychain.cn and share your thoughts. 当全世界都在热火朝天的讨论中国上升的劳动力成本和经济增长的减缓，我们这期的 CHaINA杂志却着眼于持续困扰在中国商业运营的因素——物流。中国的物流费用在今年预 计将达到国家GDP的18%，在可见的未来会超过美国和欧洲各国。 本期的封面故事中，我们和众多来自于中国物流行业领军公司的执行者们畅谈他们的 商业战略，讨论他们对中国大陆物流行业轨道的看法。我们还剖析了由全球供应链协会和 Ceva物流公司联合推出针对供应链执行者们的一项调查，旨在揭示关于行业走向的一些既 有趣又有洞察力的见解。 当全世界大部分公司都在转向低成本国家从而渡过难关的时候，我们通过全球供应链协 会举办的关于全球采购的论坛，深入分析了采购业今天的走向趋势。许多来自各行各业的 采购领导者和我们分享了当前经济气候对一个放眼全球的采购办公室有什么样的新要求。 在本期杂志中我们不遗余力的深入供应链行业的各个角落，正因为如此，我们探究了全 球供应链的“最终前沿“——朝鲜——揭示了在这个以神秘出名的国家里制造业和物流行 业的现状。 中国工资水平上涨，我们将焦点放在了中国制造业需密切关注的两个方面——自动化增 长和服装业的创新。与艾格和百威英博公司的独家专访使这个令人激动的话题更加丰富了 起来。 一如既往，我们真诚的希望听到来自读者的声音，请发邮件至editor@supplychain.cn和 我们分享您的看法。
DISCLAIMER Editorial and advertising are independent and do not necessarily reflect the views of the Council, the board, its members or the staff. While every efforts has been made to ensure accuracy, the publisher is not responsible for any errors. Views expressed by writers or contributors in this magazine are not necessarily those of the publisher. The publisher is not responsible for product claims and representations. @ Copyright Global Supply Chain Council Ltd. (Hong Kong). All rights reserved The contents of the magazine may not be reprinted in whole or in part without the permission of the publisher. No part of this publication may be reproduced without written consent of the copyright holder. CHaINA is a registered trademark of the Global Supply Chain Council. 1 may/June
C ONTENTS frontlines 4 5 6 11 12 14
Follow up Movers & Shakers AiZhai Bridge M&A Invest-O-Mania Fresh Start-ups
4 追踪报道
may/june 2012
Procurement
MANUFACTuRING
16
22
18 19 20
Procurement News iPad 3’s Costs Jump IBM Remanufacturing Servers AB InBev’s Best Cost Country Sourcing
24 26 28 30
22 制造短讯
16 采购短讯
5 斗转星移
Manufacturing News No End In Sight: Why China Is Still King in Manufacturing Etam’s Lead Time Wars Rise of the Robots The Turth about Tech
24 放眼无穷：中国为何仍是
18 iPad 3的价格飞跃 20 百威英博的最低成本采购
制造业霸主 26 艾格的精细制造之战 28 机器人的崛起 30 科技的真相
Logistics
DISTRIBUTION
The LINKS
30
42
58
6 矮寨大桥 11 企业并购资讯 12 建设一览
19 IBM再制造服务商
14 新概念商务
34 36 37 38 40
Logistics News Journey to the West YRC Exits China Shipping Rates Increae Alipay’s COD Innovation India Shipping
30 物流短讯 34 西行记 36 YRC退出中国 37 船运运费上涨 38 支付宝的货到付款创新 40 印度船运
2 may/JUne
44
Distribution News The Luxury E-Commerce Dilemma
60
Interview: The View from General Motors What’s Up in Japan
42 零售短讯
58 专访：通用汽车的视野
44 奢侈品电商的困境
60 日本新动态
arding ions reg ents in p o d n mm sa thought ted readers’ co may be r u o y e c r sha sele ence e you to l publish respond We invit articles. We wil Magazine. Cor r A all of ou issues of CHaIN gth. e r le u r r fo n in fut clarity o pplychain.cn r fo d e su edit : editor@ Email us
ant We W ar to He You! From
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FEATUREs
46
The State of Logistics in China
51
A Word from the Wise:
54
North Korea Uncovered:
Swiss quality worldwide
中国物流形势
What Today’s Global Sourcing Leaders Have To Say 智者之言：聆听全球采购领军者
The Final Frontier in the Global Supply Chain 揭秘朝鲜：全球供应链的最终前沿
You buy and sell. We store. We send. We insure. We offer customs advice. We offer returns solutions. We can support you to ensure that you have more time to focus on your core business. Our standard and customised service solutions will help you reach your targets worldwide. More information is available under +852 2690 2732 or www.swisspost.com.hk/distance-selling
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3 www.chainamag.com
may/June
FRONTLINES
Follow - up India Reconsidering Sourcing Clause in Retail Under pressure from multi-national brands such as IKEA and Apple, the Indian government has indicated it might relax the sourcing clause that is hampering its recent liberalization of foreign ownership in singlebrand retail in India. The clause requires that firms source 30 percent of their product from “Indian small industries, village and cottage industries, artisans and craftsmen” with less than a 5 crore (US$1 million) initial investment in facilities and machinery. Government officials have been hearing much of the same from most large MNCs eyeing the Indian market – they are still interested in entering the market, but the sourcing and investment cap clause makes it impossible. Both Nike and Apple have held talks with the Commerce and Industry Ministry and have expressed a willingness to invest in domestic manufacturer to upgrade technology and increase capacity, but will have to breach the investment cap. IKEA has been involved in developments as well. “IKEA management is continuously in dialogue with authorities and other relevant stakeholders. This is true also for India as we are very positive to the decision to allow FDI for single brand retailers and remain optimistic that we will shortly be able to present more information about our possibilities to establish retail operations in India,” an IKEA spokesperson reported to the Times of India. But while there are talks of an “easing” of the stipulation, there are no details yet on to what extent the clause will be relaxed, and to whom it will apply.
A look at some of the previous stories covered that are still making headlines.
Apple vs. Proview - Beijing Leaning Towards the Underdog “According to Chinese law, both parties involved in the trademark transfer should apply with us together (to make the transfer legal). So Proview Technology is still the owner of the iPad trademark,” commented Fu Shuangjian, deputy director of the State Administration for Industry and Commerce on Tuesday April 24. Though Fu’s words have no legal power, this is the first official comment from state authorities on where they stand on the issue. Both companies agreed to meet outside the court for a mediation session and active talks between them are ongoing. These talks have also been confirmed by Ma Dongxiao, a lawyer representing Proview, although both companies are still in disagreement on the amount of money involved. “On the one hand, we are trying to process this case, and on the other, we are working on encouraging both sides to settle,” commented Zhao Le, an official at the foreign affairs office of the Higher People’s Court of Guangdong, which is investigating the dispute between Apple and Shenzhen Proview Technology concerning the iPad trademark in China. Resolving the case outside of court in a mutual agreement between the parties is the most desirable scenario for Chinese authorities, as depriving Apple of iPad trademark will have many negative consequences, but objectively legal experts in Chinese law forecast that Apple will probably lose the case. Remarkably, Apple did not mention China at all in its official announcement of the iPad3’s release dates, while in HK the sales have already been launched. Although China usually receives new models of Apple products later than other markets due to a complicated inspection procedure, this time experts link the delay to Proview’s legal dispute. Forbes’ expert on China, Doug Young says: “In my view, the exclusion of China from the list is just as much about applying pressure on Beijing for a court ruling in its favor, and says more broadly that Apple could withhold its popular products in the future if it doesn’t believe it is being treated fairly in the market.”
4 may/JUne
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FRONTLINES
Movers & Shakers
with
Recently changed jobs? Send us an email to publicise it here! editor@supplychain.cn
Global Director Supply Chain
Colliers International (East China)
Dyson (Singapore) Prior to this new appointment at Dyson, Jean-Luc was Regional Director of Supply Chain for Asia Pacific in Goodyear. He has more than 10 years of supply chain experience in various regions.
Rocky Zhang Regional Head of Purchasing
Michael Johnsen Director of Retail Services
Jean-Luc Laboucheix
Michael will be responsible for providing retail consultancy and leasing services in the East China region, meeting the needs of property developers in a rapidly expanding market. Michael has over 10 years of experience in China.
Prince Yun Regional President for Taiwan
Danfoss (China) Rocky will lead a transformation program at Danfoss on Strategic Sourcing, Procurement and Professional Supply Management for Great China Region. Prior to this, he held procurement positions in Tyco Electronics and IKEA.
Jane Shao
Avnet Electronics Marketing (Asia) Prince has more than 24 years of industry experience. His notable achievements include leading the Semiconductor Marketing, Sales and FAE Departments – main revenue contributors of Avnet.
Xiaodan Su
ACS Logistics & Planning Manager
BD Manager
Honeywell (Asia Pacific) Jane has been promoted to ASC Logistics and Planning Manager in Honeywell, where she already has 9 years of experience dealing with logistics issues. Jane holds an MBA from Shanghai Maritime University.
Lanner (China) Lanner, a provider of simulation software has appointed Xiaodan to drive growth in the China market. He will be responsible for managing customer relation, focusing first of all on manufacturers of machinery.
3 Prime Distribution Centers YANGSHAN
Bonded Area
Up to
15,000
Shanghai
sqm
LINGANG Shanghai
Minutes away from
Up to
32,000
sqm
Yangshan port
CHENGDU Sichuan
Up to
37,000
sqm
For more information, please contact: Geodis Wilson Shanghai Limited Tel.: +86 21 6193 2553 E-mail: contractlogistics@cn.geodiswilson.com
Next to airport & inner city
Geodis is part of the French rail and freight group SNCF. With its 47,500 employees located in 120 countries, SNCF Geodis ranks among the top six companies in its field in the world. The Group's ability is to coordinate all or part of the logistics chain: supply chain coordination and optimisation, air and sea freight forwarding, groupage, express, contract logistics, part & full truck loads and reverse logistics.
www.geodis.com
5 www.chainamag.com
may/June
The Big Shot
may/JUne
www.chainamag.com
The Aizhai Bridge is the world’s longest tunnel-to-tunnel suspension bridge, along the JishouChadong Expressway, over the Dehang canyon. It shortens the trip between Chongqing and Changsha in Hunan Province.
355 meters
Height above the valley floor
4
years Time it took to construct
1
minute Time it takes to cross the valley on the bridge It used to take 30.
6
th
highest bridge in the world
www.chainamag.com
may/June
FRONTLINES
Asia Logistics
► Pelham Higgins
Real Estate News
China
Demand from logistics, automobile and e-commerce companies has helped industrial rents in Shanghai remain firm over the last few months of 2011. The area near Pudong International Airport has seen increased demand from e-commerce companies, and supply remains tight in West Shanghai where demand is also high. Several major developments are coming to the market in early 2012 such as Phase 1 of BLogis Park Songjiang. The Beijing Tenant Phoenix Waigaoqiao Fengshen Logistics Merck Gome
KEY RECENT LEASING TRANSACTIONS Property Name Pudong New Area BLogis Park Songjiang Wangjing Innovation Park Dewei
Leased Area (sqm) 200,000 approx 40,000 approx 50,000 approx 25,000 approx
Hong Kong
Supported by a slight rebound in exports and strong retail sales, average industrial rents in Hong Kong recorded steady growth in Q4 2011 with sentiment in the leasing market showing some improvement. Goodman’s Inter Tenant Burberry Nippon Express Property Name Lee Chit Warehouse
Singapore
logistics market also saw strong demand in 2011 which came mainly from e-commerce firms. Vacancy rates in the Beijing market declined rapidly over the course of the year. Demand for large-scale logistics space in Guangzhou has been strong with a number of bulky goods retailers setting up regional distribution operations in Q4 2011. E-commerce companies like 360Buy and electronics retailers such as Sunning have commenced construction of their own logistics facilities. Location Shanghai Shanghai Beijing Beijing
link facility will be the only new addition to the market in 2012, with the facility having been fully leased ahead of actual completion. Tenants in the facility include Nippon Express, Japan’s premier logistics service provider.
KEY RECENT LEASING TRANSACTIONS Location Property Name Leased Area (sqm) 24,000 approx Hutchison LC Kwai Chung 40,000 approx Goodman Interlink Tsing Yi KEY RECENT INVESTMENT TRANSACTIONS Buyer Price Location Yeun Long N/A HK$ 130 million
Lease renewal activity in Singapore was high amongst the major logistics real estate owners in Q4 2011, with much of this activity stemming from occupants in the beverage, chemicals, pharmaceuticals and oil & gas industries looking to relocate or consolidate. However,
demand for logistics space has slowed and the subdued manufacturing outlook in 2012 means that average rents are expected to soften over the next 12 months. Capital values and rents for single-tenant facilities are expected to remain flat at best in 2012.
8 may/JUne
www.chainamag.com
FRONTLINES
Tenant Armor Asia Imaging Supplies Cummins Diesel Sales Corp Property Name Corporation Place 3 Changi Business Park Vista
KEY RECENT LEASING TRANSACTIONS Leased Area (sqm) Location Property Name 4,000 approx 21 Changi North Way Changi North Way 10,000 approx Tanjong Penjuru 52 Tanjong Penjuru KEY RECENT INVESTMENT TRANSACTIONS Location Price Buyer Ascendas REIT S$ 99 million Corporation Place Changi Business Park Ascendas REIT S $ 80 million
Japan
Japanese industrial assets are becoming popular among domestic and foreign investors seeking higher yields when compared to other asset types. The volume of new supply in the Japanese logistics market has been limited since 2009 which has steered vacancy rates to all time Tenant DHL Supply Chain Tvrancom Nippon Express Property Name Portfolio (15 assets) Rinku International LC
lows in some areas, although there is some oversupply in the greater Tokyo area in markets such as Kashiwa. The leasing market for modern logistics facilities in Tokyo remained stable in Q4 2011 with demand driven by the transportation; food manufacturing; and the online retail sectors.
KEY RECENT LEASING TRANSACTIONS Property Name Leased Area (sqm) GLP Urayasu III 35,000 approx Saitama Kisai LC 25,000 approx Goodman Moriya 17,000 approx KEY RECENT INVESTMENT TRANSACTIONS Location Buyer Across Japan CIC/GLP Osaka
Airport Facilities
Location Chiba Tokyo Tokyo Price JPY 122.6 billion JPY 4.81 billion
Data in the Tables: CBRE, JLL, Savills, and J-REIT press releases
9 www.chainamag.com
may/June
FRONTLINES
59 ships The number of ships of at least 10,000 TEU that will enter the global fleet, according to maritime research group Drewry.
90% Percentage of fake Moutai circulating on the market according to media reports. Company officials claim that this number is not higher than 5%.
1.2 mn vehicles Honda’s forecasted sales volume in China by 2015.
50%
Anticipated profit fall in Q1 of China Eastern Airlines due to slow growth in passenger volume and higher jet fuel costs.
414 cars
Quotes ‘I’m most concerned with whether or not you’ve prepared for the marathon, whether or not you will be the final victor.’ Wang Hanhua, Amazon China’s CEO, explaining that B2C is a marathon, not a sprint.
‘I am convinced that China’s economic growth is by no means a threat, but a challenge that carries colossal potential for business cooperation a chance to catch the Chinese wind in the sails of our economy. ’ Russia’s newly-elected president Vladimir Putin, who plans to strengthen collaboration with China in future.
‘We are passionate about doing the smallest products that are available, ’ Intel’s China Chairman Sean Maloney, commenting on the company’s plans for chip production.
‘It is deeply disappointing to see a company build a business off my Chinese name without permission, use the number 23 and even attempt to use the names of my children.’
Michael Jordan, former NBA superstar, commenting on his pending lawsuit against Qiaodan Sports Co. Ltd. The Fujian-based sportswear company that has been using Jordan’s Chinese name “Qiaodan” in its branding name since 2000.
‘A lot of issues have been identified in
China over the last few months. It’s just nowhere near what it could be,’
said Doug McMillon, CEO of Walmart International, commenting the recent scandals with pork mislabelling in Walmart China.
Number of imported vehicles being recalled by BMW China due to electronic pump defects.
US$ 7 bn
Largest overseas investment of Samsung Electronics in a new memory chip factory in Xian.
10 may/JUne
www.chainamag.com
FRONTLINES
MERGERS & ACQUISITIONS US$6.77bn 6
5 US$520mn
US$95mn 4
3 US$94.9mn
US$88.3mn 2
1 US$35mn
1 US-based J.M. Smucker has purchased a minority stake in Chinese oats products manufacturer - Guilin Seamild Biologic Technology Development for US$35 mn.
2 Finnish packaging firm Huhtamaki Oyj has acquired Hong Kong-based Josco Holdings for US$88.3 mn. Josco Holdings is a privatelyowned disposable packaging manufacturer with 2 plants and 2 DCs.
3 Jinzhou Titanium Industry Co., the only chloride TiO2 manufacturer in China, will be acquired by Hongkong Hanxing, a subsidiary of CITIC Group Corporation . The acquisition, valued at US$94.9 mn is the largest foreign acquisition in Jinzhou to date.
4 China Resources Sanjiu Medical &Pharma, a Chinese manufacturer of pharmaceuticals, healthcare products, and medical appliances, has won a bid to acquire Guangdong Shunfeng Pharma for US$95 mn.
5 Pharmaceutical services provider, AmerisourceBergen Corporation has finalized an agreement to acquire World Courier Group, a privately held logistics provider for the biopharmaceutical industry, for US$520 mn.
6 UPS is buying its European rival TNT Express for US$6.77 bn, bolstering its position in China and Latin America.
11 www.chainamag.com
may/June
a i n a M O t s e Inv
.
ction and investment in China
constru A glimpse at the never-ending
Weichai R&D Center Beijing Logistics Park
Beijing - US$316 MN The center will take care of technological innovations in engine manufacturing in light of environmental concerns.
Unilever Production Plant
Beijing - 75,000 m2 This new logistics park is launched, with 100% precommitted occupancy, industrial space is divided between two online retailers – Taobao and Shun Feng Express.
Tianjin - 530,000 m2 Unilever has started constructing one of its largerest production centers in order to meet the demand of the growing markets. The facility will concentrate on producing liquid laundry detergents and fabric softeners.
Urumqi
Volkswagen plant Urumqi - US$ 290 mn VW is opening a new manufacturing facility in China – that is a JV with Shanghai Automotive Industry Corporation (SAIC). The plant of 50,000 vehicles capacity is planned to be completed by the end of 2012.
Jizhong Energy Group Plant Shijiazhuang - US$315 MN It will be the largest plant in China producing natural gas from oven gas based on a recycling concept. By recycling the company’s own oven gas emissions, the plant will generate 300 m3 of natural gas yearly.
Procter & Gamble Manufacturing Plant Luogang - US$490 MN (in generating capacity)
Visteon Plant Chengdu - 3,700 m2 This auto components facility will supply aluminum radiators to car producers in southwest China, primarily supporting FAW-Volkswagen manufacturing base in Chengdu. Annual capacity is forecasted at 500,000 units by 2013.
R&D
Logistics may/JUne
Manufacturing
Competing with Unilever, P&G has started construction on one of the largest manufacturing sites in Asia. Production of the multi-product facility will start in 2013 with baby care products. The plant is part of a P&G investment plan in China worth US$1 BN by 2015. www.chainamag.com
Keppel T&T logistics park
Qingdao Port - New Terminals
Jilin - US$119.8 MN
Shandong - US$625 MN (first year)
Keppel T&T and the Jilin city Government are developping a food logistics park inside the Sino-Singapore Jilin Food Zone. It will provide facilities for trading, storing and distributing – which includes cold storage facilities, cross-docking and a transportation hub.
Coca-Cola Bottling Plant
Qingdao Port is expanding its facilities with a 400,000 ton ore terminal this year and a 300,000 ton oil terminal to follow soon. This development will make it the first Chinese port capable of accommodating vessels over 300,000 tons.
Doosan Infracore Co. R&D centre
Yingkou - US$160 MN Coca-Cola has opened its 42nd bottling facility. It occupies 170,000 m2, and is expected to increase production to exceed 5 billion bottles of beverages produced annually.
Yantai - US$9.8 MN
The Korean earth-moving machinery manufacturer will open an 8,000 m2 R&D center that will develop wheel loaders for China.
