N E W S A N D i n f o r m a t i o n f o r s u p p l y c h a i n e x e c u t i v es
Jan 2011
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Outsourcing Markets make China the new
‘Center of the W rld’
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Outsourcing
Outsourcing Markets make China the new
‘Center of the W rld’
Sorry Delphi, but China’s outsourcing markets and manufacturing industry make it the undisputed center of the world. Written by Brett Booen There was a time not so long ago when and an up-and-coming middle class that is a Greek city was the center, the focal point economically vested in the future, China is really, of the known world. Traders, travelers, undoubtedly today’s center of the world. It is kings and warriors alike gathered in an ancient right on the cusp of shedding its ‘emerging Greek city called Delphi to do business, praise market’ tag and will soon become the core for Apollo and seek guidance from an all-knowing all business ventures, that is if it hasn’t already. Oracle. Delphi was the navel of the known With open arms that reach across the globe, world, the unquestioned trade hub of this China welcomes any and all companies to place we call Earth. But we live in a different produce goods in its nation, knowing all too world now, a time where the world’s absolute well that it has the people, skills and equipment center is determined not by ancient traditions, to support all of the world’s economies. But the mythologies and deities, but rather by the question must be asked, are China’s resources strength of economies, labor forces and their being stretched? Will the country one day respective ability to manufacture goods. Today reach a tipping point when the working class that center is a little bit further east (or west can no longer support the immense business depending on your perspective), deep in the opportunities that pour in every year? Will heart of the most populous and third China’s outsourcing market see a largest country in the world. decline? The answer is no, for now 813 M That is to say that China is at least. Chinas labour to the world today, what Delphi In 2007, China’s outsourcing force amounts was to the ancient Greeks. The market was valued over USD to 813 Million hub. The center. The focal point. $7.5 billion by the marketing firm people With a population of 1.3 billion, KPMG, and this year the market a labor force over 813 million, for outsourcing and shared www.supplychaindigital.com January 2011
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Four people want to cross a river to get to the market. A nearby boat carries up to two people. Each person takes a different time to cross the river, namely: one, two, five and ten minutes. With two people in the boat, it takes the longer of the two people’s times to cross.
With original thinking anything is possible. Barloworld Logistics is a supply chain management company that believes in striving to make the impossible happen. Our customised, end-to-end Freight Forwarding solutions stem from intuitive, creative and innovative thinking.
With a clear focus on strategising, planning and managing, we aim to always positively transform our clients’ business. Through industry thought leadership and close collaboration with clients like Refraline, we go to the ends of the earth for you to deliver the best overall results.
Whenever anybody brings the boat back, their time must be included. The market closes in exactly 17 minutes. Can you make the impossible happen and get all the people across the river in 17 minutes?
To find out how we do things differently – and to discover how to get the four people across the river in 17 minutes – call Kate Stubbs on tel. +27 11 445 1600 or email kstubbs@barloworld-logistics.com
Visit us online click here - www.barloworld-logistics.com
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January 2011 www.supplychaindigital.com
Outsourcing
services has already surged to three times its value, almost $20 billion. The largest and most profitable companies out there today—IBM, Apple, Microsoft and Cisco, to name a few— have been tapping into China’s working class for years. These companies turn out huge profit margins on a yearly basis and they’ve provided the how-to manual for Chinese outsourcing. The market will only continue to grow as infrastructure develops and stretches further into China’s heartland. China’s Ministry of Commerce predicted that outsourcing and shared services would be worth well over $43 billion by 2014. It may shift from the eastern seaboard to some of the other populous regions in Western China, but there are no signs that it is slowing down. China’s west may be the world’s most untapped workforce, but it won’t be that way for long. Dell, Hewlett Packard, Compal and Acer
have already moved out of the metropolitan areas and into the west, having seen the huge market potential in terms of volume. Some of China’s most populous regions are in the West, including Sichuan (population 81,620,000), Guangxi (48,670,000) and Shaanxi (37,720,000). So while there are concerns about the rapid labor growth along the eastern seaboard, China is an enormous country that has not yet reached its potential. China may still technically be ‘emerging’ for now, but it won’t be that way for long. It’s believed that today’s Chinese exportoriented companies are more mature, having survived the worst of the financial crisis that continues to plague the global economy. More importantly, these surviving companies believe that they are equipped, ready and able to handle the ever-growing demands of the West. Case and point can be seen in the www.supplychaindigital.com January 2011
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Shanghai, China figures of China’s Purchasing Managers Index (PMI), which is the lead indicator for economic activity, new business and factory production. The PMI saw the largest month-on-month rise ever in October 2010, rising from 52.9 to 54.8, according to a press release. It was the
20th consecutive month that the PMI came in above 50, which is significant because figures above 50 mean manufacturing expansion, while anything below 50 means contraction. The PMI may seem like a convoluted statistic, but really it’s just the percentage of purchasing managers that reported better business than the previous month. That is to say It’s believed that today’s that 54.8 percent of purchasing managers reported having seen better business in Chinese export-oriented October compared to September figures. companies are more Got it? Good. The pace of expansion was also a 6-month high, according to the mature, having survived PMI. the worst of the financial It used to be that a company would send its non-core aspects of business crisis that continues to to China simply because it was the most plague the global economy. cost-effective thing to do. By and large 26
January 2011 www.supplychaindigital.com
Outsourcing
this remains true, but China is proving that its manufacturing sector is about more than producing raw value. Don’t be confused, cost reduction is still the No. 1 reason to outsource in China, but most companies have found that the quality of their products is increased through the exposure to China’s advanced technologies. Value is added, in particular, to electronic goods because many of the companies in China are relatively advanced in what they do and what they produce. It wasn’t by luck that China became the world-leading producer in mobile phone, integrated circuit and automobile industries. It was through advanced innovation and outside investments. Finally, favorable tax conditions and free trade practices make China the undisputed outsourcing champion of the world.
At last, this brings us back to China’s West. It’s similar to the Wild West that is so famously perceived in American film because right now it’s largely untapped. It has enormous potential and infrastructure will only improve the opportunity and viability in the region. Companies who cash in now will be playing with house money later, which is always a good thing. Maybe one day we’ll look back on China as the second coming more of Delphi. But more than likely articles that time is now. You don’t Visit need an all-knowing Oracle to Website tell you that.
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