2012 May-June Issue

The Magazine for G

lobal Supply Chain LeadersM

ay / JUN

E 2012The State of Logistics in China 中

国物流形势

LIVE 12

Media Partners:

CHaINA’12 Live The Global Supply Chain Event for China

CHaINA’12 is the largest Supply Chain event in China involving a

November 7-8, Shanghai

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。

www.chainalive.com

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 [email protected]

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[email protected]

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 printCHaINA 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 ReadersOur 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 bothweb, digital and iPad editions (price: US$15.99 per year)Go to www.chainamag.com and iTunes to subscribe.

Stories Ideas, Comments & FeedbackIf 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 [email protected]

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[email protected]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 firms operating in China about their strategies, to 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 [email protected] 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[email protected]和我们分享您的看法。

1

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 reservedThe 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.

Cindy TseChief EditorCHaINA Magazine

Publisher Max Henry

Chief Editor Cindy TseJunior EditorOlga Mironova

Graphic DesignersJane JinSusy SongEmma XuPhotographerJimmy Kim TranslatorCarmen RenContributing 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

may/June

www.chainamag.com may/JUne

2

C ONTENTS may/juNE 2012

frONTliNES 4 follow up 5 movers & Shakers 6 aiZhai Bridge11 m&a12 invest-O-mania

14 fresh Start-ups 4 追踪报道 5 斗转星移 6 矮寨大桥11 企业并购资讯12 建设一览14 新概念商务

PrOCurEmENT16 Procurement News18 iPad 3’s Costs jump19 iBm remanufacturing Servers20 aB inBev’s Best Cost Country Sourcing

16 采购短讯18 iPad 3的价格飞跃19 IBM再制造服务商20 百威英博的最低成本采购

ThE liNKS58 interview: The View from General motors60 What’s up in japan

58 专访：通用汽车的视野60 日本新动态

DiSTriBuTiON42 Distribution News44 The luxury E-Commerce Dilemma

42 零售短讯44 奢侈品电商的困境

22 制造短讯24 放眼无穷：中国为何仍是制造业霸主26 艾格的精细制造之战28 机器人的崛起30 科技的真相

maNufaCTuriNG 22 manufacturing News24 No End in Sight: Why China is Still King in manufacturing26 Etam’s lead Time Wars28 rise of the robots30 The Turth about Tech

lOGiSTiCS30 logistics News34 journey to the West36 yrC Exits China37 Shipping rates increae38 alipay’s COD innovation40 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

We invite you to share your thoughts and opinions regarding

all of our articles. We will publish selected readers’ comments

in future issues of CHaINA Magazine. Correspondence may be

edited for clarity or for length.

Email us: [email protected]

We Want

to Hear

From You!

may/Junewww.chainamag.com

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46

1

4

fEaTurES

3

ThE STaTE Of lOGiSTiCS iN ChiNa中国物流形势

a WOrD frOm ThE WiSE: What Today’s Global Sourcing Leaders Have To Say智者之言：聆听全球采购领军者

NOrTh KOrEa uNCOVErED: The Final Frontier in the Global Supply Chain揭秘朝鲜：全球供应链的最终前沿


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 single-brand 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 Indi-an 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 Com-merce and Industry Ministry and have expressed a willingness to invest in domestic manufacturer to up-grade 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 deci-sion 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 stipu-lation, there are no details yet on to what extent the clause will be relaxed, and to whom it will apply.

44

IndIa ReconsIdeRIng souRcIng clause In RetaIl

FRONTLINES

Follow - up

“According to Chi-nese law, both parties involved in the trade-mark transfer should apply with us together (to make the transfer legal). So Proview Tech-nology 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 au-thorities 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, al-though 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 be-tween Apple and Shenzhen Proview Technology con-cerning 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 consequenc-es, 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. Al-though China usually receives new models of Apple products later than other markets due to a compli-cated 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.”