Bosch manufacturing plant Jilin
Yingkou
Beijing
Tianjin Shijiazhuang
Shandong
Yantai
Bosch is planning to set up its second manufacturing plant for diesel technologies in China. It will be located at the High-Tech Industrial Development Zone of Qingdao and focus on energy-saving and low-emission production.
Sigma-Aldrich center Wuxi - 80, 000 m2
Qingdao
Wuxi
Qingdao - US$253 MN
Changshu Shanghai
Sigma-Aldrich, a biochemical solutions provider has opened a new multi-functional center in China, which will include quality control and analytical laboratories for high quality products, as well as packaging materials.
Land Rover - Chery JV Assembly Plant
Chengdu
Changshu - US$158 MN Land Rover plans to open an assembly plant for its next-generation cars in partnership with Chery Automobile. In the initial stages, the plant will produce about 50,000 units. Luogang
SABIC Technology Center Shanghai - US$100 MN
www.chainamag.com
Saudi Basic Industries is building a 60,000 m2 Technology Center, which will focus on research and engineering of plastic materials to meet the needs of the automotive, IT, alternative energy and construction industries. may/June
FRONTLINES
Fresh Startups:
Trend-setters in Retail ► Olga Mironova
My Lux Box “HURRRRRAAAYYYY!!! I registered last week and I have been thinking about it constantly – I can’t wait any longer!” exclaimed a passionate netizen and new member of MyLuxBox (www.myluxbox.com), a new Hong Kong and Shanghai-based Chinese e-commerce startup. The concept is both simple and ingenious.
Furthermore, the company helps its clients to understand in which way they can get the most out of their samples, by providing product information, free tips with usage advice, helpful tutorials and interviews with experts on its internet platform, which includes not only the official website, but also pages in all the most popular social networks – Weibo, Twitter, Facebook, Renren, Kaixin and Douban.
How does it work? In a nutshell, the process is as follows: users register on the MyLuxBox site, pay the quarterly subscription fee of Connecting, Broadcasting and Involving “The concept is really fun! You can now try the RMB 240 (or RMB 500 per year) and fill in a beauty profile, where they mark their preferences, needs and other products first before you decide to buy or not to buy. details, such as skin-type or hair colouring. Then every Also, since the samples are of deluxe size, it allows you to month they will receive a customized “beauty box” with have a “real trial,” commented another netizen. So far, MyLuxBox distributes products of such brands 4 to 6 deluxe sized samples of different high-end brands of cosmetics. A large part of all the fun is that the content as Hugo Boss, Chanel, Lancome, Elizabeth Arden, of the coming “beauty box” unknown, which creating a Herborist, Kenzo, Korres, Acqua di Parma, benefit, certain stir of anticipation. The process does not stop at Bobbi Brown, and the list keeps growing. The founders the point of delivery either, as members are encouraged of the company have discovered that there is certain to share their experience and comments in different gap in virtual communication between luxury brands social media networks. They are in fact, awarded for this coming to China and their target audience. Although they understand with points, which Diede holds a dual degree in Economics and Computer the importance are redeemable at Science from Dartmouth. During a six year career in of social media MyLuxBox. If they management consulting (Applied Value) he supported building liked the samples it clients such as General Motors, Ericsson and Sony Ericsson in across 4 continents. He has been based in China since 2006 brand awareness, is of course possible and most recently was a co-founder and Managing Director they often to order full-size for Groupon China. He now is the CEO of MyLuxBox, one of face problems product packages the fastest growing consumer oriented startups in China. Diede van Lamoen, developing this on-site. Combining Founder & CEO social media these proven e-commerce marketing concepts with an element of presence by themselves, especially in the Chinese surprise has allowed the company to reach a web-savvy market. In that way MyLuxBox serves as a social media marketing intermediate between the luxury brands and target audience in China’s insatiable luxury market. Though far from being the first to utilize this approach finite consumers, ensuring the broad sample distribution – it originated from the US sites Birchbox and Blissmo - via different social network communication channels. Though MyLuxBox started with cosmetics, the the company which just started its operations in summer 2011 has already turned into one of the hottest tech start- company is not going to limit its activities to this narrow ups and a leader of Social-Subscription Commerce in scope. They have already launched other types of boxes China, growing at 30 percent every month. In just half – men’s version with skincare products and a “Taste box” a year, MyLuxBox managed to attract about a quarter of filled with luxurious confectionaries and snacks. Who a million registered users and now delivers its “beauty knows to which other industries this concept can be boxes” to 300 cities throughout China to 10,000 of paid extended or customized in the future. subscribers. 14 may/JUne
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FRONTLINES
iD by Me
Another promising e-commerce start-up is “ID by me” as customization launched in 2009. The concept used by this company is to the customer’s takes in some ways the polar opposite of MyLuxBox: instead preferences of surprising its clients with unknown products, clients considerable time. “Absolutely customize their product down to the smallest detail. I Rather than connecting Chinese consumers with Western recommended! brands, as is the case with MyLuxBox, “ID by me” offers ordered 3 sweaters customized clothing for clients in Europe, mostly France, for Christmas, which while manufacturing it in China. Remarkably, with its unfortunately got lost by sent state-of-the-art internet site in French (www.idbyme. the carrier’s fault. IDbyme and offered com), strong focus on quality, trends and value for me an email to apologize for free. I received consumers the brand managed to create such a semblance to re-make my three sweaters to the usual standards of “European fashion” that no one my new order in January. I’m super pleased with the quality of cashmere and would suspect that the Gabrielle is an experienced entrepreneur the colors!” commented company is actually of and marketing professional: in 2000 she a French blogger, sharing Chinese origin. founded China LOOP marketing platform, her experience. This user, Focusing primarily which helped its clients to target and retain customers. Later on Gabrielle was a Chairman while ecstatic with her on cashmere pullovers, of China Direct Marketing Association and China-made purchase, is leather jackets, trenches the leader of Asia Pacific region in Acxiom none the wiser about its and shoes, the platform – provider of interactive marketing. In 2009 with revolutionary fashion business model - ID origins. offers the opportunity by ME - she received funding from Partech Further expansion to customize to your Gabrielle Chou Founder and CEO International and Auriga Partners. plans are kept under tight heart’s content: apart in ID by Me wraps at the moment, from choosing the color from a range as wide as 77 shades for cashmere and 44 as the company declined to comment on CHaINA’s shades for leather, consumers can also “design” the length inquiries. However, nothing ever stays the same for long of sleeves and hems, type of collar, buttons, shape of in e-commerce. According to web traffic statistics, 30 pockets, and many other details, not to mention the size, percent of the site traffic is made up of Chinese visitors, so that in the end they would receive a truly “perfect” indicating an obvious curiosity from the domestic garment in a price range of roughly €50-150, which is market where the company is as yet only operating as a comparable to the price of today’s fast fashion brands. manufacturer. Delivery of orders typically takes less than 2-3 weeks,
choose a loose or fitted style
choose the length
choose the sleeve length and style
choose the collar style www.chainamag.com
the site generates an image based on your design
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Content ►Procurement News /16 ► iPad 3’s Costs Jump /18 ► IBM Remanufacturing Servers /19 ►AB InBev’s Best Cost Country Sourcing /20 采购短讯 /16
iPad 3的成本飞跃 /18
IBM再制造服务商 /19
百威英博的最低成本采购 /20
PROCUREMENT
Milk Hubs in Hebei
Fonterra, the largest milk producing company in the world is planning to develop 2 more farms in Hebei province, in addition to 3 existing farms. “An integrated business all starts with a safe, high quality local milk supply. Our intention is to develop separate farming hubs across China, with the ultimate goal of producing up to 1 billion liters of high quality milk every year by 2020,”commented the company’s CEO Theo Spierings. The combined size of the 5 farms is about 15,000 cows and will be focused on demand coming from Beijing.
Rare Earth Metals a Concern Again
Chinese rare-earth metals industry is being consolidated, which will cover over 10 provinces and result in establishing 2-3 rare earth
giants in the country in total. This obviously causes concerns among importers, raising their dependence on remaining Chinese producers, who now supply 90% of rare earth metals globally. Chinese authorities claim that the move was initiated because of environmental protection concerns and is completely in line with WTO rules. Furthermore the export quota will be the same for 2012 as for 2011.
Apple Seeks New Suppliers for iPad Screens
“The company is experiencing manufacturing problems that could affect both the availability of displays for a full rollout of the new iPad, as well as the cost
of the iPad displays,” commented iSuppli. So far Samsung is the only supplier of the new iPad’s screens, but according to various experts, it cannot cope with the forecasted volumes of production. The company has already ordered a trial bunch from LG and Sharp. However, rumors say LG is also having trouble keeping up with volume, while negotiations with Sharp have been stalled by pricing issues.
India Imposes an Export Ban on Cotton India, representing 20% of global cotton production, has banned its export until further notice in order to protect domestic cotton processing industry. Market immediately reacted following the announcement with the biggest one-day price increase of the year:
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May deliveries on U.S. exchange traded for 92.23 cents per pound. Though, it is forecasted by some experts that the ban might be revised as it can damage India’s trade credibility in the long-term. At the same time, the scarcity of exports from India can be supplemented from other countries in the region. Their main cotton importer is China, which consumes from 70 to 85% of Indian cotton.
Coal Scandals in India
The country’s treasury has lost US$210 billion, due to improper handling of the sale of coal deposits: in the last 5 years about 100 companies have received contracts for 155 coal deposits throughout the country based merely on corrupted mechanisms, with no bidding procedures held.
These facts leaked to the Times of India newspaper and their trustworthiness is now being contested by officials. It is the latest in a row of scandals in the Indian establishment, which has already been nicknamed the “mother of all scams” by the opposition.
China Raises Mining Safety Requirements
The State Administration of Work Safety has announced that it has increased a minimum requirement for safety investment on all the mines. 1,973 miners were killed in coal mine accidents in 2011, putting China’s mining industry among the most dangerous in the world. Small coal mines with an annual output of less than 90,000 tons which do not conform with the national safety standards should stop operation until the conditions will be improved.
Safety inspections have uncovered multiple accidents and gas explosions in these small-scale mines. Those mines unable to meet the requirements will have to be incorporated with bigger ones.
Zijin Mining Expands in Australia
Chinese Zijin Mining Group is planning to acquire a controlling stake of 50.1 % in Australia-based miner Norton Gold Fields for US$235 million. Zijin Group is the number one gold producer in China, second in copper and sixth in zinc. The company continues further expansion abroad, additionally to already existing fields in Central Asia, Russia, Peru and Australia. The deal is yet to be approved by the Chinese regulatory bodies.
June 8, 2012, Shanghai
Key issues to be addressed: Reverse logistics best practices for China Generating profits and increasing customer loyalty through reverse logistics Defining the right supply chain structure Evaluating the impact of consumer returns on your operation bottom line Reverse-product life cycle Dealing with lack of returned product Information
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PROCUREMENT
► Niels
Zomer
T
cost US$245.10 to produce when it launched a year ago, although the pricing of the iPad 2 has now been lowered by $100. These estimates include manufacturing costs, which jumped from US$8.15 for the 16GB Wifi-only iPad 2, to $10.00 for the same third generation version. Thus, it would appear that Apple is making less profit per iPad. However, others costs like software development and marketing have not been taken into account by iSuppli. Other iPad models such as those with 4G support also cost more to manufacture. According to iSuppli, the iPad models with 3G support, were about US$87 cheaper to make than the new iPad with 4G/LTE support. The increased costs are mainly caused by the new highresolution retina display, which costs US$30 more but has four times the pixels of the iPad 2 – 2048×1536 pixels. Other hardware changes that increased the New Ipad Preliminary Bill Of Materials(Bom) Cost Analysis production costs include a New iPad(3rd Generation) iPad 2 larger battery, new Apple WiFi WiFi + 3G WiFi WiFi + 4G 16GB6 32GB7 64GB8 16GB9 32GB10 64GB11 16GB3 16GB Components / Hardware Elements A5X with quad-core Retail Pricing（As Of March 2012） $399.00 $529.00 $499.00 $599.00 $699.00 $629.00 $729.00 $829.00 graphics and an improved $236.95 $262.55 $306.05 $306.05 $356.45 $347.55 $364.35 $397.95 Total Bom Cost iSight camera. $10.75 $10.75 $10.75 $10.00 $10.00 $8.15 $8.45 $10.00 Bom + Manufacturing Samsung is probably $245.10 $271.00 $316.05 $332.85 $366.45 $358.30 $375.10 $408.70 Major Cost Drivers raking in the most money Memory Nand Flash $67.20 $33.60 $16.80 $16.80 $33.60 $67.20 $16.80 $16.80 from the iPad 3; the Dram $13.90 $13.90 $13.90 $13.90 $13.90 $13.90 $7.60 $7.60 company is responsible for Display & Touchscreen the A5X system-on-a-chip, Display $87.00 $87.00 $87.00 $87.00 $87.00 $87.00 $57.00 $57.00 retina display and in some Touchscreen $40.00 $40.00 $40.00 $40.00 $40.00 $40.00 $40.00 $40.00 Processor $23.00 $23.00 $23.00 $23.00 $14.20 $14.20 $23.00 $23.00 cases also the memory. Camera(S) $12.35 $12.35 $12.35 $12.35 $4.10 $4.10 $12.35 $12.35 Some claim that Samsung Wireless Section - Bb/rf/pa(Module） $41.50 $41.50 $41.50 $25.60 even manufactures the User Interface & Sensors & Combo $15.00 $15.00 $15.00 $15.35 $15.00 $15.00 $15.00 $15.35 larger battery, which would Module（Wlan/bt/fm) put Samsung’s share of the Power Management $10.00 $10.00 $10.00 $10.00 $5.85 $10.00 $10.00 $5.85 Battery $32.00 $32.00 $32.00 $22.75 $32.00 $32.00 $32.00 $22.75 new iPad’s BOM costs at Mechanical/electro-mechanical/ Other $47.80 $50.50 $50.50 $50.50 $50.50 $50.50 $50.50 $47.80 almost half. he new iPad that was launched by Apple in March is priced at the same point as the previous generation, but this doesn’t mean that the production costs haven’t increased for the new model. A number of reports show that the production costs for the new iPad increased significantly; therefore it seems likely that the manufacturer has a lower profit margin per tablet. According to iSuppli, a market researcher that has created teardowns of Apple devices, claims that the third-generation iPad with 16GB of storage and Wi-Fi will cost about US$316 to manufacture. Compared to its predecessor, the iPad 2, this is a significant increase due primarily to jumps in material costs, as seen in its bill of materials (BOM). The second-generation 16GB iPad only
Box Contents
$5.50
$5.50
$5.50
$5.50
$5.50
$5.50
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$5.50
Source:IHS iSuppli Research, March 2012
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PROCUREMENT
IBM Remanufacturing Servers
China’s landfills will see 100,000 fewer old servers by 2014
IBM is doing its parts to reduce e-waste in China, opening the first facility in the country that will refurbish and resell used computer servers – a potential $2 billion market by 2014. The remanufacturing plant, built near an IBM facility in Shenzhen will be the first of its kind in China. “The Chinese market is huge from a server perspective,” says Richard Dicks, general manager of IBM Global Asset Recovery Services. The primary source of servers will be expired equipment leases in China, which would otherwise perpetuate the country’s growing burden of e-waste. “In China, they’ll use them for five, seven or nine
Cindy Tse years and they’re basically landfill when they come out,” says Dicks, who expects the company to remanufacture 100,000 servers and personal computers in China for resale in the domestic market by 2014. These products, refurbished with new memory and storage will amount to a $2 billion market. What is less clear is how non-IBM equipment will be handled. Though Dicks claims IBM will accept such equipment, it was admitted that they would likely be handed over to another entity to refurbish or dismantle. Dicks expects competitors to follow suit. IBM already operates similar remanufacturing facilities around the world, salvaging 33,000 metric tons discarded electronic equipment a week. While licensing the facility was not easy – it look two years of negotiations with the government authorities – IBM now has the first-to-market advantage. Although IBM has projected a huge potential market here, it is doubtful whether this is profitable in and of itself. The incentive of a “trade in” deal with corporate customers is advantageous. However it is difficult to see how much profit can be derived from the resold servers themselves. Rather, it is the repeat business that creates much of the profit.
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Vojtech Ludvik, the Director of AB InBev’s International Procurement Office discusses the role of the China IPO in AB InBev’s global strategy IPO mission We have a team of 15 people here in Shanghai covering a spend of about 1 billon dollars per annnum. Our major job is to buy in what we call Best Cost Countries (BCC) in Asia for the rest of the world - in the future in some other markets outside of Asia - like Mexico, South America and so on - we’re expanding pretty fast. And of course, like everyone else, we have a vision, dreams, mission statements. In terms of our IPO vision, which is closely hooked to the whole company’s vision – we want to become truly global platform in terms of sourcing in BCCs. That must be not only China sourcing – but best cost countries. What does it mean? That’s what I’m trying to figure out. In theory it could be ANY country in the world where we can get the best cost for our global business.
The scope of operations What do we actually buy in BCCs? First it’s the packaging or materials related to packaging, then raw materials, primarily chemicals, trade-related items, for example coolers for beer – we buy a lot in China. Also some smaller things such as furniture, parasols - you can see them basically everywhere. And then Capex – equipment for our breweries: we do a lot of sourcing of equipment in Asia for our beer production. As one of key targets of our business that we are developing is new suppliers, we have specific KPIs on supplier development – not only in China, but anywhere in Asia. In terms of time from selection of new supplier to delivery of the products it really depends on the category, sometimes if it’s a small gadget or a pencil it takes a couple of weeks, but if it’s equipment or some more complex product it takes up to one year, sometimes even more. Business Development A few years ago we started as a little team in Shanghai, basically China-centered, sourcing from China to all our geographies. As you know we have a presence in South America, North America, Russia, Ukraine, Western Europe - so that’s how we started – with a small IPO office in Shanghai and no – or at least a very limited - global procurement function. Where are we now? We have a strong global procurement function, we have a team of people sitting in Belgium, dealing with a strategy, centralizing also some
What does Best Cost Countries mean? In theory it could be ANY country in the world where we can get the best cost for our global business.
Efficiency Our key task is to deliver quality - there’s no question about that, but the key influence [of sourcing in China] is that we make our production more efficient and profitable than without having our team in China. We supply high quality products from China, from Asia and some other parts of the world to different breweries around the globe with better conditions than we could get from the local market. This way we make our business more efficient, which ensures satisfaction of our customers as well as our shareholders.
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PROCUREMENT global items like cans, bottles for our beer as well as key raw materials. The key alignment between the global procurement office and the IPO is done through KPI’s, which are coming from the top down, from the global procurement office to our team. KPI’s are key in alignment not only in communications, but also for ensuring that we’re pulling the same rope across the whole company. The IPO office at this moment has 15 people servicing the global market and our BCCs expanded from China to Brazil, Mexico, Spain, Turkey, India, Ukraine and so on. Our business from BCCs is growing very fast. Last year we increased our business to approximately 1 billion dollars in terms of proposals, that’s an increase of over 40%. This shows increasing interest of our internal stakeholders in BCCs and their products. Plans for the future We cover South East Asia at the moment in terms of the supplier base, we are adding Mexico, part of South America and in some cases Eastern Europe. I guess any country in the world can be a Best Cost country: in terms of the price, but also in terms of the best solution. So what we are creating right now is strong relations, a strong network between the global procurement office, IPO and all our geographies. Our people do active sourcing in Brazil, US, Eastern Europe, and so on, provide the data to us and we do active negotiation using our IPO resources in that market. For many categories, the category management is divided between the global office and IPO. The IPO is now a fully integrated part of the global procurement office based in China. I expect this trend will continue, at the moment for less strategic items or categories. Expectations in Asia region For sourcing in the region we’re not just sourcing in China. China represents about 90% of our business, however we are sourcing from Vietnam, Korea, India, Dubai, and Japan. So there are alternatives and as the RMB appreciates and costs in China go up, we are going more and more to these countries outside of China. From the relative point of view the weight of these countries will be bigger and bigger, but in terms of the actual volume of the business, I still believe China is the right place to be for the next ten or more years. External trends and challenges I’d say inflation and export support are the biggest external challenges. Our suppliers are losing subsidies supporting export from China. This is expected, but not a good trend for us. Then there are new import barriers imposed on some markets: some of the markets are very protected against goods particularly from China. We see a huge increase in barriers in South America particularly.