A look at some of the previous stories covered that are still making headlines.

apple vs. pRovIew - BeIjIng lean-Ing towaRds the undeRdog


5

3 Prime Distribution Centers

YANGSHAN Shanghai

LINGANG Shanghai

Up to

15,000 sqm

Up to

32,000 sqm

BondedArea

Minutes away from Yangshan port

For more information, please contact:

Geodis Wilson Shanghai Limited

Tel.: +86 21 6193 2553

E-mail: [email protected]

Up to

37,000 sqm

CHENGDU Sichuan

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

Next to airport & inner city

FRONTLINES

Rocky Zhang Regional Head of PurchasingDanfoss (China)

Rocky will lead a transformation pro-gram at Danfoss on Strategic Sourcing, Procurement and Professional Supply Management for Great China Region. Prior to this, he held procurement posi-tions in Tyco Electronics and IKEA.

with Recently changed jobs? Send us an email to publicise it here! [email protected]

Movers & Shakers

Prince has more than 24 years of indus-try experience. His notable achievements include leading the Semiconductor Mar-keting, Sales and FAE Departments – main revenue contributors of Avnet.

Prince YunRegional President for Taiwan Avnet Electronics Marketing (Asia)

Jane ShaoACS Logistics & Planning ManagerHoneywell (Asia Pacific)

Jane has been promoted to ASC Logis-tics and Planning Manager in Honey-well, where she already has 9 years of experience dealing with logistics issues. Jane holds an MBA from Shanghai Mari-time University.

Jean-Luc Laboucheix Global Director Supply ChainDyson (Singapore)

Prior to this new appointment at Dyson, Jean-Luc was Regional Director of Sup-ply Chain for Asia Pacific in Goodyear. He has more than 10 years of supply chain experience in various regions.

Michael JohnsenDirector of Retail ServicesColliers International(East China)

Michael will be responsible for provid-ing retail consultancy and leasing ser-vices 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.

Xiaodan Su BD ManagerLanner (China)

Lanner, a provider of simulation soft-ware has appointed Xiaodan to drive growth in the China market. He will be responsible for managing customer rela-tion, focusing first of all on manufactur-ers of machinery.


The Big Shot


355meters

Height above the valley floor

4years

Time it took to construct

1minute

Time it takes to cross the valley on the bridge

It used to take 30.

The aizhai Bridge is the world’s longest

tunnel-to-tunnel suspension bridge, along the Jishou-

Chadong Expressway, over the Dehang

canyon. It shortens the trip between Chongqing and Changsha in Hunan

Province.

6thhighest bridge in the world


FRONTLINES

8

Hong KongSupported by a slight rebound in exports and strong re-tail 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

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.

ChinaDemand from logistics, automobile and e-commerce companies has helped industrial rents in Shanghai re-main 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 ma-jor developments are coming to the market in early 2012 such as Phase 1 of BLogis Park Songjiang. The Beijing

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 Guang-zhou has been strong with a number of bulky goods re-tailers 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.

Asia Logistics

SingaporeLease 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 in-dustries 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.

► Pelham Higgins

Real Estate News

KEY RECENT LEASING TRANSACTIONSTenant Leased Area (sqm) Property Name Location

Phoenix Waigaoqiao 　　　 200,000 approx 　　　　Pudong New Area Fengshen Logistics 　　　　 40,000 approx 　　　　 BLogis Park Songjiang 　　　 Shanghai

Merck 　　　 50,000 approx 　　　 Wangjing Innovation Park 　　 BeijingGome 　　　　 25,000 approx 　　　 Dewei 　 Beijing

TenantTenant Leased Area (sqm) Property Name Location

Property Name LocationKEY RECENT INVESTMENT TRANSACTIONS

Buyer Price

Burberry 　　　 24,000 approx 　　 Hutchison LC 　　　　 Kwai Chung Nippon Express 　　 40,000 approx 　　　 Goodman Interlink 　　　　 Tsing Yi

Lee Chit Warehouse 　　 Yeun Long 　　　 N/A 　　　　　　 HK$ 130 million

KEY RECENT LEASING TRANSACTIONS

Shanghai


9

FRONTLINES

Data in the Tables: CBRE, JLL, Savills, and J-REIT press releases

JapanJapanese 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

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 INVESTMENT TRANSACTIONS

Tenant Leased Area (sqm) Property Name Location

Property Name Location Buyer Price

DHL Supply Chain 　　　　 35,000 approx 　　　　 GLP Urayasu III 　　　　　　 Chiba 　 Tvrancom 　　　　　 25,000 approx 　　　　 Saitama Kisai LC 　　 Tokyo