Anheuser-Busch InBev
•Based in Leuven, Belgium •Leading global brewer •In world’s top 5 consumer product companies •USD 39 bn revenue •Number 1 or 2 in many beer markets •6 operational zones: (1) North America, (2) Latin America North, (3) Latin America South, (4) Western Europe, (5) Central & Eastern Europe, (6) Asia Pacific •Over 200 beer brands, including: - Budweiser, - Stella Artois - Beck’s •116,000 employees worldwide. Then there’s RMB appreciation, which makes our goods and services more expensive than in the past. Another challenge is that our suppliers are also consolidating within their industries, they are as smart as anybody else. They consolidate and increase their leverage as well, including Chinese suppliers. Furthermore, there’s a lack of suppliers with sufficient capacities, and sometimes there’s even a lack of interest to do business abroad. We face the challenge of suppliers understanding foreign markets. In many cases they do not know how to deal with a particular country, how to service customers in that country. And still we have to face a lot of quality issues from suppliers in Asia. In terms of internal challenges our business is growing fast, but not that as fast as our resource availability. Internal challenges. A challenge we have is that we have been growing very fast – if you look at the history of our company - we have grown from a regional company to number one in the brewing industry in the world in less than 15 years. That’s a big challenge in terms of systems, cultures, management style and globalization of the company. We’re global by definition, as we have our presence globally, but in terms of global systems and processes we are catching up. 21
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News /22 ► No End In Sight: Why China Is Still King in Manufacturing /24 ► Etam’s Lead Time Wars /26 ► Rise of the Robots /28 ► The truth about TECH/30
Content
► Manufacturing
制造短讯 /22
放眼无穷：中国为何仍是制造业霸主 /24
艾格的精细制造之战 /26
机器人的崛起 /28 科技的真相 /30
MANUFACTURING
Lead Contamination from Johnson Controls
49 children have been exposed to lead poisoning in the Kangqiao region of Shanghai, which was discovered during a routine school blood test. Shanghai authorities are blaming a nearby Johnson Controls battery plant for the airborne lead contamination, claiming the company has been emitting lead in excess of local quotas. According to the officials statements the plant will not be allowed to continue lead processing. However, the company “disagrees with any interpretation linking the plant’s operation to elevated lead exposure,” as the level of lead emissions was still lower than the national level.
Great Wall Motor Getting a Foothold in Europe Great Wall Motor has opened an assembly plant line in Bulgaria in a partnership with local Litex Motor. The Chinese car-maker’s is trying to establish a foothold in the European market. CEO Feng Ying Wang expresses great optimism: “We estimate that in three to five years we will have a wide range of models made here and that these cars will be sold in all European countries.” The plant will start operating at full capacity in 2013, and will be capable of producing up to 50,000 vehicles a year.
SinoTruck Expanding in Africa
SinoTruck, a Chinese manufacturer of heavy trucks and truck chassis, has announced plans to establish an assembly plant in Dar es Salaam, Tanzania. In previous years the company was selling about 500600 trucks in Tanzania and as demand has grown, the company has now started expanding in East Africa. The Chinese Ambassador in Tanzania is now involved in talks with the local government.
Sany Group Sets an Industrial Park in Guangdong
The 6th largest heavy-machinery manufacturer in the world and number one in China – Sany Group – has started the construction of a US$ 1.6 billion industrial park in Zhuhai, Guangdong. The park will
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MANUFACTURING
concentrate on manufacturing as well as R&D of port and marinerelated equipment. So far Sany Group has 5 manufacturing bases throughout China and several overseas plants in India, USA, Germany and Brazil.
China Ready to Export Airliners
Commercial Aircraft Corporation of China announced that domestically designed and produced commercial airliner C919 will be ready for export sales in 2016. The company already has more than 200 orders, some coming from the US and Singapore. The airliner is capable of carrying up to 168 passengers
and covering 4,400km flights, and will soon be equipped with a Chinese-made engine, replacing the current GE and Safran engines.
Dongfeng Honda Recalls Cars
More than 450, 000 Donfeng Honda vehicles produced between 2009 and 2011 were set to be recalled from the market starting April 30th because of defects in horn mechanisms. The General Administration of Quality Supervision, Inspection and Quarantine deems horn malfunctions to be serious safety problems on the road. Thus, the company will offer free repairs to all vehicles with this defect.
Group (Vinashin)- Pham Thanh Binh - has been sentenced to 20 years in prison for “intentionally violating State regulations on economic management, causing serious consequences” – in other words a loss of about US$43.54 million to the budget due to mishandling of international bonds. Prior to the scandal the company with 60,000 employees and 28 shipyards had been perceived as a model of a stateowned efficient enterprise driving the economy of Vietnam forward.
Vietnam Shipbuilding Scandal
The Chairman of the state-owned Vietnam Shipbuilding Industry
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MANUFACTURING
No End In Sight
Why China Is Still King In Garment Manufacturing ► Jason Inch
H
A textile mill in Xiaoxing, Zhejiang Province using top-of-the-line imported Belgian machinery
ere are three questions to test your fashion manufacturing IQ, from easiest to hardest. First question: Which country is the world’s leading textile and fashion manufacturer? The answer should come easily to anybody working in fashion: China is the undisputed manufacturing leader in everything from women’s handbags to men’s neckties and will remain so, for some time to come. Next question: Who are Ma Ke, Masha Ma and Ji Wenbo? Are they unfamiliar names? Maybe now they are, but here’s a clue to their profession: Imagine traveling back in time to Japan in the late 1970s to mid-1980s—when Japan’s economy was booming—and seeing small Tokyo boutiques from Issey Miyake, Yohji Yamamoto, or Kenzo Takada. Back then, would those names have rung a bell with international consumers? Most likely not, but today they are among the global leaders in fashion and design. In the same way, Ma, Ma and Ji are at the forefront of the new fashion trend: Chinese designers finding new success at home and abroad. Here’s the last question: What do Bangladesh, Vietnam , Bulgaria and Tunisia all have in common? Not much, you might think, but they share at least one characteristic today: They are all vying for a piece of the global fashion manufacturing pie by becoming competitors to China as outsourcers. Furthermore, they all have lower labor costs than China. These markets have other advantages over China. In the case of Bulgaria, it is closer to the large consumer markets in the EU and, in the case of Tunisia and Vietnam, their managers might be able to speak better French than the typical Chinese factory owners. There have been a growing number of articles in major media all trumpeting the end of cheap manufacturing in China. There are an equal or greater number of company executives in such articles claiming they have moved or
will be soon moving manufacturing away from China because of rising costs. Is this really a trend, or is it just sensational journalism? Here are some facts that are often reported alongside the quotes of sourcing managers commenting about China’s loss of competitiveness: China’s labor costs are rising, rapidly. In some industries, textiles and fashion included, wages are up 15% a year or more depending on the region. A second commonly reported fact is that China’s national five-year plan stresses the importance of value-added industries, which would seem to leave light manufacturing of basic clothing out in the cold. Here are some other facts, which are less-often reported in the same articles. China is, depending on whose survey you read, the world’s number one or number two consumer of luxury products. Second, China’s five-year plan also stresses the development of a consumer-driven economy: Retail sales, for example, have been growing at greater than 15 percent for the last five years. This presents an interesting decision for the garment industry companies that source in China: Should they continue sourcing in China, even though there are other, cheaper, manufacturing locales elsewhere? First, the cost differential means that China is certainly no longer the cheapest, but it is still cheap. Furthermore, the difference between a cheaper China and the cheapest manufacturer of some garment is not an order of magnitude larger; it is sometimes negligible at best. With the price of cotton and other commodities so high, a t-shirt that might cost $1.05 in China could be produced for $0.95 in Bangladesh. Is that ten cents of savings worth the logistical issues that manufacturing in Bangladesh— prone to flooding—might entail? Can the appropriate sub-contractors be found in the supply chain there? Would they be as numerous or as experienced as the China textile supply chain has become? Not to mention
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A textile factory in Suining, Sichuan province, China
that the Bangladeshi Taka fluctuates wildly against the dollar, euro and yen. And while the low quality connotations of “made in China” still applies to many products and regions, Chinese manufacturers are climbing up the value chain in high-tech materials, sportswear and safety wear. They may still depend on their clients to bring the technical expertise to them initially, but a cycle or two is usually all it takes to get the hang of it. All one needs to do is look to Italy’s famous garment and textile towns such as Biella and Como, where centuries-old, family-run businesses making the highest quality silks, wool, cashmere, and leather, have shut down, or outsourced manufacturing to China. “We used to be the Chinese of Europe,” says Carlo Piacenza, who runs a 270-year old cashmere company Fratelli Piacenza with his brothers. “In the 1950s and 1960s, we took the market from England and France. Now we have to be prepared to leave this to someone else.” Fratelli Piacenza is just one company among hundreds from Italy that has shifted manufacturing to China. And it has not taken long for their suppliers to create the quality of materials and garments that were developed over decades in these pioneering Italian towns. Now the business case for outsourcing to Bulgaria or Tunisia is simpler: While those countries may not be significantly cheaper than China in terms of production costs, they are much closer to the large consumer markets in Europe, meaning logistics costs and transportation are likely to be lower, and overnight deliveries are possible. As time to market is becoming even more critical, with fast fashion business models like that of Inditex’s Zara setting the bar – China is losing the advantage here. The dilemma for companies like Zara, and any firm that sees China as a growing market worth being in, is that
Up-and-coming luxury Chinese brand Masha Ma
having manufacturing outside of China will be a liability when it comes to selling in China. Having the cake and eating it too just will not be an option considering how China protects its domestic markets from imports, either via tariff (e.g., taxes on luxury products) or non-tariff barriers (e.g., high standards for quality). As Al Gore once pointed out in relation to cars, China has tougher emission standards than the United States. The same high standards are found in everything from bottled spring water to cosmetics: China uses these rules to block or penalize foreign manufacturers. As for the issue of low value-added light manufacturers no longer being offered preferential tax credits and other incentives for China, that is true, those incentives will not be coming back. Export credits on the other hand, for manufacturers in China, are far more likely. A growing number of mid-market and even luxury brands are coping with this trend by producing some or all of their complex or luxury garment products in mainland China. One example is Coach, which makes many of its bags in China already, and as a brand is increasingly popular with Chinese consumers. While “Made in China” may still carry an unfashionable image with today’s Chinese consumers, and is synonymous with “cheap” in the West, this is changing on both counts. As China moves up the value chain, as its consumers become richer and as its market becomes bigger (and eventually biggest in the world), producing in China is going to be the smarter move. If you don’t believe it, ask the consumers of Issey Miyake’s many brands, the eponymous Kenzo stores, or Comme de Garcons if Made in Japan had anything to do with their popularity in their home countries. For Ma, Ma and Ji, they already know the answer. Jason Inch is author of the new book, China’s Economic Supertrends, and is a consultant and independent economist based in Shanghai. jasoninch@chinasupertrends.com 25
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MANUFACTURING
Lead Time Wars Andrew Hou, Director of Supply Chain for Etam China discusses the company’s manufacturing model and the needs of fast fashion today
Tell us about Etam’s operations in China. Etam originated from France and entered the Chinese market in 1994. In our operation process the customer comes first and quality is always considered to be the top priority. Even though all the production in China is organized with local suppliers, they apply the same standards for local production as is applied in Europe. In China, Etam has two organizations: Etam China is in charge of local market operations and we also we have the Etam International Sourcing office in China which takes charge of sourcing and importing goods from China to the European market. All the products for Etam China are produced in China and we also have a local design team. So actually the product is customized for local tastes and differs from one country to another. What are your plans and expectations for the Chinese market in the near future? Competition will be more and more fierce. In the coming years, we will see many international brands
entering the Chinese market. So we see that challenges and opportunities co-exist in the Chinese market. The Chinese domestic consumer market is increasing much more rapidly than expected. For example for fashion retail last year, the growth rate was 18% percent higher than in 2010. Even higher growth is forecasted for 2012. I think that from a growth point of view, the domestic retail industry will keep growing at least for another 3-5 years with double digit growth. In terms of manufacturing, what do you consider to be the main challenge in China? The first challenge in China is the shortage of labor and the second is the increasing labor cost. Labor shortage is a national phenomenon, it is especially serious for the south of China. Because the famous migrant workers who come from northern remote areas to work in developed coastal cities are now getting more and more industrial development in their own cities. And they prefer working in their home instead of migrating to the south and coastal cities. So the labor shortage issue in general, for the south and coastal cities in particular appears very serious. Another issue is the increasing labor cost. We know that the minimum legal wage will increase year by year by at least 10%. So in five years, a worker’s salary will be doubled in many cities. We all know that labor costs account for at least 30% of the finished garment and that does affect the purchasing price of the garment – from a manufacturing point of view. How do you ensure the quality of your products in China? Here we have quality assurance and quality control
26 may/JUne
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MANUFACTURING departments. For quality assurance we concentrate more on preventive measures to ensure the quality during design and before production stage. We select raw materials and track all raw materials before entering production. Of course we follow China local mandatory standard to test fabric and accessories such as zippers, buttons, and so on. During production we conduct 3 stages of inspection: before, during and after production. As you know, the Chinese government, and especially some local authorities enforce market quality inspections from time to time. We have to be sure that our quality standards are in line and conform to the requirements of local consumers and regulations. Can you tell us more about your warehousing operations? Compared to European warehousing model our system is still labor intensive. In some western countries, our warehouses have all automatic systems, robots for example, for picking up. Here we have a physical system. We just introduced a system to speed up the pick-up, we use a scanning system to accelerate distribution and we are planning to implement RFID – a new technology - to be more responsive to replenishment. How much time does it take for your products to hit the stores? It’s really very different from one retailer to the next since they have different business operation models. But everybody tries to be quicker and quicker. For fast-fashion retail the benchmark is Zara – their cycle time or time to market is two weeks including design, production, warehousing and distribution. Usually for a low-cost fast fashion brand the time to market is about 4 months or 120 days: starting from product design to the product hitting the shops. This means one month for design, another month for sample making, third month for fabric and accessory preparation
1994
Etam entered Chinese market
15.4%
sales increase in China in 2012
350
new stores opened in China in 2010
3000
stores in China
25 years old
target market
$
Etam’s manufacturing facility (China)
and the last month covers three weeks of production, and one week for distribution from warehouse to the shops. But Etam is much quicker than that. What kind of strategy do you use to compete with Zara and other similar companies? We try to distinguish ourselves from competing brands with a quick response to the market. It’s our main key and core competence, as our CEO Mr. Fersing reminds us almost every day. Our strategy is to implement a flexible fast-fashion model, to shorten the cycle time from design to the shop. We’ve launched a quick response project to shorten the cycle time and also we’ve implemented lean production management to make the production more flexible and able to respond to market changes. In this regard cross-function or cross-department communication is key. We have one system – one work floor to make everything transparent and quick. How do you specifically increase efficiency to meet the requirements of speed and quality? I think the most important is to de-complex the engineering process, at least to de-complex the work flow within the company. Traditionally we spent more time on design and focused on all the details and when doing so we forget to be consumer-oriented. We forgot that we have to offer what our consumers expect from us. So we have to be as close as possible to the market to follow trends and make our collection as up-to-date as possible. For example, before we spent up to 6 months to prepare a new collection, so we used to see the market from a long term perspective. But when we are close to the market in terms of time we reduce risk and inventory quite a lot. If we can start just before the actual in-season sales and be on time to deliver to the market, the inventory can be reduced a lot. Of course we have to pay for the shortened lead time. Our benchmark in this operation is being costeffective. Traditionally the collection is organized and planned one year in advance; here we have to be ready to react to the market really quickly, which requires our design team, product development, purchasing and production, and warehouse to be market-orientated. That’s the most important thing. 27
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Foxconn’s first robotic arm, developed for its facilities (2006)
MANUFACTURING
Rise of the Robots
The Next Step in China’s Push Up the Value Chain? ► Alexander Gladstone
W
ith the wave of strikes and labor disputes that have been breaking out in China since 2011, manufacturers are now considering deploying a new kind of worker that not only does not complain, but does not even need to go to the bathroom, and can work 24 hours a day. This worker might be called the FRIDA , created by Swiss-based ABB Robotics, and is a “dual-arm concept robot,” primarily used for small parts assembly, which includes flexible grippers, parts feeding systems, camerabased part location and a state-of-the-art robot controller, and is intended to fit into spaces ergonomically designed for human workers. An ABB spokesperson reported that “China’s 12th FiveYear Plan encourages more manufacturing companies to transform and upgrade to automated production. Increasing numbers of manufacturers are now willing to use robots for automated production to improve productivity and energy efficiency. The market demand is growing rapidly.” The Foxconn Robot Foxconn has supposedly deployed 10,000 robots in its facilities in Jincheng, Shaanxi Province, and the company plans to expand to one million in three years, according to Xinhua. They will replace an estimated 500,000 human workers, and cost an estimated RMB9 billion. While Foxconn has stated that they are developing their own robots, there are reports that the company is using the
ABB’s FRIDA robots. Terry Gou, the CEO of Foxconn, announced that the Jincheng facility will serve as a testing ground for the company’s effort to implement mechanized labor. The robots will mostly be used for precision work such as laser printing, color spraying, grinding, marking, welding, and assembly.
Giving a Boost to Jobs for Human Workers In response to criticism that the robots will replace human workers, Gou stated that the workers will be reassigned to higher-value projects that require human hands. He also reported to the Chinese media that the robots will not only create up to $4 billion in production value over the next three to five years, but actually create a total of 2,000 human jobs. A study commissioned by the International Federation of Robotics (IFR) supports the notion that this may be possible. The study, released in 2011, focused on six countries considered representative of advanced economies: China, Brazil, Germany, Japan, S. Korea, and the USA. It concluded that the one million robots world-wide that are currently used in manufacturing have actually led to the creation of close to three million jobs. Robots can be used to create jobs in a range of critical industries, such as consumer electronics, food, solar and wind power, and advanced battery Gudrun Litzenberger, IFR manufacturing. Peter Goyle, the author of the
Especially in the past two years, robot installations have strongly increased, while the unemployment rate has decreased.
28 may/JUne
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FRIDA, a “dual-arm concept robot” developed by ABB Robotics
Not much automation happening here (Foxconn assembly plant, Shenzhen, 2010)
MANUFACTURING
While of course, some workers will be moved up to the higher-value positions that entail operating and managing the robots, it seems inevitable that large numbers of lower-level workers will be laid off. And managing the robotic workforce is no less difficult than managing a human one. “We have often seen highly automated plants working at a fraction of their capacity because workers and managers don’t understand their complexities, and are resistant to new ways of working, therefore factories don’t derive the full benefit,” says Rosey Hurst, the Director of Impactt Limited. Regardless, Foxconn’s facilities are likely to be the first in a wave of manufacturing plants that make the transition to automated production in China. Panasonic is investing an estimated RMB2 Clumsy Implementation billion to open a new plant in However, there are some who Suzhou in April of this year, doubt that it will be possible to which will use robots to triple its switch to robotic, automated capacity for automated output. production without cutting jobs. Other global companies now Keagan Rubel, Director of Keagan Rubel, the Director of making the switch to automated Research for InnoCSR Co., Ltd., Research for InnoCSR Co., Ltd., production in their Chinese said that the many “workers facilities include Canon and Siemens. that are replaced by the robots are generally not in a Whether Chinese laborers will be laid off, or moved up position to shift into the specialized positions, and thus to high-level positions, is yet to be determined. However, may be disadvantaged by the automation of operations. if one thing is certain, the transition to automated Assuming a more moderate increase in robotics, I would production is indicative of China’s push to move up the think that there would be a net decrease in factory jobs.” value chain. report, concluded that aside from being able to do work that is either dangerous or impossible for humans to do, “robots carry out work that would not be economically viable in a high wage economy.” Drew Greenblatt, the CEO of American-based Marlin Steel, explained that since his company began using robotic labor, he has “increased our workforce by more than a quarter. Each employee oversees four robots, and the quality has skyrocketed.” Gudrun Litzenberger, the Secretariat of the IFR, stated that robots are unlikely to replace human workers, citing Germany as an example, “Especially in the past two years, robot installations have strongly increased, while the unemployment rate has decreased.”
Some companies do implement training programs and attempt to roll the workers into higher skilled jobs, but the relatively high costs of these programs create a barrier to the type of widescale implementation we would prefer to see
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MANUFACTURING
30 30 may/JUne
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MANUFACTURING
Ａｖｅｒａｇｅ ｄａｉｌｙ ｗａｇｅ ｉｎ Ｃｈｉｎａ： ＵＳ￥１０．５
Source:MastersDegree.net 31 www.chainamag.com
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CONTENT ► Logistics News /32 ► Journey to the West /34 ► Alipay’s COD Innovation /36 ► Shipping Rate Fluctuations/37 ► YRC Exits China /38 ► India Shipping /40 物流短讯 /32
西行记 /34
支付宝的货到付款创新 /36
LOGISTICS
UPS Buys TNT for a Cool €5.2 bn
With its recent €5.2 bn (US$6.85 bn) purchase of Dutch TNT Express, UPS is now the world’s largest parcel delivery company outside the U.S. The acquisition will give UPS a leading market position in Europe, and a strong foothold in Asia and Latin America, expanding UPS’ revenue outside the US to 36% of its total (from 26%). TNT has been growing steadily in China, India, and Brazil, but the European market still accounts for twothirds of its revenue. The deal was sealed at €9.5 per share, after an initial offer of €9.0 the previous month in its failed bid. While some shareholders might be less than thrilled with the acquisition – UPS’ largest in its history – the move puts the company
船运运费上涨 /37
far ahead of the FedEx Corp in Europe, which has the second highest market share, at only 3 percent. There was speculation that FedEx might have been a potential buyer for TNT, but analysts predict FedEx will likely snap up a few assets divested by UPS in the course of the merger.
2012 Looks Bleak for COSCO
China’s largest state-owned shipping company COSCO Holdings reported RMB10.45 bn in net losses in 2011, citing high fuel prices and low shipping rates for the dismal performance. Given the RMB6.8 bn profit COSCO turned in 2010, there is speculation of tampering in its financial reports. An analyst reported to Caixin
YRC退出中国 /38 印度船运 /40
Daily the possibility that newly appointed management inflated 2011 losses to ease perceptions of a likely poor outcome in 2012. Meanwhile, CITIC Securities attributes the 2011 results to a payout of RMB500 mn for a default on a ship-leasing contract, among other causes. COSCO is seeking a RMB10 bn capital injection from the Ministry of Finance to stay afloat.
China’s Logistics Costs to Hit US$19.8tn in 2012
The value of China’s freight logistics is expected to reach CNY 125 tn (US$ 19.84 tn) in 2012, Xinhua News Agency reported. Currently, the country’s logistics costs account for around 18% of its gross domestic product, far above the levels seen in the United States and European countries.
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LOGISTICS
Toll Wins Awards from Johnson & Johnson
Toll won Johnson & Johnson third party logistics service excellence awards for best warehouse management, best customer service, and best group contribution across its regional distribution centres in China. Johnson & Johnson’s Consumer China Supply Chain Director Felix Zhang says the distribution centres consistently offer a first-class delivery service with zero complaints.
360Buy.com’s Logistics Center Plans Appears on Hold
The 21st Century Business Herald has uncovered that two of four land plots acquired by the company for CNY 1 bn, which are supposed to be used for logistics centers, remain undeveloped. Speculation is circling that going public is the only way out of the financial problems the company is facing.
CEVA Launches New Shanghai Office
The new office is located on Mengzi Road, Lu Wan District
and takes up three levels of the New Rich Port Center. CEVA’s China head office and East China office have around 500 employees.
on new railways in China drop 67.5% in January and February to RMB20.8 billion. The political conflict in Libya affected overseas profits, as the CRCC was forced to evacuate its US$4 billion projects of its 3,573 workers.
Lax Logistics Regulations Facilitate Gun Smuggling Kerry Logistics Profit Up 11 Percent
The HK-based company saw profit increase 11% to US$ 95 mn as revenue soared to US$ 2.061 bn. The company said its integrated logistics division had seen revenue increase by 43%, driven by expansion in Taiwan, the flow of manufacturing activities into Asean countries and new demand.
China’s Railway Companies See a Drop in Profits
Domestic and overseas drops in railway spending are hitting China’s largest railway companies hard. China Railway Group and China Railway Construction Corporation (CRCC) saw national spending
After breaking up 69 gunsmuggling rings throughout China in 2011, police are putting partial blame on express delivery companies for not requiring senders to identify themselves. 19 cases of firearm smuggling were uncovered, with 11 cases utilizing express delivery as a means of transport. One case involved a parcel sent through Beijing via UPS that involved a criminal gang that says they used express delivery services a number of times. Yan Zhengbin, Deputy Director at the Public Security Management Bureau claims domestic delivery companies’ procedures in checking parcel contents and ID are too lax. Police say they will be keeping a closer eye on delivery networks.
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LOGISTICS
Journey to the West
Transcontinental route Western China - Western Europe ► Olga Mironova
C
urrently, it takes roughly 45 days for “made in China” goods to be shipped to European consumers by sea. Transcontinental, overland routes through Kazakhstan and other Central Asian countries should take 15 days now and in a few short years, it should only take 10 days – that is if nothing goes wrong. While the route can hardly be said to be smooth, it is definitely worth considering. Development of transport links between China and Central Asia is driven first of all by increasing trade and collaboration in the region. And given the increase in shipping rates –west-oriented logistics may soon get its day in the sun. What’s more, since July 1st, 2011, when Russia, Belarus and Kazakhstan finally started operating its customs union – the world’s largest by area - with free movement of goods among them, every truck passing the border of Kazakhstan now gets access to a combined market of 170 million people, stretching from the border with Poland in the west to the Pacific Ocean in the east. “Nobody knows what the increase in customs flow will be because of the Customs Union, maybe more than triple; it could be five times,” says Alexander Beisembiyev, President of Silk Road Logistics, commenting on the Kazakhstan’s customs officers surge of transport volume crossing the border between China and Kazakhstan in recent months. Another important initiative to consider is the ongoing construction of a transcontinental road corridor of more than 8,000 km in length. As soon as authorities on the Kazakhstan side complete and from St.Petersburg upgrade its part of the route to Lianyungang of 2,500 km, with the help of an unprecedented US$ 2.12 bn
8,445km
34
from the World Bank and neighboring countries, the way from St Petersburg to Lianyungang will take no more than 10 days – making it the fastest connection between Europe and Asia. The project is expected to be complete by the end of 2013. Gates to the West The main outpost of this Western China - Western Europe transcontinental passage is being developed now at the border between China and Kazakhstan. This outpost – the “Khorgos – Eastern Gate” International Cross-Border Cooperation Center (ICBC) includes 185 hectares of warehousing, production and administrative facilities on the Kazakhstan side (Almaty region) and 343 hectares on the China side(XinjiangUygur Autonomous Region). The first stage of the project is set to be finished any day now, while the full capacity will be developed by 2018. It is not meant to be merely a customs office, rather the Special Economic Zone is aimed at simplifying mutual trade between these countries, increasing container investment in SEZ transportation volume and fostering further developments Khorgos in transportation. The main principle of Khorgos, according to ICBC’s President Gabdulhakim Zhashibekov, is to facilitate the movement of goods and people in the zone. Citizens of both Kazakhstan and China can stay on both sides of the zone for up to 30 days without any visas. The same rule will apply to the citizens of third party countries who have the right to stay in any of the host countries for business or leisure purposes. “The plan is that Khorgos will provide for transportation of 120 thousand containers per year. This is an unprecedented huge quantity,” said Gafur Ikhsan, Vice-President of the Kazakhstan Chamber of Commerce and a member of the Board of the Khorgos ICBC. So far it is one of the biggest joint projects implemented between Kazakhstan and China, worth US$2.6 bn. Apart from developing infrastructure on-site, the local
US$ 2.6bn
St. Petersburg Moscow Nizhniy Novgorod Kazan Orenburg Aktobe Kyzyl-Orda may/JUne
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LOGISTICS
government has heavily invested in upgrading transport infrastructure in the reg ion in general. Thus, Khorgos will not only be linked to the region’s main arterial roads by transnational highways, but also connected by the newlyconstructed railway to Kazakhstan’s financial center Almaty (by Zhetygen- Khorgos line), 300 km west of Khorgos. Thus, containers transferred through Khorgos would be able to access Aktau Port in southwest Kazakhstan (on the Caspian Sea). However, rail developments on the Kazakh side have lagged behind the already complete Chinese rails. This is hardly surprising, given China’s always timely construction of railways. “Until [the completion of the Kazakh rail], for rail shipments, there is no alternative for the border Alashenkou / Dostyk between China and Kazakhstan. Khorgos can only be used as a border for truck and trailer shipments currently,” commented Joachim Hanssen, Director of Sales & from China Development of Asia & Far East for to Europe Maxx Intermodal Systems.
10days
Sand in the wheels So what hurdles still stand in the way of a full-blown and reliable route? Unfortunately, there are a number of obstacles one could face along the route, though these will likely be less of an issue in the future with the full scale launch of Khorgos and the transcontinental highway. However, thus far, these problems remain unsolved and more often than not, official deadlines for infrastructure projects are not met. The main reason for bottlenecks at the border in terms of rail is a serious lack of rolling equipment (fitting platforms) on the Kazakh side. Mr. Arkenov, Vice-President of Kaztransservice JSC comments: “Currently, the deficit of fitting platforms is evaluated
Shymkent
at 1500 units”. At the same time, while private investors from both countries are willing to develop equipment-related projects on the border, they are not really welcomed in this sector, which is another factor constraining development, according to Siddique Khan, President & CEO of Globalink Smart Logistics, which operates throughout Central Asia. Another concern is the inspections and paper-work at the border. “We have examples of a few days to three months [of crossing the border] – it depends on the type of product. There is no consistency, you don’t know when, what or how,” commented Frank Ghesquiere, Chief Representative of the Logistics Office of steel and mining giant, Arcelor Mittal. Sometimes you have a supplier that delivers all time with no problems, and now we have wagons stuck since November last year. And it’s very hard to get information,” he says. Thus, companies considering routes through Kazakhstan would be wise to develop partnerships with locally-established providers who have enough expertise in preparing documents and, equally important, possess some administrative resources to communicate with local authorities at the border. “If there is a problem – some companies can solve it immediately, but I don’t want to know how,” commented Frank Ghesquire. And if that is not complicated enough, the gauge of the rails in China and Kazakhstan are of a different width, thus everything has to be transferred from Chinese wagons to Kazakhstan wagons, causing delays, losses and inconvenience. Even for those who opt for the roads instead, bear in mind that at the moment some roads in Kazakhstan are of poor quality, while weather conditions can be quite tough. During heavy snow fall, some roads will be blocked off, while in spring there are weight restrictions on heavy trucks in certain regions.
Road Construstion, KZ
Conclusion “Transportation from China to Europe is still considerably more expensive than shipping by sea, although, with production facilities moving inland in China this disadvantage gets smaller. This is even more so if your destination in Europe is also more inland. On top of that, rail rates grow at a steady rate while sea freight can jump up or down depending on the world economic situation,” concluded Hanssen of Maxx Intermodal Systems.
Taraz Kordai Almaty Khorgos Urumqi Lanzhou Changzhou Lianyungang
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LOGISTICS
Alipay Supplies Innovative
A
Maurits Elen
collect-on-delivery Device
lipay plans to expand into China’s collect-on-delivery (COD) market by providing a new portable terminal in a move to respond more adequately to the logistics requirements of e-commerce in China. Alipay, a subsidiary of e-commerce giant Alibaba Group, is currently China’s largest third-party provider for online payment and operates the largest online payment system in the world. All online payments on Alibaba-owned Taobao (C2C) and Tmall (B2C) are already being processed by Alipay, but research by Alipay shows that a vast majority of Chinese consumers prefer to pay for goods purchased online at the time of delivery. The group reports that about 70 percent of all online purchases on China’s B2C websites (excluding Tmall sales) are mediated at the point of delivery, and usually by cash. Meanwhile, only 20 percent of China’s top 100 B2C retailers are able to provide COD payment themselves by credit or debit card. In order to respond to this demand Alipay will introduce a new 2-in-1 portable payment device, that makes it possible for deliverymen to track packages and accept payments, thereby replacing the existing method that required two seperate devices. The new system will also significantly reduce the time needed for retailers to receive their payments. The payment can now be received by merchants within 24 hours, instead of several days. Consumers will be charged a small processing fee which will be split between three parties: Alipay, UnionPay (China’s only interbank network) and the customer’s own bank. They will take cuts of 10 percent, 20 percent and 70 percent, respectively. Alipay aims to generate a substantial revenue stream from
30,000 36 may/JUne
number of Alipay devices in use by 2015
the processing fees, which the company hopes will cover the 500 million RMB (79 million USD) investment that will be spent primarily on the deployment of 30,000 devices over the next three years. Roughly 10,000 devices will be installed in the first half of 2012 and all of China’s first and second tier cities are targeted for implementation by the end of 2012. Each Alipay device costs RMB3,000, but Alipay will meet delivery services and e-commerce sites halfway by making available to them at a fairly reasonable RMB500 deposit per device for an unlimited period of time. Nearly 60 logistics companies have signed on already. A couple thousand of the devices are already being used by couriers, shippers and shopping websites that manage their own delivery services, according to an Alipay spokesperson. Dangdang, one of China’s largest B2C websites, has started using the Alipay COD devices, while another one of Dangdang’s main competitors, Amazon China is currently in negotiations with Alipay. It remains to be seen how many e-commerce companies will make use of this new payment and tracking device, given that they are essentially direct competitors of Taobao and Alipay. This industry innovation was announced at a press conference in late March, where Vice President Fan Zhiming emphasised that Alipay will focus on offline payment for online purchases only and has no future plans to compete with banks by offering retail point-of-sale terminals.
15%
percentage of all B2C online purchases in China that are settled by COD
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LOGISTICS
A
significant spike in spot prices on the World Container Index on the lane from Shanghai to Europe pushed freight momentum up in March and April, sparking optimism about a possible turnaround in China’s gloomy shipping industry, which is plagued by overcapacity, rising oil prices and low freight rates. Statistics from the World Container Index, which is compiled by London consultancy Drewry and Cleartrade Exchange, reflect that spot rates on the lane from Shanghai to Europe rapidly escalated throughout March and April, indicating that ocean carriers were able to reduce a fair amount of capacity in the trade lane. Spot rates rose sharply 114 per cent on March 1 as most carriers applied a GRI (general rate increases) of $700 to $800 per 20-foot container on the westbound leg after Maersk Line announced plans to reduce vessel capacity by 9 percent. Many of the carriers, such as China’s Hanjin Shipping and Mediterreanean Shipping, conformed to market leader Maersk Line’s decision to implement another rate increase of $400 per TEU on April 1. “The fact that Maersk has just announced another $400-per-TEU GRI for April 1 suggests that the supply/ demand fundamentals are not quite there for March and that the earlier The decision by Maersk GRI attempt might to pull capacity from the not be totally Asia-Europe trade was successful,” stated of Drewry’s an important factor in head container research, the large rate increase. Neil Dekker. Spot rates on the Ben Hackett, founder of Hackett Associates shipping lane from Shanghai to Rotterdam surged to $3,408 per 40-foot container on April 5 from $2,654 on March 29. Philip Damas, director at Drewry said that container shipping lines have withdrawn enough capacity from the AsiaEurope trade to support some net rate increases over a fair period of time. ‘’The decision by Maersk to pull capacity from the Asia-Europe trade was an important factor in the large rate increase. However, other lines, either individually or through vessel-sharing arrangements, must also withhold capacity if the rate increases in the Asia-
► Maurits Elen
Europe trade lane are going to stick,’’ said Ben Hackett, founder of Hackett Associates. Yet it is still unclear whether a partial capacity withdrawal would offset the coming global price decrease. China Shipping Development Company reported in the middle of April, that for Q1 it expects a net loss on weak demand and oversupply of shipping capacity worldwide. “In addition, international oil prices kept on increasing and as a result, the group’s fuel costs have remained at a high level.” Drewry Consultancy also warns that the recent price increase can be offset by another round of capacity expansion: “Five new services are being launched in the transpacific before June and we believe that this will put continued pressure on the spot rates and the ability for carriers to push through increases they are seeking in May contract negotiations. This year will see another 59 ships of at least 10,000 TEU enter the global fleet”.
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FEATURE LOGISTICS
Another One Bites the
YRC Creeps Quietly Out of China Cindy Tse
C
“
hina’s in a transformation mode when it comes to ground transportation. It’s very fragmented here, really hasn’t gone through the maturation process. They’ve spent a lot of money investing in infrastructure, roads and ports. But their transportation is really still in a maturation stage and we’re here in the process of helping that maturation,” said Bill Zollars, YRC Worldwide’s former CEO in August 2008 in Beijing during the city’s history-making Olympic games. The tide has certainly changed in a few short years. The Fortune-500 company is now staving off bankruptcy, its stock floundering about in the single digits on the NASDAQ from a 52-week high of $618.06 in April 2011. A net loss of $409 million was posted last year, on revenues of $4.9 billion. YRC is not going down without a fight though, as it turned to its creditors this April to renegotiate the terms of a 2011 loan agreement. According to the Kansas City Business Journal, YRC’s lenders may require the once US$9.9 billion firm to repay its loan faster, likely necessitating asset seizures in the near future. Though with a new CEO in place since July last year, trucking industry vet James Welch, the ailing firm does not have much left in the way of assets to be seized, should its lenders call in its debt. YRC let go of a number of assets in a purported “streamlining” strategy, initiated
Everything we do is focused on strengthening our core North American LTL operations James Welch, YRC Worldwide current CEO
China’s in a transformation mode when it comes to ground transportation. [...] we’re here in the process of helping that maturation Bill Zollars, YRC Worldwide’s former CEO, in 2008 by Welch. YRC Worldwide has sold off its 65 percent stake in Jiayu Logistics, its JV in China, as well its entire logistics division, contract carriage business, and its truckload unit (Glen Moore). Not much else remains, aside from its North American longhaul less-thantruckload business, YRC Freight. After dumping $44.7million into the Jiayu joint venture in 2008, and selling its shares back for much less for the sake of its so-called “streamlining”, it seems China will not figure heavily in the company’s future. Perhaps it is this strategic shift that compelled its Managing Director for Asia, Eric Friedlander to leave the firm after putting in a solid ten years with YRC, the last four overseeing YRC Logistics Asia and the company’s 50-50 joint venture JHJ China. “Everything we do is focused on strengthening our core North American LTL operations,” said Welch in an interview at YRC’s Kansas headquarters – quite a reversal of sentiment from Mr. Zollars 2008 pledge to actively develop China’s nascent trucking industry. It is unclear how the joint venture in China played out whether it was the usual story of a JV gone bad , or a large foreign firm unwittingly entering the Chinese logistics market with little local know-how. But one thing is for sure - the end –to-end transpacific logistics solution that
38 may/JUne
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LOGISTICS Zollars intended to build for US exporters manufacturing in China will not come into fruition. However, Welch claims that YRC will still think globally, hauling more freight locally by working with partners, rather than owning its own logistics and shipping businesses in China. What the company is giving up is pretty hefty – Shanghai Jiayu had, at the time it set up its joint venture, 30,000 customers, 1600 employees, and more than 3000 vehicles. This had doubled the size of YRC’s operations
in China, though YRC had always claimed it did not intend to go after the domestic market, focusing more on US-bound export clients. The terms of the sale have not been publicized, as it is still subject to regulatory approvals in China. However, YRC will likely walk away with a mere fraction of the US$44.7 million it initially bought its 65 percent share for in 2008. Though with YRC spending a reported $3.3. million cash in 2011 just to keep Jiayu’s daily operations running – amounting to a US$8.8 million loss for the year – it is no surprise that the firm not only opted out of its right to buy the remaining 35 percent stake in 2010, as originally intended in 2008. Perhaps it was the fever of the Olympics talking.