Nippon Express 　　　　 17,000 approx 　　　　　 Goodman Moriya 　　　　　　 Tokyo

Portfolio (15 assets) 　　　　　　Across Japan 　　　　　　　　 CIC/GLP 　　 JPY 122.6 billionRinku International LC 　　　 Osaka 　　　 Airport Facilities 　 JPY 4.81 billion


KEY RECENT INVESTMENT TRANSACTIONS

Tenant Leased Area (sqm) Property Name Location

Property Name Location Buyer Price

Armor Asia Imaging Supplies 　　 4,000 approx 　　　　 21 Changi North Way 　　　 Changi North Way Cummins Diesel Sales Corp 　　 10,000 approx 　　　 52 Tanjong Penjuru 　　 Tanjong Penjuru

Corporation Place 　　　 Corporation Place 　　 Ascendas REIT 　　　　 S$ 99 million 3 Changi Business Park Vista 　　　 Changi Business Park 　　 Ascendas REIT 　　　　 S $ 80 million

http://www.fmlogistic.com

mailto:[email protected]


10

FRONTLINES

‘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 mislabell ing in Walmart China.

Quotes

The number of ships of at least 10,000 TEU that

will enter the global fleet, according to maritime

research group Drewry.

59 ships

Honda’s forecasted sales volume in China by 2015.

1.2 mn vehicles

Anticipated profit fall in Q1 of China Eastern

Airlines due to slow growth in passenger

volume and higher jet fuel costs.

50%

Number of imported vehicles being recalled by BMW China due to

electronic pump defects.

414 cars

Percentage of fake Moutai circulating on

the market according to media reports. Company

officials claim that this number is not higher

than 5%.

90%

Largest overseas investment of

Samsung Electronics in a new memory chip

factory in Xian.

US$ 7 bn


11

FRONTLINES

MERGERS & ACQUISITIONS

US$35mn1

US$94.9mn3

US$520mn5

US$88.3mn 2

US$6.77bn 6

US$95mn 4

US-based J.M. Smucker has purchased a mi-nority stake in Chinese oats products manu-facturer - Guilin Seamild Biologic Technology Development for US$35 mn.

Finnish packaging firm Huhtamaki Oyj has acquired Hong Kong-based Josco Holdings for US$88.3 mn. Josco Holdings is a privately-owned disposable packaging manufacturer with 2 plants and 2 DCs.

Jinzhou Titanium Industry Co., the only chlo-ride TiO2 manufacturer in China, will be ac-quired by Hongkong Hanxing , a subsidiary of CITIC Group Corporation . The acquisition, valued at US$94.9 mn is the largest foreign ac-quisition in Jinzhou to date.

China Resources Sanjiu Medical &Phar-ma, a Chinese manufacturer of pharmaceuti-cals, healthcare products, and medical appli-ances, has won a bid to acquire Guangdong Shunfeng Pharma for US$95 mn.

Pharmaceutical services provider, Ameri-sourceBergen Corporation has finalized an agreement to acquire World Courier Group, a privately held logistics provider for the bio-pharmaceutical industry, for US$520 mn.

UPS is buying its European rival TNT Express for US$6.77 bn, bolstering its position in China and Latin America.

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2

3

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http://cha.in/indirect12


Invest-O-ManiaA glimpse at the never-ending construction and investment in China.

ManufacturingLogisticsR&D

Urumqi

Luogang - US$490 MN (in generating capacity)

Procter & Gamble Manufacturing Plant

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.

Beijing - US$316 MN

Weichai R&D Center

The center will take care of technological innovations in engine manufacturing in light of environmental concerns.

Beijing - 75,000 m2

Beijing Logistics Park

This new logistics park is launched, with 100% pre-committed occupancy, industrial space is divided between two online retailers – Taobao and Shun Feng Express.