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39 www.chainamag.com
may/June
LOGISTICS
India Shipping:
T
How to Shoot yourself in the foot
he pronouncements coming out of India’s shipping ministry have taken such a bizarre twist that even seasoned observers are scratching their heads in amazement. This April, shipping minister GK Vasan, the portly Tamil Nadu politician who has held the post since mid-2009, took a question in parliament on the stunted development of volumes at the grandly named International Container Transhipment Terminal (ICTT) near Kerala’s Cochin port. A quick bit of context is probably necessary here: India’s container terminals are not only bursting at the seams, but are also unable to take many of the largersized vessels. As a result, few shipping lines include any of its ports – principally Mumbai’s Jawaharlarl Nehru port and Chennai – on their deepsea strings between Asia and Europe, preferring instead to tranship Indian cargo at either Colombo, which handles around 60% of India’s entire container throughput, or Dubai, thus substantially hiking supply chain costs. In order to remedy this, in 2005 the government signed a concession agreement with DP World to develop a new deepwater terminal at Vallarpadam, the aforementioned ICTT, which was opened in a blaze of publicity, wreaths and all the other ceremonial
Developers’ rendering of the ICTT at Cochin Port in Kerala, India 40
Gavin van Marle
trappings so loved in India, by Prime Minister Manmohan Singh in February last year. The first vessel arrived a week later. Throughout the build-up to its opening, Vasan and the Shipping Ministry’s chief civil servant K Mohandas publicly acknowledged that ICTT would target traffic that was currently going through Colombo. But they have singularly failed to address ICTT’s biggest disadvantage – India’s cabotage laws, which restrict the carrying of cargo from one Indian port to another, to Indian-flagged, and crewed, vessels. So while transhipping Indian cargo through Colombo might add costs, it is still, by far, cheaper than transhipping it through ICTT. This can be seen not only in the fact that in its first full year of operations the terminal handled 350,000TEU compared to a forecast of 750,000TEU, while the year before the old Rajiv Gandhi terminal (serving local Cochin traders) handled 290,000TEU. Further support is found in Vasan’s own assessment of the situation: “Reliable and adequate feeder capacity is required for transhipment to happen successfully. Currently, the Indian fleet consisting of only 13 container vessels with a combined capacity of 12,156TEU is inadequate to ensure efficient feedering for the transhipment
LOGISTICS terminal. This has resulted in low levels of container handling at ICTT. Further, the Indian fleet, currently charging higher freight compared to the international carriers, has reduced the competitiveness of ICTT.” Which begs the question: why not relax the cabotage laws? After all, cabotage laws are gradually being phased out across the world as countries realise that cheaper overall logistics costs and a greater network of services (known elsewhere as competition, or alternatively, market forces) aid a national economy in far greater ways than protecting its domestic shipping industry from external competition. All the indications were that this point wasn’t lost on the shipping ministry – and it shouldn’t have been, given the amount of lobbying that has been done. Almost as soon as Singh cut the ICTT ribbon, DP World was applying to obtain a cabotage waiver that would allow foreign-flagged vessels to run services to other Indian ports. It is still waiting, despite an assurance from Mohandas at the beginning of this year that a waiver would be issued by the end of February. And Vasan’s position? “No, Sir,” he told his questioner in parliament. “Cabotage laws are not being amended. However, there are strong interest groups in favour of and against cabotage laws.”
DP World is lobbying hard to get a cabotage law waiver
While there is no waiver or amendment, there will be no transhipment. Indian gateway cargo will remain captive in Colombo, and shippers will continue to pay higher logistics costs for longer transit times and a more complex supply chain more vulnerable to shocks, blocks and disruptions. Could it change? India’s Planning Commission has reportedly written to the Shipping Minstry advising it to relax the cabotage restrictions at Vallarpadam for a three-year period, which is one step in the right direction.
41
CONTENT ► Distribution News /42 ► The Luxury E-Commerce Dilemma /44 物流短讯 /42
奢侈品电商的困境/44
Distribution
Neiman Marcus Online Shop to Launch This Year
Renowned retailer Neiman Marcus will launch its much-anticipated entry into the Chinese market with a carefully planned, Chinese-language e-commerce site. The retail group will invest US$ 28 million into Glamour Sales Holding Ltd., a Tokyo-based company operating successful e-commerce and flash sales sites in China and Japan. The funds will go towards Glamour Sales’ existing
Neiman Marcus CEO Karen Katz with Glamour Sales Holding Team, in Shanghai
flash sales business, as well as the partnership’s new multi-brand site, specifically tailored for the Chinese market, featuring current season, fullprice merchandise. While best known in the US for its grand and imposing Neiman Marcus and Bergdorf Goodman department stores, there are no plans yet to open any such shops in China. The Chinese site will launch by the end of 2012.
De Beers Opening 6 New Stores in China
De Beers’ is pulling out all the stops to capture the Chinese market, with six new retail stores in China through its joint venture with Louis Vuitton Moët Hennessy (LVMH). The world’s leading diamond miner also plans to renovate and add some extra glam to its existing flagship stores in London and New York, with hopes of attracting even more Chinese tourists.
After a rocky year in 2011, which saw a drop in prices, De Beers Chief Executive Philippe Mellier is predicting a rebound in 2012. “We are looking at expanding our shops in continental China big time in 2012,” says Mellier. “We are growing the business where the biggest growth is - in Asia.”
Li-Ning on Shaky Ground
Chinese sportswear giant, Li-Ning saw its net profits in 2011 plunge 61% to US$ 61 million. Though the company operates over 800 stores in China, Li-Ning cites fierce competition from domestic competitors and global brands such as Nike for its poor performance. The company made its first foray into the US market in March, rolling out an exclusive
42 may/JUne
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DISTRIBUTION US online platform, Digital Li-Ning, a JV with digital marketing firm Acquity Group. No word yet on how US consumers are responding. Meanwhile, company execs expect to make cuts to staff and its operating expenditures, while reigning in procurement expenditures.
Walmart a chance to bone up on its e-commerce expertise, as Yihaodian sells more than 180,000 products, offering same-day and next-day delivery. Its revenues reached RMB2.7 billion in 2011.
Pesticide scandal haunts Lipton
Wal-Mart Changes Up China Strategy
While still dealing with its pork product scandal and the temporary closure of stores in China, things are now looking up for the lowprice retailer in China, as they await Chinese government approval on a 51 percent stake in leading e-commerce company Yihaodian. Leadership is also changing, with the appointment of a new chief executive of its China operations, Greg Foran. The acquisition will likely give the company a much needed boost in China, where visitor numbers are on the decline. This also offers
rate of about 200%. To coordinate with the new strategy, the company will launch 6 new warehouses in 2012 and during the next 3 years, it expects to build 50 to 60 logistics warehouses across China, covering most key cities in the country.
China’s 360buy.com Publishes Latest Operating Statistics
By April 2012, the online distributor of home appliances 360buy.com had gained 40 mn registered users and its order volume reached 400,000 each month (April 2012). Sales of large home appliances are currently increasing at the annual growth
Unsafe levels of pesticide residue were found in tea bags sold in China by Unilever’s Lipton, the world’s best-selling tea brand, according to a sample investigation conducted by the environmental advocacy group Greenpeace. The study found a total of 17 kinds of toxic residues in four kinds of Lipton tea products.
43 www.chainamag.com
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DISTRIBUTION
The Luxury E-Commerce Dilemma in China
C
hina’s online space is home to over 500 million netizens, homegrown social networks and a thriving e-commerce market. While companies similar to eBay, Amazon, and Groupon exist, e-commerce has emerged as an unlikely channel for some of the world’s most prestigious luxury companies like Coach, Armani and LVMH. In fact, the increase in China’s online luxury market is dramatic. According to internet research company iResearch, the transaction volume of China’s online luxury shopping market reached an unprecedented 10.73 billion yuan in 2011, a 68.8 percent increase from 6.36 billion yuan in 2010. With the online channel growing at such a rapid pace, it seems as though luxury retailers should jump at the opportunity to create online storefronts on Tmall and other online platforms. However, many luxury brands do not yet wish to associate luxury with e-commerce, as the online channel contradicts the traditional luxury shopping experience. Since luxury culture can be summed up as “owned by few, dreamed of by the masses,” selling their exclusive products online is the last thing luxury brands would like to see. However, willing or not, as more and more young Chinese luxury consumers are accustomed to viewing and purchasing luxury products online, the combination of e-commerce and luxury will online grow in importance in the coming years. Due to China’s exorbitant tariffs, the price of luxury goods in mainland China is on average one third higher than the price of the same products in the US or Europe. Many Chinese internet entrepreneurs view this price difference as a tremendous business opportunity. They make bulk purchases of luxury goods such as bags and
Julia Q. Zhu
watches overseas and then sell their products online in China. Since 2010, dozens of vertical B2C luxury shopping sites have emerged, and many have even become household names in China such as 5lux.com, Xiu.com, and Shangpin.com. A number of startups like IhaveU and The Luxury Club have entered the fray and received venture funding. The country’s second-largest online mall, 360Buy, opened its couture-oriented 360Top site. Top B2C e-commerce players by market share (2010)
100%
Xiu Uniqlo**
Joyo Amazon
80
360Buy M18
60
40
20
0
Vancl
Lafaso o N 5 Vancl
Tmall stores
Tmall stores
Cartelo Nautica GAP Esprit
Apparel
Herborist L’Oreal Nivea Neutrogena
Cosmetics
Source: Bain analysis
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DISTRIBUTION On these kinds of sites, shoppers are able to find products from brands such as LV, Hermes, Coach, Prada, Gucci and many others. Yet, this is just the B2C segment of online luxury shopping in China. As early as 2005, groups of Chinese individual sellers started small stores on Taobao.com. They purchased luxury products overseas for their shoppers and acted as a distribution agent. This C2C market – amateur retailers, essentially – is still thriving today. While researching for this article I searched the term “Coach” on Taobao, and the search engine returned 10,439 results listing Taobao shops which all sell Coach products. But consumers need to be very wary of fake items being sold on such C2C sites. The vertical B2C sites, and myriad C2C Taobao agents, sell luxury products at much lower prices than official luxury branded stores. Therefore, they attract large numbers of Chinese consumers. One online luxury shopper wrote on a message board: “Coach’s domestic price is much higher than the U.S. – obviously, it’s much smarter to purchase via an online agent than the branded store.” Take one of Coach’s latest handbags for example – the handbag’s price in Coach’s store is RMB 6200, while the price of the same bag on most online stores on Taobao is less than RMB 2700. The Dilemma Luxury retailers have their fair number of concerns – by making their products available online they have less control over the channel. Additionally they are unable to provide a traditional luxury shopping experience offering shoppers first-class service and treatment. Furthermore, the overall idea that their goods can be purchased online takes away from the prestige of their brands. Despite their concerns, given the vast size of the market in addition to a growing number of competitors in the B2C and C2C space, luxury retailers cannot ignore the online channel. Companies like Coach and Armani who embrace e-commerce by setting up their own storefronts online in China will be the winners as they are able to
Coach rolled out its Chinese online shop through Tmall in 2012
The View From Xiu.com
Several B2C e-commerce platforms warn the industry against considering price as the main and only key strategic tool, as in the end price wars only harm the market from a long-term perspective. CHaINA spoke with Nancy Yuan, Director of Business Development for Xiu.com, who notes that we can already observe changes in perception in e-commerce in China. “At the moment the Chinese e-commerce market is similar to what it was in Hong Kong 5-10 years ago, when consumers were mainly looking for cheap deals on-line. But as the market gets mature it is no longer the main issue – such as attitude is unhealthy. It took Hong Kong about 10 years to pass this stage, for China now we can forecast it in about 3 years. At the end of the day most of the platforms will try to improve in all spheres – from sourcing and delivery, to presentation and after-service maintenance. In that way on-line market will develop exactly the same as the traditional.”
make their goods available to Chinese consumers all over the country. While they are unable to lower prices to compete with unofficial sellers, official online luxury storefronts can compete by adopting creative measures like offering custom products produced solely for the Chinese market on their online storefronts. It is no longer a question of whether or not to go online – the time is now for luxury retailers to take action. As Chinese luxury consumers are on average significantly younger than their counterparts in developed nations, as a whole they are not sophisticated luxury shoppers. The luxury market is developing very fast, but it is still in the process of developing. While many of the associated characteristics of the online shopping experience go against what has traditionally made luxury brands successful in the past, retailers should adapt to the local market, and bring the luxury experience to Chinese consumers to access products where they want. Contributed by Julia Q. Zhu. Julia has held former positions in Alibaba Group and iResearch. 45
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may/JUne
M AY 0 0 1
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M AY 0 0 1
MADE
MADE
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6
6
1
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M AY 0 0 1
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5
FEATURE
David Zhang (Delphi)
Andre Siguiura (LifeStyle Logistics)
Jessica Lu (Nu Skin)
Cynthia Li (Tyco Healthcare)
Frank Ghesquiere (ArcelorMittal)
Selina Shui (HP)
Daniel Lu (Puma)
Rob Lewin (Flowserve Corporation)
Lily Xie (Adidas)
www.chainamag.com
FEATURE Cindy Tse & Olga Mironova
thE
sTATE OF
loGISTICs IN
chINA
As logistics costs continue to eat into profits for firms operating in China – currently making up 18 percent of the country’s GDP – CHaINA gathered top logistics executives from leading firms such as Adidas, Hewlett Packard, ArcelorMittal, Flowserve Corp, Nuskin, and Tyco to get their take on what is hampering their operations in China, and what the trajectory is for the future.
A 2012 survey conducted by the Global Supply Chain Council in conjunction with Ceva Logistics reveals some telling trends in logistics today. It goes without saying that costs are the biggest concern for most of our survey respondents, who shared their views on how their firms are responding to logistics challenges and what accounts for them. Outsourcing and 3PLs Outsourcing logistics services is nothing new in China. A vast majority of our survey respondents - primarily supply chain executives and managers from a variety of industries -outsource their direct transportation services to external partners (83 percent). Doing so can multiply your capabilities and your reach in China’s expansive market, but striking a balance between what functions you outsource and what you retain is a delicate science. Even within the same industry, there is no single, right way to outsource logistics in China. “Our competitors are using about ten, but in our case our model is that we have three providers, all of them with different background – one is state-owned, one is a private company and one is a multinational,” explains Selina Shui, Logistics Manager for Hewlett Packard’s Logistics Operation PSG, whose providers handle all distribution operations to both distributors and customers.
“The fact that we outsource doesn’t mean that we are satisfied with our providers,” says Shui. “The reason we choose outsourcing is because we just don’t have this strategy to manage our delivery by ourselves, we need to outsource. But our choice is how to make the best combination of outsourcing to fully meet our demands.” And with that comes the issue of subcontracting. “Of course all of them are using sub-contractors, because none of them have full coverage of all of China. We allow them to use sub-contracting, but we manage their subcontracting,” says Shui. ArcelorMittal, the largest steel producer in the world, similarly takes on an oversight role to logistics. “There is no intention of really building a logistics service as a full business unit, it should be more of a controlling function,” says Chief Representative Frank Ghesquiere. “We’re trying to reduce growth and move more towards a quality control concept. But we can maintain transparency and increase the quality of our service.” 47
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FEATURE If you are not satisfied with your provider, why?
What are the biggest problems impacting your intra-China logistics?
High Cost Quality of transport means (e.g. truck, rail) Reliability of local logistics providers Quality of data tracking
51% 49%
Retaining logistics talents
Inability to adapt to my particular circumstances Poor IT / infrastructure
Unwillingness to invest
51% 38%
Changing regulations Shortage or warehousing space
Service level and professionalism
31%
62% 32% 42%
Price
43% 23%
18% 23%
Hypermarket giant, SPAR – which has created quite a foothold in China - presents a very adaptive strategy when it comes to their logistics throughout the country, though one that is still undergoing change. “For transportation from DC to the outlet we have different strategies depending on the situation in every region,” says Haibin Tang, SPAR China’s Logistics Manager. “For example, in Dongguan we organize transportation from the DC to the outlet through a 3PL, but for example in Shanxi we have our own trucks doing transportation.” The company’s acquisitions often necessitate adapting to existing logistics models for the large FMCG chain. “SPAR’s executive philosophy is that certain regions have their own history,” says Tang. “For example in Shandong, if [a company we acquired] was established about 20 years ago, but they joined SPAR in 2004 – they have their own history of delivering the product from the DC to the outlet on their own, and they will have a lot of trucks. But in Dongguan for example, they started with a 3PL – outsourced transportation, when they set up their company, therefore when they joined SPAR we couldn’t change their old model, they were already used to it.” And while the SPAR strategy is to adapt to each region and partner, this doesn’t mean completely accepting the status quo. “We’ve just started this project [to analyze our costs] and now we have the first round of analysis and results are that the costs of using an outsourced provider are lower than the costs of using our own trucks,” reveals Tang. “But this is just the start and when we have developed this further, we’ll probably have different results.” But for many multinational players, the challenges of getting involved in logistics are just not worth the trouble. “I would say road transport is still a very locally managed business,” says ArcelorMittal’s Ghesquiere. “If you tried to implement rules and do it perfectly, then you lose your competitive advantage. There’s still lots of wishy-washy things going on in China transport – overload, permits and licenses. So that is one area we are not touching.” How Are 3PL’s Measuring Up? There is no shortage of logistics service providers in China, offering every service under the sun. Direct transportation (83 percent), customs clearance (69
Source: Global Supply Chain Council and Ceva Logistics
percent) and warehouse management (66 percent) are among the top functions most commonly outsourced, according to survey results. That’s not to say that these activities are meeting the needs of their clients. While it is no surprise that cost was the foremost complaint concerning intra-China transport, the reliability, quality and service level of transport providers weighs heavily on firms operating in China. A whopping 62 percent of survey respondents are dissatisfied with the service level and professionalism of their providers, with a significant share describing poor IT and infrastructure (42 percent) and an inability to adapt to one’s needs (32 percent) as the primary complaints. “Over the last few years we’ve talked to some partners and I told them, ‘your service level is so-so and you can grow your business in a very easy way’. But it takes time,” explains Lily Xie, Logistics Director of Adidas China. “So over the last ten years we’ve seen clearly that the service level has improved, in the meantime we realize all these cost savings.” The difficult part though is not the cost cutting, but sustaining it. Xie expressed considerable sympathy for these providers, who find themselves stuck between a rock and a hard place after making cost cuts – the rock being the pressure to further improve service, and the hard place being the inability to raise prices even slightly. Without this possibility, there is little incentive to take their service to the next level. “The reality is that it is getting harder – when the providers’ margin level is quite good, but your service level has to keep going up – it gets more difficult for them,” says Xie. HP’s Selina Shui shared similar sentiments in accounting for the lack of innovation and incentive for improvements. “At HP, when my service provider comes back to me saying that they have been impacted by [tax and regulatory] changes and their costs increased – usually they will be refused by us. We are not allowing them to come back with a cost increase. And then you can imagine – they don’t have enough negotiation power and also no incentive to improve. There is just no profit margin for them to think about improvement,” explains Shui. Though not all providers are limited by resources
48 48 may/JUne
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FEATURE Managing mutually beneficial relationships with transportation providers who have these well-connected sub-suppliers then is key to reducing your logistics headaches in China. “If we see ourselves as the owner, as the customer, in the long term, it’s not very good. Your relationship with the transportation company cannot get any better,” Liu Domestic transportation companies in China are said to be eager to work closely with their customers to improve their own services and secure a lasting relationship. This is even more so the case when it comes to working with multi-national firms, says Summergate’s Liu, who believes logistics providers in China are relatively open to developing their business with their customers. Regulations and The Local Connect Anyone with even a year’s experience in China’s regulatory environment knows that regulations are neither static nor uniformly applied throughout the country. Keeping abreast of how regulations will affect your industry and specific products is absolutely critical. 31 percent of our survey respondents felt that changing regulations were problematic. “Working with customs here can be very difficult – each province has its own customs rules. Look at Shanghai and Suzhou – very close cities with very different mentalities,” says Rob Lewin, Flowserve Corporation’s Director of Global Logistics. “For taxation, their standpoint is very different. For example, for wood coming in from India, Shanghai would consider a certain stamp to be okay, but Suzhou would want a different one. They’re little idiosyncrasies, but they’re enough to disrupt us.” When it comes to high end fashion, quarantine hiccups with China Inspection and Quarantine Bureau pose a huge risk as well. LifeStyle Logistics’ Managing Director Andre Suguiura describes the potential for major disruptions from single garments that do not pass the required inspection tests for every shipment of apparel that comes into the country. When a single garment style can represent a large share of a product line, as is the case with Suguiura’s luxury European apparel brand customers, the losses are significant. “The requirements for China are very stringent. This year is much better, our clients will do pre-tests in Europe to make sure they meet the regulations in China,”
when it comes to improving services, rather a lack of specialization and strategic business planning is what holds them back. ArcelorMittal has quite a different view from consumer goods MNCs such as HP and Adidas. “The only thing I see for China is that you have too many general players who do everything - so the problem is that they do everything, but nothing well. There is still a lot of room for very niche logistic players,” says ArcelorMittal’s Ghesquiere, who sees a drastic difference in this respect between China and Europe. “In Europe we can see logistic companies dealing only with steel or minerals, but I don’t see it here in China. In the warehouses they are prepared to store everything, prepared to truck everything. You have thousands and thousands of logistics forwarders and they all fight for the same businesses. They don’t look at what they are carrying and if you don’t look at what you are carrying – how can you make any innovations?” asks Ghesquiere, who concludes that it is only volumes and revenue that these providers are concerned with. While you will never have trouble finding a local provider, what is missing from them is the willingness to step back broadly to look at the entire supply chain. Cathy Lu, Logistics Manager at Unipart, which provides sourcing and logistics of automotive components to the likes of Land Rover and Jaguar explains that “logistics providers should focus more on the integration of the supply chain, providing solutions - not just transportation. They should dedicate themselves to value-adding or cost optimization opportunities for their customers.” Suppliers, Sub-Suppliers, and Win-Win Relationships Carefully selecting a transportation partner with an extensive network of sub-suppliers and cultivating that relationship remains crucial in China. Nowhere is this more evident than when you look in the loading locks of a hypermarket or grocery store chain, with a queue of trucks as far as the eye can see. Ivan Liu, National Logistics Development Manager with Summergate Fine Wines & Spirits reports that it is not unusual for his trucks to queue up for an entire day, a huge drain on finances. For Summergate, there is no alternative but to outsource delivery to small, local players, each with only a handful of trucks in its fleet, explains Liu. Those small companies will likely have a driver with a connection at the loading docks, and is often the only way to get your delivery done in a reasonable time. “Supermarkets are different – because they have a lot of suppliers and a lot of trucks coming. If you have a good relationship, then you don’t have to wait for your call, you can go to their DC directly. If you have to wait one whole day to discharge – that really lowers your efficiency. In one day, we we’d like to do 2 or 3 deliveries, we don’t want to waste time with just one delivery,” Liu explains.