Chengdu - 3,700 m2

Visteon Plant

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.

Shijiazhuang - US$315 MN

Jizhong Energy Group Plant

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.

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.

Unilever Production Plant

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.


Invest-O-Mania

Tianjin

Shanghai

Chengdu

Qingdao - US$253 MN

Bosch manufacturing plant

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.

Shandong - US$625 MN (first year)

Qingdao Port - New Terminals

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.

Yantai - US$9.8 MN

Doosan Infracore Co. R&D centre

The Korean earth-moving machinery manufacturer will open an 8,000 m2 R&D center that will develop wheel loaders for China.

Changshu - US$158 MN

Land Rover - Chery JV Assembly Plant

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.

Shanghai - US$100 MN

SABIC Technology Center

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.

Beijing

Shijiazhuang

Yingkou - US$160 MN

Coca-Cola Bottling Plant

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.

Jilin - US$119.8 MN

Keppel T&T logistics park

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.

Shandong

Yantai

Jilin

Yingkou

Qingdao

Sigma-Aldrich center

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.

Wuxi - 80, 000 m2

WuxiChangshu

Luogang


“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.

How does it work?In a nutshell, the process is as follows: users register on

the MyLuxBox site, pay the quarterly subscription fee of RMB 240 (or RMB 500 per year) and fill in a beauty profile, where they mark their preferences, needs and other details, such as skin-type or hair colouring. Then every month they will receive a customized “beauty box” with 4 to 6 deluxe sized samples of different high-end brands of cosmetics. A large part of all the fun is that the content of the coming “beauty box” unknown, which creating a certain stir of anticipation. The process does not stop at the point of delivery either, as members are encouraged to share their experience and comments in different social media networks. They are in fact, awarded for this with points, which are redeemable at MyLuxBox. If they liked the samples it is of course possible to order full-size product packages on-site. Combining these proven e-commerce marketing concepts with an element of surprise has allowed the company to reach a web-savvy target audience in China’s insatiable luxury market.

Though far from being the first to utilize this approach – it originated from the US sites Birchbox and Blissmo - the company which just started its operations in summer 2011 has already turned into one of the hottest tech start-ups and a leader of Social-Subscription Commerce in China, growing at 30 percent every month. In just half a year, MyLuxBox managed to attract about a quarter of a million registered users and now delivers its “beauty boxes” to 300 cities throughout China to 10,000 of paid subscribers.

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.

Connecting, Broadcasting and Involving“The concept is really fun! You can now try the

products first before you decide to buy or not to buy. Also, since the samples are of deluxe size, it allows you to have a “real trial,” commented another netizen.

So far, MyLuxBox distributes products of such brands as Hugo Boss, Chanel, Lancome, Elizabeth Arden, Herborist, Kenzo, Korres, Acqua di Parma, benefit, Bobbi Brown, and the list keeps growing. The founders of the company have discovered that there is certain gap in virtual communication between luxury brands coming to China and their target audience. Although

they understand the importance of social media in building brand awareness, they often face problems developing this social media

presence by themselves, especially in the Chinese market. In that way MyLuxBox serves as a social media marketing intermediate between the luxury brands and finite consumers, ensuring the broad sample distribution via different social network communication channels.

Though MyLuxBox started with cosmetics, the company is not going to limit its activities to this narrow scope. They have already launched other types of boxes – men’s version with skincare products and a “Taste box” filled with luxurious confectionaries and snacks. Who knows to which other industries this concept can be extended or customized in the future.

14

My Lux Box

FRONTLINES

Fresh Startups:► Olga Mironova

Diede holds a dual degree in Economics and Computer Science from Dartmouth. During a six year career in management consulting (Applied Value) he supported clients such as General Motors, Ericsson and Sony Ericsson across 4 continents. He has been based in China since 2006 and most recently was a co-founder and Managing Director for Groupon China. He now is the CEO of MyLuxBox, one of the fastest growing consumer oriented startups in China.Diede van Lamoen,

Founder & CEO

Trend-setters in Retail


Another promising e-commerce start-up is “ID by me” launched in 2009. The concept used by this company is in some ways the polar opposite of MyLuxBox: instead of surprising its clients with unknown products, clients customize their product down to the smallest detail. Rather than connecting Chinese consumers with Western brands, as is the case with MyLuxBox, “ID by me” offers customized clothing for clients in Europe, mostly France, while manufacturing it in China. Remarkably, with its state-of-the-art internet site in French (www.idbyme.com), strong focus on quality, trends and value for consumers the brand managed to create such a semblance to the usual standards of “European fashion” that no one would suspect that the company is actually of Chinese origin.

Focusing primarily on cashmere pullovers, leather jackets, trenches and shoes, the platform offers the opportunity to customize to your heart’s content: apart from choosing the color from a range as wide as 77 shades for cashmere and 44 shades for leather, consumers can also “design” the length of sleeves and hems, type of collar, buttons, shape of pockets, and many other details, not to mention the size, so that in the end they would receive a truly “perfect” garment in a price range of roughly €50-150, which is comparable to the price of today’s fast fashion brands. Delivery of orders typically takes less than 2-3 weeks,

as customization to the customer’s preferences takes considerable time.

“Absolutely recommended! I ordered 3 sweaters for Christmas, which unfortunately got lost by the carrier’s fault. IDbyme s e nt me an email to apologize and offered to re-make my three sweaters for free. I received my new order in January. I’m super pleased with the

quality of cashmere and the colors!” commented a French blogger, sharing her experience. This user, while ecstatic with her China-made purchase, is none the wiser about its origins.

Further expansion plans are kept under tight wraps at the moment,

as the company declined to comment on CHaINA’s inquiries. However, nothing ever stays the same for long in e-commerce. According to web traffic statistics, 30 percent of the site traffic is made up of Chinese visitors, indicating an obvious curiosity from the domestic market where the company is as yet only operating as a manufacturer.

15choose the colorthe site generates an image based on your design

choose a loose or fitted style

choose the length

choose the collar style

choose the sleeve length and style

Gabrielle is an experienced entrepreneur and marketing professional: in 2000 she founded China LOOP marketing platform, which helped its clients to target and retain customers. Later on Gabrielle was a Chairman of China Direct Marketing Association and the leader of Asia Pacific region in Acxiom – provider of interactive marketing. In 2009 with revolutionary fashion business model - ID by ME - she received funding from Partech

International and Auriga Partners. Gabrielle Chou Founder and CEO in ID by Me

FRONTLINES

iD by Me


16

PROCUREMENT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

ConTenT ► Procurement news /16 ► iPad 3’s Costs Jump /18 ► IBM Remanufacturing Servers /19 ►AB InBev’s Best Cost Country Sourcing /20

Milk Hubs in HebeiFonterra, 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 AgainChinese 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 CottonIndia, 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:


17

For more information,please visit:www.supplychains.com

June 8, 2012, Shanghai

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

Key issues to be addressed:

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 RequirementsThe 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 AustraliaChinese 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.


The 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

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 high-resolution 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 production costs include a larger battery, new Apple A5X with quad-core graphics and an improved iSight camera.

Samsung is probably raking in the most money from the iPad 3; the company is responsible for the A5X system-on-a-chip, retina display and in some cases also the memory. Some claim that Samsung even manufactures the larger battery, which would put Samsung’s share of the new iPad’s BOM costs at almost half.