What is your China distribution strategy for the coming 2 to 3 years? (Please tick all that apply) Nationwide network
33%
Expanding beyond Tier II and Tier III cities
45%
Growing e-commerce and B2C channels Better performance (cost, speed, quality) in existing network Reducing the number of contractors (such as 3PLs) Bypassing wholesalers and distributors (going direct to retail points)
27% 68% 22% 18%
Source: Global Supply Chain Council and Ceva Logistics 49 www.chainamag.com
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FEATURE such as Shanghai and Beijing. Adidas’ Lily Xie explains: “Right now we’re developing a second, large DC in northern China. In fact for this second DC the company has made a decision to purchase the site cause we really think that land is getting not only more expensive but also not so available for logistics enterprises. The government can get more money from the other type of enterprises. Overall it’s part of our global strategy.” However, 41percent of our survey respondents expected warehousing services to increase in the near future, and the lack of warehousing property is not yet affecting a significant share of firms (only 18 percent see a shortage of stock). It is likely only in large cities such as Shanghai that are facing shortages and exorbitant rental rates. Firms like Nu Skin are focusing on second tier cities for the excess of properties and cheap labour. But for those who have taken advantage of inland cities and the abundance of space available, moving inland presents its own problems. “There is an imbalance of services from transportation providers in western area. When we expand to western China, the local transportation provider and subsuppliers are not good as those on the east coast, but the service requirements from our Customers are the same,” explains Unipart’s Cathy Lu. So while cost cutting may be the main driver for moving warehousing out of core and overreached areas, (61percent of respondents say reducing their logistics costs will be among their top three supply chain objectives this year), weighing the pros and cons of any big move carefully will be the key to planning a smart logistics strategy here. And in terms of the industry, it is likely competition and diversity that lead the logistics industry into the future. “Everyone wants to operate with the highest standards but at the lowest costs – and those are two things that are not necessarily married together,” concludes ArcelorMittal’s Ghesquiere. “It’s a big problem with Chinese logistics, but it’s a big thing that the government is addressing. That will increase the quality and open up the market for international logistics players in road transport and they will bring international standards to the industry – there will be efficiencies going on. You’ll see an increase in volume and it will create a more competitive environment.”
says Suguiura. But in the beginning it was very tough because nobody knew the standard levels in detail, and companies would just import and then face problems and have to return their goods.” Tyco’s Cynthia Li faces daily struggles with officials in disputes over HS codes and the resulting duty rates. She cites the simple example of a medical appliance pump being confused with a pump for water systems. Thus, HS codes and customs clearance procures are a neverending battle for logistics professionals in China, no matter the industry. But how can firms manage to stay on top of regulations? “We had one of our compliance officers sit down with customs in Suzhou and say, ‘Here is our master list, help us understand this’”, says Flowserve’s Lewin. “Now we are in a situation where we come into Suzhou, and 99 percent of the time, it’s right. It took us 6 months, but we couldn’t rely on which officer is on duty that day.” Over the course of a week, Flowserve was able to work collaboratively with Suzhou customs officers to secure a measure of predictability to their customs clearance. “Again, it was the relationship,” asserts Lewin. “Our compliance guy in Suzhou had done customs there for about 6 years previously. Without him [arranging the sit-down], I think it would have been a lot harder, or wouldn’t have happened at all.” To be fair, it is not always an issue with the providers or regulators themselves. Despite the fact that road, rail, and air links throughout China have expanded at lightspeed, lead times are still an issue in terms of weather and distance, especially for two industries that are converging in lead times – fashion and food. “Fashion today is like perishable goods! If you miss the collection, you miss the opportunity,” says LifeStyle Logistics’Suguiura. Weather and related roadblocks can get in your way, in which case there is no provider that can make up for that. “Sometimes, we receive shipments on one day, and they need to be in the shops the next day,” he says. These constraints combined with regulations and the sheer distance between destinations make logistics in China a constant battle. Warehousing What is showing little sign of change at the moment is the dearth of logistics properties in key areas in China,
Which innovative practices have you launched?
In the next 1-2 years, what services will increase? Domestic transportation
Freight forwarding Reverse logistics 4 International transportation Order processing Warehousing Order processing Logistics information systems Product customisation
50
Inventory management 4PL services may/JUne
Pre-assembled, floor ready displays
64% 29% 29% 27% 19% 40% 15% 38% 14% 19% 25%
11%
Custom pallets Collaborative carrier management
20% 18%
Customer specific, custom packaging
Returns management/reverse logistics CPFR Customer specific pallet configuration
30% 29% 6% 11% 37% 31%
Differentiated logistics service Cross-docking, flow-through Green light receiving Consortium transport buying strategies
12% 11% www.chainamag.com
FEATURE
A Word from the Wise: What Today’s Global Sourcing and IPO Leaders Have to Say Cindy Tse
B
Philippe Thegner, Federal-Mogul
“
Philip Pan, Electrolux
eing needed is more important than being loved,” says Philippe Thegner, Federal Mogul’s Purchasing Director for East Asia. This is perhaps the reality that most International Procurement Offices (IPOs) face, being entities more often than not far removed from global headquarters with a limited mandate. “The problem is that a lot of people responsible for global sourcing are struggling with no real sourcing decisions. The team in China is just responsible to notify suppliers, to support sourcing, but they don’t decide sourcing for North America or Europe. Basically it’s the guy sitting in North America or Europe who makes the decision,” explains Thegner. It was from this common ground that the Global Supply Chain Council conducted a full day forum on Global Sourcing, gathering a number of IPO leaders to share their strategies on how to move forward given these constraints. Internal Stakeholders and Shareholders There is no denying that IPOs are growing in number, size, and spend. IPOs in China are certainly facing challenges. A survey conducted jointly this year by the Global Supply Chain Council and Gibson Consulting Group indicates that over 70 percent of respondents’ Asia IPOs were located in China. These IPOs are maturing as well, as 22 percent of IPOs have been established in Asia for over 10 years, and 29 percent between 5 to 10 years. But what is lagging behind is the corresponding increase in strategic influence. “IPOS are very useful, they allow you to have people on the ground, it’s been
Antoine Gaugler, EADS
Simon Shen, ASSA ABLOY
proven time and time again,” explains Brian K. Johnson, Merck’s Director of Greater China and Emerging Markets Leader of Global Procurement. Nonetheless, ensuring that this utility translates into the wider scope of a global firm’s strategy is a constant battle for today’s procurement leaders. The interests of both internal stakeholders and shareholders alike is a key limitation on IPO leaders. Even more limiting is when your shareholders are governments, as is the case for civil and military aircraft contractor, EADS. Antoine Guagler, EADS’ Director of its Country Sourcing Office was keen to point out that when your shareholders are governments, you have not only the goal of increasing profitability, but securing jobs and growth in home countries. While there was a consensus amongst the forum’s attendees that satisfying shareholders should be the result of good IPO work, rather than the motivation or mission, Vojtech Ludvik, Anheuser-Busch InBev China’s IPO Director hit the nail on the head: “At the end of the day, without the satisfaction of shareholders, you have no company.” The Elusive “Best Cost Country” As minimum wages throughout China rise, and the RMB appreciates, the question of sourcing in alternative low cost countries is one that likely keeps most procurement leaders tossing and turning at night. In a survey conducted this year by trade intelligence firm Panjiva and the Global Sourcing Council, 68 percent of respondents who currently source from China reported that sourcing outside the country in 2012 is “much more 51
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FEATURE important” or “more important” than last year. Of course, sourcing within Asia was cited as the next best alternative to China, as 53 percent of respondents have plans to source somewhere else in Asia. “When I discuss with my colleagues in different companies, most of the time they complain to me that they are fine with their suppliers but they have difficulty implementing their sourcing decisions, because basically they get a lot of push back from engineering, even from internal purchasing organizations to source in Mexico or Europe, instead of China,” explains Federal Moguls Thegner. Organizations all over the world have been compelled to explore alternatives to China, looking for Best Cost Countries (BCC) around the globe. But even once those relationships have been secured, the final product may not please everyone. “Like everyone else we have to deal with stakeholders resistance towards BCC products. It’s getting weaker and weaker as we are getting better and better - but it’s still there,” explains Anheuser-Busch InBev China’s IPO Director, Vojtech Ludvik. This leading global brewers internal stakeholders have shown in increasing interest in BCCs, increasing its spend in targeted BCCs in terms of its proposals by 40 percent, and expanding its supplier base to include Mexico, Spain, Turkey, India, and Ukraine. Nonetheless, Vojtech projects that “the weight of these countries will be bigger and bigger, but in terms of the actual volume of the business, I still believe China is the right place to be for the next 10 plus years.” Thinking Outside the Box Philip Pan, Electrolux’s VP of Global Floor Care Sourcing for the Small Appliances Sector presented an interesting case study for offsetting rising costs. Though the company works with thousands of suppliers, it recently found great success in its RFQ for its successful battery-powered vacuum cleaners. Last year, after tiring of its existing single source supplier, Pan extended a new RFQ to five suppliers, two in the vacuum cleaner industry, two from the power tools industry, and one garden tools manufacturer. “Every year we run benchmarks with the same industry suppliers and the quotations don’t show any big
differences.” With this new approach of benchmarking suppliers across a range of industries, Pan was able to find a new supplier – the garden tools manufacturer whose flexibility equated to a whopping 20 percent in cost-savings. “We increased our flexibility to deliver our products to customers because this supplier’s peak season is the opposite of our products, so we can offset labor shortages. We also achieved longer payment terms,” explained Pan. Had he chosen to go with a new supplier in the same industry as the company was accustomed to doing in the past, the best he could have hoped for was a 3 to 5 percent cost savings. Doing More With Less What is remarkable is the modest size of most IPOs today. Among our forum participants, Assa Abloy takes the prize for the smallest team, managing 2000 suppliers in China with a team of 9, a tremendous feat for a company manufacturing such a wide range of products. Perhaps one of the biggest challenges for global sourcing strategists is standardizing processes when dealing with a large, and geographically dispersed supplier base. Assa Abloy aims to do so with a clear supplier selection process, and an effective “blacklist” of suppliers to avoid. InBev is plagued by the same problem. “Our biggest challenge is qualification, at this moment our company does not have a global qualification team and we do not have the connections between different geographies allowing us to unify our supplier database and use suppliers once qualified in one geography globally.” Consequently, what is qualified in China is not qualified in Brazil, what is qualified in the US is not qualified in Argentina, and so on. “ The Balancing Act The challenge many IPOs grapple with today is protecting their product and any intellectual property in Asia while at the same time developing their suppliers. Leading firms in pharmaceuticals, electronics, and machinery cannot be overly cautious here. “There is an IP risk,” says Gaugler, of EADS. “We make highly technical products. So it’s a limitation when doing
What are the most challenging issues your IPO is facing? Higher procurement cost in Asia due to increase in labor, utility, material cost, exchange rate Finding qualified suppliers (lack of capacity, IP protection, experience, quality, etc)
59% 56%
Hiring and retaining talent
49%
Convincing global stakeholders to convert from incumbent suppliers
41%
Engaging and influencing key stakeholders
36% 32%
Fulfilling requirements of internal stakeholders Complexity and changes to legislation/regulations
22% Organizational challenge
Source: 2012 Global Sourcing & IPO Leadership Survey, GSCC & Gibson Consulting Group
Supply market specific challenge
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FEATURE
IPO 101 The value in launching an IPO can be lucrative to those organizations who are heavily reliant on foreign supply. Initially many organizations launch IPO’s due to challenges in dealing with remote suppliers and on account of significant expenses in contracting out such responsibilities. However, identifying the right individual is key to ensuring the long-term success of the IPO. Most organizations however do not consider the unique challenges that are associated with managing a small remote operation, and finding the right leader, one with a unique balance of entrepreneurial spirit and corporate commitment, can be a challenging task. We have studied some of the most successful IPO’s including Hewlett Packard’s, and we have uncovered several distinct characteristics that should be considered to ensure the success, longevity and return on investment from the IPO. Here are 3 of the most critical characteristics: Best to go outside. Promoting from within is not an option if you are seeking an effective IPO leader. The culture and political climate in most regions demand an individual with expertise in navigating both business and political relationships within the region. The challenge then becomes finding an individual who can effectively navigate the local business climate, while remaining adaptable and amenable to the corporate culture. Although an IPO must be an extension of the corporate office, the manner in which business is conducted may vary significantly in order to blend with local culture. Regional ties. You wouldn’t ask a tourist for directions, nor should you select someone to lead an IPO if they do not have first hand knowledge of the local marketplace. Managing supply within the region requires an individual who is familiar with the market place and capabilities of the supply base. Having such knowledge will provide the support necessary to manage unforeseen supply risks and will provide the opportunity to further capitalize on regional supplier competition and capability in order to reduce or maintain the total cost of ownership. A blend of intuition and confidence. Individuals who lead small remote teams must be intuitive and quick to respond. IPO’s are on the front lines of supply and are responsible to ensure quality products and services delivered in a timely fashion. The greatest IPO failures have occurred in those offices where the leaders lack the confidence and knowledge to make quick decisions. In identifying the right candidate to manage an IPO, consider intuition and confidence as key indicators of future success. Contributed by Shawn Casemore, President of Casemore & Co.
business here. The strategy we are taking is to bring our suppliers here to China to set up their own footprint. It has proven very efficient. You get the cost advantage and appropriate management of quality.” At the same time, the company is actively engaged in supplier development, implementing lean practices among others. For a company such as Electrolux, which has outsourced much of its manufacturing over the years, downsizing from twenty to just four of its own manufacturing facilities, securing your relationship with your supplier starts with the contract. “Some of our suppliers are our competitors,” explains Pan. “We have a special agreement for certain regions, and global exclusive agreements that they don’t enter into
our territories. Some of them have signed agreements so they don’t work with our competitors. We are working with several suppliers that have their own brands whose market shares are even better than ours for vacuum cleaners in China, but we are co-operating with them for other regions. It’s give and take. It involves a lot of negotiations and partnership discussions.” 32 percent of our respondents’ companies have plans to roll out stronger supplier development programs to deal with these issues and others. And for firms like AstraZeneca, which takes 3 years to qualify a supplier globally, new initiatives here can take an IPO to the next level of operational efficiency.
Which programs or initatives are being developed to cope with procurement issues? Increase visivility/communication betwenn all parties (Suppliers, IPO, HQ, BUs)
49% 43%
Develop clear roles, processes, tools, and responsibilities across regions
42%
Enhance communication among key stakeholders More focus on total cost of ownership
38%
Roll out stronger supplier development programs
32%
Increase training investment to build internal/external capabilities
31%
Joint workshops with global stakeholder
28%
Consolidate even more spend to China
20%
Apply clear key performance indicators(KPls) and reward programs across regions
19% 17%
Migrate spend to other cost competitive regions Outsourcing some of the product categories/processes Better managment of currency exchange and raw materials pricing fluctuations (using traders)
Source: 2012 Global Sourcing & IPO Leadership Survey, GSCC & Gibson Consulting Group www.chainamag.com
15% 11% Organizational challenge Supply market specific challenge may/June
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FEATURE
North Korea Uncovered The Final Frontier in the Global Supply Chain Emile Dirks
T
he Democratic People’s Republic of Korea (more commonly known as North Korea) may not spring to mind as an ideal place for foreign investment. Numerous impediments present themselves to anyone considering entering this largely untapped market. But over coffee near their office in Beijing’s fashionable Sanlitun district, Simon Cockerell, General Manager of the Koryo Group, reminds potential investors of the myriad of opportunities that await interested parties. Having travelled to North Korea regularly over the last ten years, Cockerell has witnessed changes on the ground that few have access to. What is necessary, he advises, is to approach North Korea with eyes wide open, to both its risks and its latent possibilities. Though at the same time, it is easy to be misled into thinking there is more economic activity than there is in reality. “In terms of foreign companies who do business in North Korea, there are some. It seems like there are lots because we expect there to be none. So I’m certainly not going to suggest that the whole country is awash with foreign investment and trade,” explains Cockerell. The first thing potential foreign investors in North Korea need to be aware of is that “North Korea is not China.” Superficial similarities aside (a one-party state, a large state-run sector), North Korea’s current economic situation is far removed from that of China, the government of which has enthusiastically embraced market-based reforms and foreign investment. North
Korea’s economy, on the other hand, is entirely staterun. Foreign investors would therefore be mistaken in assuming that business experience hard-won in China can be profitably translated into success in the North Korean market. However, Cockerell also warns against viewing the North Korean market as monolithic. While the economy is still run according to a centrally dictated plan, state-run companies have their own particular economic interests and are driven, in part, by the profit motive. The same could be said of local authorities whose policies exhibit their own particular set of interests. Furthermore, North Korean companies are hungry for foreign partners, who bring with them needed capital, equipment, and market experience. “The dominance Chinese investors in the North Korean market has also began to worry the North Korean government,” notes Cockerell. The state is eager to diversify its partnerships so as to avoid becoming utterly dependent on a single source of investment. First Things First: Find a Partner A critical consideration for foreign investors is the importance of partnering. One cannot expect to set up operations in North Korea without first finding a willing local partner within the state sector. This becomes abundantly clear even before visiting. There are tight internal travel restrictions placed on foreigners visiting North Korea, and it is necessary to have an invitation
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FEATURE from a local company. It is this company, and not the state, which will be responsible for preparing your visa, providing accommodation, transportation, and ensuring your safety. Given the amount of energy this company has spent in securing a foreign investor’s visit, and given the rarity of FDI in North Korea, local partners often have unrealistically high expectations of the meaning of these visits. While foreign investors may consider such visits as a means by which to assess the suitability of investing, local enterprises may interpret the visit as a direct precursor to a formal partnership. Due to these expectations, local enterprises are unlikely to allow their guests to freely visit sites or companies unconnected with their own interests. To them, there is simply nothing to gain from allowing potential foreign investors access to their “competitors,” who may “grab their investment for themselves.” This obviously poses a problem to foreign investors seeking to view multiple sites during their time in North Korea, and is one of the reasons why Koryo has organized its up-coming “Supply Chain Roadshow” with the Global Supply Chain Council of numerous North Korean state-run enterprises. While Cockerell admits that this tour will only permit a limited view of the market, it nonetheless affords one the sort of wide access to multiple sites that foreign investors would otherwise be unable to secure. Infrastructure Of more practical concern to potential investors is the state of North Korea’s infrastructure. Decades of economic mismanagement, the privileging of military development, and the effects of international sanctions have left infrastructure in dire need of repair. This means that substantial infrastructure investment is often necessary. Take energy: North Korea remains energy poor and blackouts affecting manufacturing sites are frequent. Sixty one percent of the country’s electricity is supplied by hydropower. However, due to North Korea’s long harsh winters, this power is virtually absent for months at a time. Chinese investors along the northern border have managed to get around this by hooking into China’s electric grid. Others, Cockerell notes, may be able to purchase more electricity from the North Korean state, or simply purchase private generators. A viable transportation network is also a major issue. Functioning highway and railroad systems, capable of transporting or distributing materials or goods, are sorely lacking. Cockerell brings up the example of Nampho, North Korea’s fourth largest city and 50 kilometers southwest of Pyongyang. A car ride to the capital should only take three hours by car. But due to frequent power outages, the average trip on North Korea’s electric-powered rail system can take anywhere from twenty-four to seventy-two hours.