16GB

$399.00

$236.95

$8.15

$245.10

$16.80

$7.60

$57.00

$40.00

$14.20

$4.10

$15.35

$5.85

$22.75

$47.80

$5.50

$16.80

$7.60

$57.00

$40.00

$14.20

$4.10

$25.60

$15.35

$5.85

$22.75

$47.80

$5.50

16GB3

$529.00

$262.55

$8.45

$271.00

$16.80

$13.90

$87.00

$40.00

$23.00

$12.35

$15.00

$10.00

$32.00

$50.50

$5.50

16GB6

$499.00

$306.05

$10.00

$316.05

$33.60

$13.90

$87.00

$40.00

$23.00

$12.35

$15.00

$10.00

$32.00

$50.50

$5.50

32GB7

$599.00

$306.05

$10.00

$332.85

$67.20

$13.90

$87.00

$40.00

$23.00

$12.35

$15.00

$10.00

$32.00

$50.50

$5.50

64GB8

$699.00

$356.45

$10.00

$366.45

$16.80

$13.90

$87.00

$40.00

$23.00

$12.35

$41.50

$15.00

$10.00

$32.00

$50.50

$5.50

16GB9

$629.00

$347.55

$10.75

$358.30

$33.60

$13.90

$87.00

$40.00

$23.00

$12.35

$41.50

$15.00

$10.00

$32.00

$50.50

$5.50

32GB10

$729.00

$364.35

$10.75

$375.10

$67.20

$13.90

$87.00

$40.00

$23.00

$12.35

$41.50

$15.00

$10.00

$32.00

$50.50

$5.50

64GB11

$829.00

$397.95

$10.75

$408.70

iPad 2 New iPad(3rd Generation)WiFi WiFi + 3G WiFi WiFi + 4G

Components / Hardware Elements

Retail Pricing（As Of March 2012）Total Bom Cost

Bom + Manufacturing

Major Cost Drivers

Memory

Nand Flash

Dram

Display & Touchscreen

Display

Touchscreen

Processor

Camera(S)

Wireless Section - Bb/rf/pa(Module）User Interface & Sensors & Combo

Module（Wlan/bt/fm)

Power Management

Battery

Mechanical/electro-mechanical/ Other

Box Contents

Source:IHS iSuppli Research, March 2012

New Ipad Preliminary Bill Of Materials(Bom) Cost Analysis

► Niels Zomer

PROCUREMENT

18


PROCUREMENT

19

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

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.

Cindy TseIBM ReManufactuRIng SeRveRS

www.cha1n.com

China’s landfills will see 100,000 fewer old servers by 2014


20

IPO missionWe 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.

EfficiencyOur 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.

The scope of operationsWhat 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 a n y w h e r e 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

Vojtech Ludvik, the Director of AB InBev’s International Procurement Office discusses the role of the China IPO in AB InBev’s global strategy

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.


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 futureWe 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 regionFor 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.

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.

•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.

Anheuser-Busch InBev

21

PROCUREMENT


2222

Lead Contamination from Johnson Controls49 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 EuropeGreat 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 AfricaSinoTruck, 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 500-600 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 GuangdongThe 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

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

ConTenT ► Manufacturing 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


23

MANUFACTURING

concentrate on manufacturing as

well as R&D of port and marine-related 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 AirlinersCommercial 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 CarsMore 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.

Vietnam Shipbuilding ScandalThe Chairman of the state-owned Vietnam Shipbuilding Industry

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 state-owned efficient enterprise driving the economy of Vietnam forward.

mailto:[email protected]

http://www.chainawards.com


Here 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

No End In SightWhy China Is Still King In Garment Manufacturing

A textile mill in Xiaoxing, Zhejiang Province using top-of-the-line imported Belgian machinery

► Jason Inch

MANUFACTURING

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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

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. [email protected]

A textile factory in Suining, Sichuan province, China Up-and-coming luxury Chinese brand Masha Ma

MANUFACTURING

25


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MANUFACTURING

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

Andrew Hou, Director of Supply Chain for Etam China

discusses the company’s manufacturing model and the

needs of fast fashion today

Lead Time Wars


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

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 cost-effective. 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.

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MANUFACTURING

Etam’s manufacturing facility (China)

Etam entered Chinese market

sales increase in China in 2012

new stores opened in China in 2010

stores in China

target market

1994

15.4%

350

3000

25 years old

$


28

With 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, camera-based 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 Five-Year 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 RobotFoxconn 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 manufacturing.

Peter Goyle, the author of the

Rise of the Robots

The Next Step in China’s Push Up

the Value Chain?

MANUFACTURING

► Alexander Gladstone

Especially in the past two years,

robot installations have strongly

increased, while the unemployment rate

has decreased. Gudrun Litzenberger, IFR

Foxconn’s first robotic arm, developed for its facilities (2006)


29

MANUFACTURING

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.”

Clumsy ImplementationHowever, there are some who

doubt that it will be possible to switch to robotic, automated production without cutting jobs. Keagan Rubel, the Director of Research for InnoCSR Co., Ltd., said that the many “workers that are replaced by the robots are generally not in a position to shift into the specialized positions, and thus may be disadvantaged by the automation of operations. Assuming a more moderate increase in robotics, I would think that there would be a net decrease in factory jobs.”

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 billion to open a new plant in Suzhou in April of this year, which will use robots to triple its capacity for automated output. Other global companies now making the switch to automated production in their Chinese

facilities include Canon and Siemens. Whether Chinese laborers will be laid off, or moved up

to high-level positions, is yet to be determined. However, if one thing is certain, the transition to automated production is indicative of China’s push to move up the value chain.

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 wide-scale implementation we

would prefer to see Keagan Rubel, Director of Research for InnoCSR Co., Ltd.,

FRIDA, a “dual-arm concept robot” developed by ABB Robotics

Not much automation happening here (Foxconn assembly plant, Shenzhen, 2010)


3030

MANUFACTURING


Hear from another Logistics

Manager, p.38

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MANUFACTURING

Average daily wage in China: US$10.5

Source:MastersDegree.net


32

LOGISTICS

UPS Buys TNT for a Cool €5.2 bnWith 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 two-thirds 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

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 COSCOChina’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

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$19.8tn in 2012The value of China’s freight logistics is expected to reach CNY 125 tn (US$ 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.

物流短讯 /32 西行记 /34 支付宝的货到付款创新 /36 船运运费上涨 /37 YRC退出中国 /38 印度船运 /40

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


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Toll Wins Awards from Johnson & JohnsonToll 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’sLogistics Center Plans Appears on HoldThe 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 OfficeThe 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.

Kerry Logistics Profit Up 11 PercentThe 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 ProfitsDomestic 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

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 SmugglingAfter breaking up 69 gun-smuggling 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.

LOGISTICSConTenT ► Logistics news /32 ► Journey to the West /34 ► Alipay’s CoD Innovation /36► Shipping Rate Fluctuations/37 ► YRC exits China /38 ► India Shipping /40

http://www.honeycomblt.com

mailto: [email protected]


Currently, 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 surge of transport

volume crossing the border between China and Kazakhstan in recent months.

Another important initiative to consider is the on-going construction of a transcontinental road corridor

of more than 8,000 km in length. As soon as authorities on the Kazakhstan side complete and upgrade its part of the route of 2,500 km, with the help of an unprecedented US$ 2.12 bn

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 WestThe 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(Xinjiang-Uygur 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 transportation volume and fostering further developments 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

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LOGISTICS

Journey to the WestTranscontinental route Western China - Western Europe► Olga Mironova

US$ 2.6bninvestment in SEZ Khorgos

St. Petersburg Moscow Nizhniy Novgorod Kazan Orenburg Aktobe Kyzyl-Orda Shymkent Taraz Kordai Almaty Khorgos Urumqi Lanzhou Changzhou Lianyungang

8,445kmfrom St.Petersburg

to Lianyungang

Kazakhstan’s customs officers


government has heavily

invested in upgrading transport infrastructure in the r eg 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 newly-constructed 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 & Development of Asia & Far East for Maxx Intermodal Systems. 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

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.

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.

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LOGISTICS

10daysfrom China to Europe

St. Petersburg Moscow Nizhniy Novgorod Kazan Orenburg Aktobe Kyzyl-Orda Shymkent Taraz Kordai Almaty Khorgos Urumqi Lanzhou Changzhou Lianyungang

Road Construstion, KZ


36

Alipay 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

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.

AlipAy SUpplieS innovAtive collect-on-delivery device

15%

30,000

Maurits Elen

LOGISTICS

percentage of all B2C online purchases in China that are

settled by CODnumber of Alipay devices in use by

2015


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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 GRI attempt might not be totally successful,” stated head of Drewry’s container research, Neil Dekker.

Spot rates on the 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 Asia-Europe 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-

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 D e v e l o p m e n t 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”.