Nascent Economic Zones Similar infrastructure problems plague the country’s northeastern Raijin-Songbong Special Economic Zone at Rason. First established in 1991, it is now home to a few hundred Chinese trading companies, and surprisingly, a Macanese casino. However, the success of Rason’s casino has been hampered by the lack of a proper highway, which has forced the company to buy six Hummers to transport their workers to and from the site over the connecting dirt roads. Cockerell elaborates on the infrastructural problems faced by the Chinese at Rason: “They don’t have the facilities to unload full-sized containers, and this is their free trade zone. This is one of their better ports. So it’s pretty backwards. A lot of Chinese investment is going on at this port to modernize it, but it’s happening very slowly.” However, such problems have not prevented the Chinese and North Koreans from deepening their economic partnership through the creation of further trade zones. Established in 1992, the Dandong Border Economic Cooperation Zone, connecting the Chinese city of Dandong and the North Korean city of Sinuoijiu, aimed to promote trade between the two states. This was matched in June of 2011 with the establishment of a free trade area to the southwest on the islands of Hwanggumpyong and Wihwa on the Yalu River. The North Korean government reportedly hopes the islands will become the “Hong Kong of North Korea”, and to this end have lifted many of the barriers which would otherwise impede business (such as visa-free status for visiting foreigners, internet and cell phone access, and the right to hire and lay off workers at will). However, Cockerell is more skeptical. “These islands are barren, when I saw them in June [2011] they were basically islands with villages on them. Even if you wanted to ramp up production of something straight away, you’d have to demolish the villages, build a factory, install plumbing, electricity. It may be a way off from being something,” warns Cockerell. Foreign investors must therefore be aware that it is unwise to expect that North Korea’s current transportation network will be able to handle the import and export of materials and goods. Where There’s Hope Things are slightly different in the free trade zone located on North Korea’s southern border. The Kaesong Industrial Region, established between North Korea and South Korea in 2002, has been largely free of many of the infrastructural shortcomings that have beset similar free trade areas in the north. This may in part be due to the amount of capital – both financial/technical and personal – that South Korean business interests have invested. Not only has the Hyundai Group invested deeply in the 55
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Workers at a seafood processing plant in Rason
FEATURE
A Russian seafood processing ship – permanently docked in Rason for its low docking fees
region, but the group’s founder, Chung Ju-yung (now deceased), and current chairwoman, Hyun Jeong-eun, have personally invested considerable personal energy in promoting reconciliation between the peninsula’s two respective governments. South Korean government guarantees on losses due to potential government seizures of assets has most likely contributed to the kind of security that is needed for infrastructure investments. One worry South Korean investors have not had, it seems, is the local workforce. Well trained, willing to work for a fraction of the wage of the average South Korean worker, and native speakers of the same language as their South Korean employers, the North Koreans workers of Kaesong now number somewhere between 30,000 to 50,000. But while management of these workers (and of the entire Kaesong Industrial Region itself) is governed by a specific code of laws drawn up between South Korean investors and the North Korean state, problems remain concerning compensation, specifically how much of the workers salary actually ends up in their hands. “It’s a very interesting place because it has employed a lot of people from that region [North Koreans]. They’re supposed to pay the workers $75 a month, in North Korea that’s a huge salary. The average person in North Korea probably earns less than $10 per month. $75 is certainly not paid to the people who work there,” says Cockerell. Naturally, reliable records or statistics are hard to come by, and all one can do is speculate. “Nobody knows how much of that is remitted back to the state. In a country with no income tax, legally – none of it. But in reality – probably most of it,” wagers Cockerell. “And so the factory managers there are known to pay their staff extra food rations or material gifts –
which can be traded or kept,” he adds. There are even reports in western media of payments in kind made with Orion choco-pies, considered a luxury by the populace. Trade Restrictions and Meaningful Industries Apart from concerns regarding infrastructure and worker compensation, of serious concern are the restrictions on trade placed on North Korean by much of the developed world. These sanctions present two difficulties to investors. The first is the importing of materials. Due to international concern regarding North Korean weapons programs, many so-called “dual-use” technologies and materials are prohibited from import to North Korea. The problem, of course, is that many dualuse technologies or chemicals are necessary for industrial production or resource extraction. While the U.S. took North Korea off the list of State Sponsors of Terror in 2008, comments made by Secretary of State Hillary Clinton in 2009, as well as recent tensions regarding North Korea’s missile program, suggest that earlier restrictions on material imports may apply for U.S.-based firms in the near future. Complicating matters more are state restrictions on foreign involvement in industries that are seen internally as symbolic. Consider the mining industry. North Korea has large natural reserves of coal, zinc, iron ore and uranium. While there were indications before Kim Jong-il’s death that the North Korean state was willing to lease out its mines in order to solve its chronic cash flow problem, the complete relinquishing of mining rights to foreign countries, even traditional allies like China (which has been working with North Korea on some mining projects since 2003), remains anathema to the North Korean government.
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FEATURE
Tae-an Heavy Machine Tool Complex. A vast range of machinery is used to make shaped steel, turbine components, etc.
“NK is notoriously loathe to allow foreign companies to do their mining for them. Because they tie their race with their land so much, they consider it to be basically rape to allow in foreigners to dig up their mountains,” said Cockerell, who was keen to remind investors that these sensitive industries demonstrate that “…in NK politics is number one – it’s not China, you can’t just throw your wallet at a problem and solve it.” A deterioration in the bilateral relations between the North and South Korean governments has also led to the halting of mining negotiations between the two states, which earlier had featured a 2007 joint mining survey in North Korea’s Dancheon district. Beyond political troubles, there have also been complaints from Chinese business partners that coal deliveries have arrived late, or not at all. As in other areas of the economy, corruption also remains rife in North Korea’s mining sector. The Stigma of “Made in Korea” If foreign investors are able to surmount these challenges, there still remains the problem of selling the goods produced. National and international sanctions on North Korea make it difficult find markets for such goods. Even where specific restrictions on the importation of North Korean-produced goods do not exist, consumer attitudes may make marketing the product at home next to impossible. Take the case of NOKO Jeans, a Swedish jeans manufacturer. In 2009, NOKO, in partnership with Trade 4, a North Korean mining group that just so happened to also operate a textile factory, began producing designer jeans in North Korea for the Swedish market. Yet just a day before launching, NOKO’s local distributor, Stockholm’s PUB Department Store, pulled out due to
concerns regarding the products association with the North Korean state. While this is not necessarily the response all North Korean-produced products have received in the West, it should be a concern, especially for those in the manufacturing sector. A Promising Outlook The North Korean state has indicated an interest in strengthening investor confidence by supporting the development and operation of credit banks (such as the Daedong Credit Bank of Pyongyang) and insurance providers geared towards foreign individuals and organizations operating inside North Korea. While state interference in foreign-funded economic interests remains a common concern for all investors operating in the country, a recent visit to North Korea by European and Singaporean economic experts for the purpose of advising government officials on international trade standards seems to indicate that government is beginning to take into consideration these concerns. Perhaps it is this hopeful note that we should end with. After all, German logistics giant DHL has been in operation in Pyongyang for over 15 years. And as the founders of NOKO Jeans note on their website, their modest business venture was undertaken in part to encourage exchanges between the people of the DPRK and the West. Cockerell, too, is optimistic. While North Korea’s market remains undeveloped, there is a sincere interest in expanding partnerships with firms and individuals in the West. Not merely for reasons economic, but also to make the sort of ties of partnership and cooperation that many states take for granted. Such friendly aspirations may be the best basis for partnership after all. 57
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THE links
Three Snapshots of Chinese Innovation: [part two]
An interview with GM China’s president ► Glenn Leibowitz & Eric Roth
C
hina has become the biggest market for General Motors: in 2010, GM and its Chinese joint-venture partners sold more than 2.35 million vehicles, 29 percent more than they did in 2009 and about 136,000 more than GM sold in the United States. Given the importance of the Chinese market, GM is investing heavily in innovation there. In September of last year, the first phase of the company’s Advanced Technical Center opened in Shanghai. When completed, in the second half of this year, the facility will comprise four technical and design organizations: the China Science Lab, the Vehicle Engineering Lab, the Advanced Powertrain Engineering Lab, and the Advanced Design Center. The facility will pursue R&D
not only for the Chinese market but also for GM’s operations worldwide. Tapping into China’s innovation potential is a high priority both for Kevin Wale, the president and managing director of GM China, and for the rest of GM. Wale, who has led GM China since 2005, observes that innovation in China’s auto industry is more about commercialization models than technical achievements. But the latter will come, he says, and GM is actively preparing for that moment. In a recent interview with McKinsey’s Glenn Leibowitz and Erik Roth, Wale discussed the state of automotive innovation in China and how GM cultivates the local talent it needs to stay on the cutting edge.
Innovation through commercialization There’s probably more innovation in going to market and in thinking about new business opportunities than there is in technical innovation. Technical innovation is lagging behind the rest of the world in maturity. The country is trying to get there as quickly as it can but doesn’t have the deep graduate research capability that the rest of the world has. What China does better than any place else in the world is to innovate by commercialization, as opposed to constant research and perfecting the theory, like the West. When the Chinese get an idea, they test it in the marketplace. They’re happy to do three to four rounds of commercialization to get an idea right, whereas in the West companies spend the same amount of time on research, testing, and validation before trying to take products to market. The electric vehicle is a good example. The Chinese view is that it’s not going to be perfect, and they’re not trying to make it perfect from day one. They’ve got a few more series of improvements to go, and they’ll work on them in parallel with finding
out what the customer really likes and adapting to that. That’s an innovative way of doing innovation, something that the rest of the world is struggling to understand. In our business in China, if we don’t innovate through or with commercialization, we’re going to lag behind our competitors. The power of teamwork We’re trying to set up a small unit that is designed to focus on what some people call “innovation,” but what I call “predator versus prey.” Everyone’s coming after us, and we want to stay the predator. The only way to do that is by having people who are focused on who is doing what to us and where the opportunities are. We find the deployment of small task teams is by far the best approach to drive these innovative ideas. Take OnStar, for instance, which was actually quite innovative for this market. The way we did it was well ahead of others. These systems are released by code, and they’re now up to OnStar 8. We deployed the absolute latest and went straight to 8; we didn’t start at 1. It was a calculated risk that we could make a business model that could
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THE LINKS benefit from this technology and cover the significant cost and technical support required to support that. Being out there, it feels like you’re in the Wild West. Four to five of you are in a team. You don’t have a lot support, but a lot of responsibility. In our joint ventures, we’re happy to take innovation from suppliers any day of the week. We encourage suppliers to come up with new ideas. We have a lot of local technology in our cars. Our people wanted to lead and they worked with suppliers to develop new ways of doing things. Lighting systems and infotainment are pretty much at the cutting edge of what’s available. R&D and advanced design centers in China We wanted to take advantage of some of the great talent that’s going to be coming out of the universities. They’re going to be coming out in droves. They’re not at the advanced graduate stage, simply because they don’t have the mentors in the system, but they will be coming out, and there’s plenty of good talent now that we can staff. We also want to do research and applied development that is close to the biggest market in the world. It really is very easy to ignore the realities of life when you don’t confront them every day. So we want to make sure that we have activity in the market, with people who speak the language, understand the culture, and confront that culture every day. The first building that’s going up is a battery lab. With the electric vehicle, there will be a lot of suppliers, a lot of government support; the rules will be different, and the applications will be different. We want to be here, where we will be learning that every day and reacting to it every day. It’s the same research capability we have in Detroit, but we’re able to do the work here and frame it around real local knowledge. We also will have an advanced design center here for the same reason. It’s hard to imagine doing advanced design without taking into account the influence of the largest and fastest-growing market in the world. So we’re putting in a starting point where we will have the basis for future creativity in the country. The leader of our R&D is a local Chinese who has worked in R&D in China and has excellent connections with the local universities. We also have excellent connections with universities, and we run multiple projects through a program called “PACE” and through cooperative development. That will be the starting ground for recruiting.
Also, we’re offering more internships than we normally do because we want to take the best young technical talent. Initially, we will supplement them with skilled researchers from the rest of the world, primarily the United States. But at the end of the day, we will use local skilled talent. We don’t see a problem for the size of what we’re doing here. It’s a big site, but it’s not a big number of people at a particular time—probably 300 people to start with—among all those areas: design, advanced research, powertrain engineering. Integration with global product development I’d say with a fair degree of confidence that we integrate our Chinese operations fully into our global operations better than anyone else in the world. If we’re working on a global program, we’ll be doing serious work down the road the same way as they’re doing it in the United States or Germany. Our engineering centers two years ago introduced the subcompact Chevrolet Sail, which was completely designed here. The low-cost passenger vehicle was difficult to provide out of a global solution because we were trying to cater to too many global needs. That opened the opportunity for the Sail. We were able to focus on addressing a solution that wasn’t going to come out of a global package. The latest Buick GL8 minivan was introduced here and was Kevin Wale done pretty quickly through capability that is built here in China, using a combination of on-the-job mentoring, coaching, and expert assistance from overseas, as well as a very structured development process from our global team. The GL8 is an old GM architecture that no one else wanted, but it’s a terrific product for China. It has turned into an unbelievably good-looking and highly desirable car. I can’t tell you how many senior executives and CEOs ring me up trying to speed up their provision of the GL8. The Baojun brand is a lower-priced sedan aimed at consumers who live outside of China’s major markets. It’s just a massive opportunity in China, and the ability to meet the income needs and transportation needs of that group of people was never going to be met by GM in a traditional sense.
In our joint ventures, we’re happy to take innovation from suppliers any day of the week. We encourage suppliers to come up with new ideas. We have a lot of local technology in our cars.
In th e n ext iss ue…
PHARMACEUTICAL INNOVATION: ASTRAZENECA’S EXPERIENCE IN CHINA
Glenn Leibowitz is an editor in McKinsey’s Taipei office, and Erik Roth is a principal in the Shanghai office. This article originally appeared in the McKinsey Quarterly. Copyright McKinsey & Company. www.mckinseyquarterly.com. 59 www.chainamag.com
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THE links
what’s up in Japan?
The world’s third largest economy is recovering – slowly but surely ► Pelham Higgins
Economy: Revised GDP figures indicate that the Japanese economy contracted by a mere 0.7% (annualized) in Q4 2011, which was considerably better than the preliminary estimate of a 2.3% (annualized) decline. Japan’s core machinery orders increased 3.4% in January over the previous month which suggests that Q1 2012 GDP growth might be stronger than expected. Analysts expect GDP to grow by 1.9% in the fiscal year starting in April 2012.
Economic Statistics
Japan
Inflation (annual change in CPI)
0.10% (February 2012)
Interest Rates (10 year JGB yield)
0.978% (as at 29 February 2012)
Unemployment
4.60% (February 2012)
Real GDP growth
-0.7% q-o-q (annualised Q4 2011 data)
Source: Reuters, Bloomberg and www.tradingeconomics.com
Industrial Production: After rising for a second consecutive month in January, Japan’s widely watched Industrial Production Index
declined by 1.2% in February. This decline reflected the softening global demand in sectors such as motor vehicles and electronics which has affected major exporters like Toyota and Sony. Trade: In Q4 2011 Japanese exports remained more or less flat compared with the previous quarter, due to the impact of the global economic slowdown, the appreciation of the yen, and the effects of the flooding in Thailand. This also contributed to Japan posting a record trade deficit in January of JPY 1.48 trillion with the weaker global demand eroding the profits of manufacturers. Imports rose 9.8% from a year earlier and exports were down 9.3%. In 2011 Japan’s trade balance fell into an annual deficit for the first time since 1980, driven by subdued global demand and soaring fossil fuel imports in the wake of the Fukushima nuclear power crisis. Industrial Production Index 100.0 98.0 96.0 94.0 92.0 90.0 88.0 86.0 84.0 82.0 80.0
Source: Ministry of Economy, Trade and Industry
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THE LINKS Retail: In spite of the lacklustre retail activity in the first few weeks after the Great East Japan earthquake and tsunami in March 2011, spending picked up within a month after the disaster. This helped both department stores and
We need to move faster, not just in expansion, but to create synergies across the group. Hiroshi Mikitani, CEO of Rakuten
for goods alone on their shopping portal exceeding JPY 1.2 trillion. The company also added four new overseas shopping portal operations in 2011, including Belanja Indonesia; Rakuten Brazil; Rakuten Deutschland; and Play.com in the UK. Real estate: With the expectation of prices bottoming, the Japanese commercial real estate market currently offers attractive buying opportunities. A number of global investors are looking at Japan as an investment destination, and some of the larger local banks are offering attractive debt terms for real estate investors. The market is expected to continue to entice both international and domestic investors in 2012. In the logistics sector, the volume of new supply has been limited since 2009 which has steered vacancy rates to all time lows in some areas such as the Osaka area. The leasing market for modern logistics facilities in Tokyo is being driven by the transportation; food manufacturing; and online retail sectors. Demand from 3PL operators, which occupy more than half of the space in modern Japanese logistics facilities, continues to grow with revenues growing annually. Japanese 3PL Revenues Index
(2005 = 100)
130
JR East continues to upgrade its train station shopping facilities
GMS chains to post solid results for the full 2011 calendar year. JR East, the largest passenger railway company in the world and one of the seven Japan Railways Group companies, continues to rebuild and upgrade its many station shopping facilities, including Hiratsuka Lusca, Lumine Ikebukuro and Atre Kawasaki which are all in the greater Tokyo region of Japan. Wendy’s, the US fast food chain, is in the early stages of re-entering the Japanese market and is reportedly planning to roll-out a new network of stores across the country. Online retailing in Japan continues to grow at a rapid pace with the size of this market growing at an approximately 7% compound growth rate since 2000. 2011 was the best ever year for Rakuten, Japan’s largest e-commerce company, with overall transaction values
125 120 120 115 115 110 110 105 105
100 100 85 95
Source: Logi-Biz, September 2011
Outlook: Concerns still remain over Japan’s macroeconomic conditions, including low growth rates, aging population, its strengthening currency, and weakening demand for exports to Europe and the US. Another major concern is Japan‘s growing public debt with the nation’s ratio of public debt to GDP the highest among the advanced economies of the world. The Japanese government is reported to be close to approving a bill to double the nation’s sales tax to 10%, which will help reign in Japan’s huge public debt. However, it is likely to face strong opposition to a tax hike from both inside and outside the ruling Democratic Party of Japan.
Commercial real estate looks promising for investors
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CLASSIFIED Listings
LOGISTICS SERVICES APL Logistics 5F, Raffles City, Office Tower, 268 Xi Zang Road Central, Shanghai, 200001 上海市西藏中路268号来福士广场办公室5 楼,邮编:200001 +86 (21) 2301 2800 www.apllogistics.com Arvato Services 3203, Changping Commercial Building, Futian Bonded Zone, Futian District, Shenzhen, P.R.C. 深圳福田区福田保税区长平商务大厦3203室 +86 (755) 3386 1666 www.arvatoservices.com.cn A.S.I Logistic Room 1703,Hitime International Tower No888 North Sichuan Road, Shanghai, 200080 上海市虹口区四川北路888号海泰国际大厦 1703室，邮编：200080 +86 (21) 5187 2772 www.asilogistic.com BDP International Unit 2101-2110, Shanghai Bund Int’l Tower, 99 Huangpu Road, Shanghai 200080 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 cargo-partner Logistics 6F, Building A, Sun Young Center, No. 398 Jiangsu Road, Chang Ning District, Shanghai 200050 上海市长宁区江苏路398号舜元企业发展大 厦A栋6楼,邮编：200050 +86 (21) 6195 3800 www.cargo-partner.com CEVA Logistics 23F, New Rich Port Center, 763 Mengzi Road, Shanghai, 200023 上海市卢湾区蒙自路763号新富港中心23楼, 邮编:200023 +86 (21) 2310 7000 www.cevalogistics.com Chu Kong Shipping 23/F, Guangdong Navigation Building, 48 Baqi Er Road, Guangzhou 广州市八旗二马路48号广东航运大厦23楼 +86 (20) 3950 8330 www.cksd.com Dajin Logistics 3000 South Lianhua 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) 3430 7666 www.dajin.com.cn Damco 2-5/F, Tian An Centre, 338 Nanjing Road (W), Shanghai 上海市南京西路338号，天安中心2-5楼 +86 (21) 2306 2000 www.damco.com
LOGISTICS SERVICES 1703室，邮编：200080 +86 (21) 6306 2592 www.deret-asie.com.cn DSV Air & Sea Logistics DSV Logistics 38/F, 1 Grand Gateway, 1 Hongqiao Road, Shanghai 200030 +86 (21) 5406 9800 www.dsv.com www.dsv.com/cn Elee Logistics No.3 Warehouse, 895 Dongxue Road, Dongjing Town, Songjiang District, Shanghai 上海市松江区洞泾镇洞薛路895号三号仓库( 近S224和S124高速) 邮编:201619 +86 (21) 6785 5188 www.eleechina.com
3 West Guangzhou Road, Taicang EDZ Jiangsu Province
江苏省太仓市经济开发区 广州西路3号 邮编：210400 +86 (512) 8889 8666 www.fmlogistic.com www.fmlogistic.cn HAVI Logistics 6 Xingsheng Jie, Beijing Economic & Technological Development Area, 北京经济技术开发区兴盛街6号， 邮编：100176 +86 (10) 6788 3335 www.havi-logisitics.asia Hercules Logistics Unit 5A, Bldg. A, Shenfubao Hightech Park, No. 3, Huanghuai Road., Futian Free Trade Zone, Shenzhen, Guangdong 518038 广东省深圳市福田保税区， 黄槐道3号深福保科技工业园A栋5A +86 (755) 8358 0000 www.hercules-logistics.com HYT Logistics HYT Logistics Center, Shiwei Road, Fuyong, Bao’an, Shenzhen 518103 深圳市宝安区福永街道十围路 鸿益达物流中心 +86 (755) 2998 7168 www.hyt-logistics.com ID Logistics Room 19D, Dong Tai Plaza, 309 Tanggu Road, Shanghai 上海市塘沽路309号19D +86 (21) 6306 7083 www.id-logistics.com
DB Schenker Raffles City (Office Tower), 268 Xi Zang Zhong Road, Shanghai 200001 上海市西藏中路268号来福士商务楼，邮 编:200001 +86 (21) 6170 8888 www.dbschenker.com/cn
Jacobson Global Logistics (HK) Unit 1201B-03, 12/F., Tower 1, Ever Gain Plaza, 88 Container Port Road, Kwai Chung, NT., Hong Kong 香港新界葵涌货柜码头路88号永得利广场第 1座12楼1201B-03室 +852 2790 9600 www.jacobsonco.com
Deret Logistics Asie 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
Kerry Logistics No.21, Xiaoyun Road, Chaoyang District, Beijing 北京市朝阳区东三环北路霄云路21号大通大 厦 邮编:100027
LOGISTICS SERVICES +86 (10) 6461 8899 www.kerryeas.com
3/F. OOCL Plaza, 841 Middle Yan’an Road, Shanghai 200040
上海市静安区延安中路 841号东方海外大厦3楼， 邮编：200040 +86 (21) 6193 2323 www.geodis.com LF Logistics 7/F Tower Block, LiFung Plaza, 2000 Yishan Road, Shanghai 201103 上海市闵行区宜山路2000号利丰广场主楼7 楼，邮编201103 +86 (21) 2416 4699 www.lifung.com Lifestyle 2/F, Building No.2 East, 211 Qinqiao Road, Jinqiao EPZ, Pudong District, Shanghai 201206 上海浦东金桥出口加工区秦桥路211号2号楼 东侧, 邮编201206 +86 (21) 3872 0388 x 123 www.lifestyle-log.com Linfox Road Transport 26-F, Cross Region Plaza, 899 Ling Ling Road, Xuhui District, Shanghai 200030 上海市徐汇区零陵路899号飞洲国际广场26 楼F座，邮编：200030 +86 (21) 5150 6699 www.linfox.com Linghua Logistics 333 Ke Yuan Road Zhangjiang HiTech Park Pudong New Area, 上海市浦东新区张江高科技园区科苑路333 号，邮编：201203 +86 (21) 5080 0107 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, +86 (21) 5046 1666 www.linkstarlogistics.com Logisfashion Transportation Tower, Room 1101 218, Hengfeng Road, Shanghai 上海市现代交通大厦恒丰路218号1101室 +86 (21) 5180 1025 www.logisfashion.com Logwin Air+Ocean China 25F, Ocean Towers, 550 East Yan’an Road, Shanghai 200001 上海市延安东路550号海洋大厦5楼和6楼 +86 (21) 2326 2000 www.logwin-logistics.com Menlo 13/F Tower A, Golden Eagle Mansion, 1518 Min Sheng Road, Shanghai 200135 上海浦东新区民生路1518号 金鹰大厦A座13楼, 邮编：200135 +86 (21) 6160 1198 www.menlochina.com
LOGISTICS SERVICES ModusLink Building 7, No. 789 Pu Xing Road, Cao He Jing Export Processing Zone, Shanghai, 201114 上海市浦星公路789号7号楼，邮编201114 +86 (21) 5431 5055 www.moduslink.com Panalpina World Transport 6/F AZIA Center 1233 Lujiazui Ring Road, Pudong New Area Shanghai PRC 200120 上海市浦东新区陆家嘴环路1233号汇亚大厦 6楼, 邮编 200120 +86 (21) 6105 1500 www.panalpina.com Penske Logistics Room 1801, Honi International Building, 233 Weihai Road, Shanghai 200030 上海威海路233号恒利国际大厦1801室 +86 (21) 6227 8566 www.penskelogistics.com Ryder Logistics #1801-1802, International Capital Plaza, 1318 North Sichuan Road, Shanghai 200080 上海市虹口区四川北路1318号盛邦国际大厦 1801-1802室，邮编200080 +86 (21) 3653 7799 www.ryder.com Schneider Logistics 1001-1004, 10th Floor, MAIGO International Building, #11 Nan Ma Road, Heping District, Tianjin 天津市和平区南马路11号麦购国际大厦10层 1001-1004,邮编：300022 +86 (22) 2622 8888 www.schneider.com
113 Eunos Avenue Gordon Industrial Building #02-12, Singapore 409838
+65 6748 4484 www.swisspost.com SDV International Freight Forwarding 20/F, East Building, New Hualian Mansion, 755 Middle Huai Hai Road Shanghai 200020 上海市淮海中路755号新华联大厦东楼20 楼，邮编：200020 +86 (21) 3395 0600 www.sdv.com SunJex Logitics 299 Huaxiang Road, Shanghai 上海华翔路299号 +86 (21) 6127 2637 www.sunjex.com Transluck Logistics 1655 Hengcang Rd, Ma Lu Industrial Garden, Jiading District, Shanghai 201801 上海市嘉定区马陆工业园区横仓公路1655 号，邮编201801 +86 (21) 3127 3388 www.transluck.com UPS 23F/33F, No. 166 Lujiazui East Road, Pudong District, Shanghai 200120 上海浦东新区陆家嘴东路166号23/33楼, 邮 编200120 +86 (21) 3896 5599 www.thenewlogistics.ups.cn
62 may/JUne
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CLASSIFIED Listings
LOGISTICS SERVICES
PROFESSIONAL SERVICES Hill & Associates 6A, Huamin Empire Plaza, No. 728 Yan An Road (W), Shanghai, 200050 +86 (21) 5238 5599 www.hill-assoc.com
No. 388, Tieli Road, Yanghang Town, Baoshan District, Shanghai China 201900
中国上海市宝山区杨行镇 铁力路388号 邮编：201900 +86 (21) 3379 3366 www.tollgroup.com Wallenius Wilhelmsen Logistics Rm. 2701-2703, Shanghai Square, 138 Huaihai Zhong Road, Shanghai 200021 上海市淮海中路138号上海广场2701-2703 室, 邮编200021 +86 (21) 6385 1609 www.2wglobal.com YatFai Logistics 39-H, Fortune Building, 88 Fuhua San Road Futian District, Shenzhen, Guangdong Province 广东省深圳市福田区福华三路88号， 财富大厦39楼H座 +86 (755) 3336 6898 www.yatfai.com
PROFESSIONAL SERVICES AsiaInspection 2201-03, Guidu Building, 3007 Chun Feng Road, Luo Hu DistricUnit 810, Shenzhen 深圳市罗湖区春风路3007号， 桂都大厦2201-03室 +86 (755) 2223 9888 www.asiainspection.com Bain & Company 31/F, 2 Plaza 66, 1366 West Nanjing Road, Shanghai, 200040 China 上海市南京西路1366号恒隆广场办公楼2座 31楼 邮编 200040 +86 (21) 2211 5588 www.bain.com Baker & McKenzie Suite 3401 China World Tower 2 China World Trade Center, 1 Jianguomenwai Dajie, Beijing 100004 +86 (10) 6535 3800 www.bakernet.com Booz & Company Suite 2511, One Corporate Ave. No. 222 Hu Bin Road, Shanghai 200021 上海市湖滨路222号企业天地1号楼2511室 +86 (21) 2327 9800 www.booz.com/cn
Kerkhoff Consulting Room 1113-1114, 11F, LJZ Plaza, 1600 Century Avenue, Pudong, Shanghai, 200122 上海市浦东新区世纪大道1600号陆家嘴商务 广场11层1113-1114室, 邮编200122 +86 (21) 5820 1099 www.kerkhoff-consulting.com KPMG 50F, Plaza 66, 1266 Nanjing West Road, Shanghai 200040 中国上海南京西路1266号恒隆广场50楼, 邮 编200040 +86 (21) 2212 2888 www.kpmg.com/cn Logistics Executive Suite 13G, Shanghai Ind’l Investment Bldg. 18 North Caoxi Road, Shanghai 200030 上海市徐汇区漕溪北路18号， 上海实业大厦13楼G座, 邮编：200030 +86 (21) 6427 6697 www.logisticsrecruitment.com.cn Michael Page International 601-603 Shanghai Kerry Centre 1515 West Nanjing Road, Shanghai 200040 上海南京西路1515号，嘉里中心601- 603 +86 (21) 3222 4758 www.michaelpage.com.cn MKT China Jiedi Building, Unit 1102, 2790 Zhongshan North Road, Putuo District, Shanghai 200063 上海市普陀区中山北路2790号杰地大厦 1102室,邮编：200063 +86 (21) 6095 5225 www.mkt-china.com PwC 11/F, PricewaterhouseCoopers Center, 202 Hubin Road, Shanghai 200021 上海湖滨路202号普华永道中心11楼，邮 编200021 +86 (21) 2323 8888 www.pwccn.com Resources Global Professionals Room 2705-06, Lippo Plaza, 222 Middle Huaihai Road, Shanghai 上海市卢湾区淮海中路222号力宝广场 2705-06室 +86 (21) 6386 8700 www.resourcesglobal.com Tompkins Room 1204-1207, Evergo Tower, 1325 Middle Huaihai Road, Xuhui District, Shanghai, 200031 上海徐汇区淮海中路1325号爱美高大厦 1204-1207室, 邮编200031 +86 (21) 6473 2588 www.tompkinsinc.com
ESP International Pan Ten 2nd Industrial, Bugy Town, Long Gang District, Shenzhen, 518129 深圳市龙岗区坂田街道第二工业区大发路谦 进公司B座 邮编518129 +86 (755) 8419 2746 www.espint.com
Blogis International Logistics +86 (755) 2669 4211 www.blogis.com.cn
forflow consulting 1706 Information Tower, 1403 Minsheng Road, Pudong, Shanghai 200135 上海市浦东新区民生路1403号上海信息大厦 1706室,邮编200135 +86 (21) 5031 6808 www.forflow.com
CB Richard Ellis 11th Floor Shanghai Wheelock Square 1717 Nanjing West Road Shanghai 上海市南京西路1717号会德丰广场11楼 邮编：200040 +86 (21) 2401 1200 www.cbre.com.cn
REAL ESTATE SERVICES
REAL ESTATE SERVICES Colliers International 16/F Hong Kong New World Tower, 300 Middle Huaihai Road, Shanghai 200021 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 Gazeley Room 805, Kerry Centre, 1515 Nanjing Road (W), Shanghai 上海南京西路1515号嘉里中心805室 +86 (21) 5298 6622 www.gazeley.com Global Logistic Properties 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， 邮编200120 +86 (21) 6105 3999 www.GLProp.com Goodman Group 2107 - 2109, Shui On Plaza, 333 Middle Huaihai Road, Shanghai 200021 上海淮海中路333号瑞安广场2107-2109室 邮编：200021 +86 (21) 6133 2000 +86 (21) 6386 2386 www.goodman.com GSE China 27D Industry Building, 18 North Caoxi Road, Shanghai 200030 上海市徐家汇漕溪北路18号实业大厦27D, 邮编：200030 +86 (21) 6090 1388 www.gsegroup.cn Jones Lang LaSalle 25/F, Tower 2 Plaza 66, 1366 West Nanjing Road, Shanghai 200040 中国上海市南京西路1366号恒隆广场2座25楼 邮编：200040 +86 (21) 6393 3333 www.joneslanglasalle.com.cn Prologis Plaza 66 II ,Suite 2908 1366 Nanjing Road West Shanghai, 200040 上海南京西路1366号恒隆广场二座2908单元 邮编：200040 +86 (21) 6135 1688 www.prologis.com Spaceframe Room 17A, HuaMin Empire Mansion, 726 West Yan’an Road, Shanghai 延安西路726号华敏翰尊大厦17楼A +86 (21) 5830 3488 www.spaceframe.com.cn Yupei Group No. 2500 Jinchang Road, Shanghai 200331 上海市普陀区金昌路2500号， 邮编：200331 +86 (21) 6627 7577 www.yupeigroup.com
IT & SOFTWARE SOLUTIONS Barloworld Supply Chain Software 15/F NCI Tower, 12A Jianguomenwai Avenue, Chaoyang District, Beijing 100022 北京市朝阳区建国门外大街甲12号新华 保险大厦15楼, 邮编：100022 +86 (10) 8523 3103 www.barloworldscs.com
IT & SOFTWARE SOLUTIONS Demand Solutions Level 29, Shanghai Kerry Centre, 1515 Nanjing West Road, Shanghai, 200040 +86 (21) 6103 7462 www.demandmgmt.com E2open 12F Platinum Building, 233 Tai Cang Road, Shanghai 200020 上海市新天地商圈太仓路233号新茂大厦12 层, 邮编200020 +86 (21) 5175 7788 www.e2open.com Elemica 300 Beach Road #13-06 The Concourse Singapore 199555 +65 6327 6143 www.elemica.com Emptoris Unit 01, Floor 7, 1 Grand Gateway 1 Hong Qiao Road, Shanghai 200030 虹桥路1号港汇中心1座701单元， +86 (21) 6447 6600 www.emptorischina.com Inther Room818, Yuandong Buliding, No.1101 South Pudong Road, Shanghai 200120 上海市浦东新区浦东南路1101号远东大厦 818室 邮编200120 +86 (21) 6162 3638 www.inthergroup.cn Ipower Technology 10 Anson Road,#26-04 International, Plaza,Singapore,079903 +65 3152 5886 www.winchannel.net JDA Software Unit 06, 29/F, Raffles City, 268 Xizang Middle Road, Shanghai, 200001 上海市西藏中路268号, 来福士广场2906室， +86 (21) 2327 9400 www.jda.com Kewill Room D, 9F Baoding Building No.550 Xu Jia Hui Road, Luwan District Shanghai 200025 上海市徐家汇路550号宝鼎大厦9楼D座 +86 (21) 6466 3030 www.kewill.com Kinaxis Level 19, Two International Finance Centre, 8 Finance Street, Hong Kong 19层,国际金融中心2座金融街8号, 中环,香港中国 +852 2251 1859 www.kinaxis.com Manhattan Unit 2110, 21/F, Shui On Plaza, 333 Huai Hai Zhong Road, Shanghai 200021 上海淮海中路333号瑞安广场21楼2110室 +86 (21) 6057 3500 www.manh.cn SAP 12/F, Tower 2, China Central Place, 79 Jian Guo Rd, Chao Yang District, Beijing 100025 北京朝阳区建国路79号华贸中心2号楼12 层, 邮编100025 +86 (10) 6589 8888 www.sap.com Schmidt Room 2406 Huashen Mansion, 398 Hankou Road, Shanghai 200001 上海市黄浦区汉口路398号华盛大厦2406室 +86 (21) 6133 9708 +86 (21) 6133 9718 www.schmidthk.com
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CLASSIFIED Listings IT & SOFTWARE SOLUTIONS SEEBURGER Suite 2005-06, 20/F, SINO Life Tower, 707 ZhangYang Rd. Pudong, Shanghai 200120 上海浦东新区张杨路707号生命人寿大厦20 层 2005-2006单元，邮编200120 +86（21）5047 1825 www.seeburger.cn SPS Commerce Section 1501, Building A, R&F Twin, Tower, 59 Middle East 3rd Ring Road, Chaoyang District,Beijing 100022 北京市朝阳区富力双子座A座1501室 +86 (10) 5639 0888 www.spscommerce.com SupplyOn Suite 1501, Silver Centre, 1388 North Shanxi Road, Shanghai 200060 上海普陀区陕西北路1388号 银座中心1501室， 邮编：200060 +86 (21) 6149 8042 www.supplyon.com TradeCard Room B-C, 12/F, JinRun Mansion, 6019 ShenNan Road, FuTian District, Shenzhen 518040 中国深圳市福田区深南大道6019号金润大 厦12楼B-C室 邮编 518040 +86 (755) 8830 9265 www.tradecard.com Vocollect Unit 3, 29/F, Sino Plaza, 255-257 Gloucester Road, Hong Kong 香港铜锣湾告士打道255-257号信 和广场3单元29楼 +852 3915 7000 www.vocollect.com
EQUIPMENT PROVIDERS
Shanghai May 31
CHEP 40/F, Suites 8-10, 2 Grand Gateway, 3 Hongqiao Road, Shanghai 200030 上海市虹桥路3号港汇二座40楼08-10室 +86 (21) 6127 2488 www.chep.com Dexion (Shanghai) Logistics Equipment Room 1102, Block A, Phase 1 Zhang Jiang Riverfront Harbour, 3000 Longdong Avenue, Shanghai 上海市浦东新区龙东大道3000号 张江集电 港第一期A楼1102室， 邮编：201203 +86 (21) 6879 4413 www.dexion-china.com CM Loscam (China) Room1104-1105, Block C, Ming Wah International Convention Centre, 8 Guishan Road, Shekou, Shenzhen 518067 深圳蛇口龟山路8号明华国际会议中心C 座1104-1105室 邮编518067 +86 (755) 2680 8820 www.loscam.com Schoeller Arca Systems Unit 1111-1112, Shui On Plaza, 333 Middle Huaihai Road, Shanghai 上海淮海中路333号瑞安广场办公楼 1111-1112室 +86 (21) 3133 5080 www.schoellerarcasystems.com
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The Magazine for Global Supply Chain Leaders
The State of Logistics in China 中国物流形势
may / JUNE 2012