► Maurits Elen

The decision by Maersk to pull capacity from the

Asia-Europe trade was an important factor in

the large rate increase.Ben Hackett, founder of Hackett Associates


38

LOGISTICSLOGISTICSFEATURE

China’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

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-than-truckload 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

“

Another one Bites the YRC Creeps Quietly Out of China

LOGISTICS

Cindy Tse

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

Everything we do is focused on strengthening our core North American

LTL operations James Welch, YRC Worldwide current CEO


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.

39

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IndIa ShIppIng: how to Shoot yourSelf In the foot

The 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 larger-sized 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

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

40

LOGISTICS

Developers’ rendering of the ICTT at Cochin Port in Kerala, India

Gavin van Marle

IndIa ShIppIng: how to Shoot yourSelf In the foot

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.”

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

LOGISTICS

DP World is lobbying hard to get a cabotage law waiver

http://www.ci-le.com/cile/index.asp



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物流短讯 /42 奢侈品电商的困境/44

Neiman Marcus Online Shop to Launch This YearRenowned 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

flash sales business, as well as the partnership’s new multi-brand site, specifically tailored for the Chinese market, featuring current season, full-price 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 ChinaDe 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 GroundChinese 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

DISTRIBUTIONConTenT ► Distribution news /42 ► The Luxury e-Commerce Dilemma /44

Neiman Marcus CEO Karen Katz withGlamour Sales Holding Team, in Shanghai


43

DISTRIBUTIONDISTRIBUTION

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.

Wal-Mart Changes Up China StrategyWhile still dealing with its pork product scandal and the temporary closure of stores in China, things are now looking up for the low-price 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

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.

China’s 360buy.com Publishes Latest Operating StatisticsBy 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

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.

Pesticide scandal haunts Lipton 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.

ConTenT ► Distribution news /42 ► The Luxury e-Commerce Dilemma /44

http://cha.in/nkorea12


44

China’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

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.

DISTRIBUTION

0

20

40

60

80

100%

Apparel

Tmall storesCarteloNauticaGAPEsprit

Vancl

M18

360Buy

Joyo AmazonUniqlo**Xiu

Cosmetics

VanclNo5

Tmall storesHerboristL’OrealNiveaNeutrogena

Lafaso

Top B2C e-commerce players by market share (2010)

The Luxury E-Commerce Dilemma in China

Julia Q. Zhu

Source: Bain analysis


45

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 DilemmaLuxury 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

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.

DISTRIBUTION

Coach rolled out its Chinese online shop through Tmall in 2012

Contributed by Julia Q. Zhu. Julia has held former positions in Alibaba Group and iResearch.

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.”

The View From Xiu.com


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David Zhang (Delphi)

Cynthia Li (Tyco Healthcare)

Daniel Lu (Puma)

Andre Siguiura (LifeStyle Logistics)

Frank Ghesquiere (ArcelorMittal)

Rob Lewin (Flowserve Corporation)

Jessica Lu (Nu Skin)

Selina Shui (HP)

Lily Xie (Adidas)


47

FEATURE

Cindy Tse & Olga Mironova

ThEsTATE OF

LOGIsTICs IN ChINA

FEATURE

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 3PLsOutsourcing 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 sub-contracting,” 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.”


4848

51%

49%

51%

38%

31%

18%

23%

High CostQuality of transport means

(e.g. truck, rail) Reliability of local

logistics providers Quality of data tracking

Changing regulations

Shortage or warehousing space

Retaining logistics talents

What are the biggest problems impacting your intra-China logistics?

62%

32%

42%

43%

23%

Service level and professionalism

Inability to adapt to my particular circumstances

Poor IT / infrastructure

Price

Unwillingness to invest

If you are not satisfied with your provider, why?

FEATURE

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

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

Source: Global Supply Chain Council and Ceva Logistics


49

FEATURE

33%

45%

27%

68%

22%

18%

Nationwide network

Expanding beyond Tier II and Tier III cities

Growing e-commerce and B2C channelsBetter performance (cost, speed, quality) in

existing network Reducing the number of contractors

(such as 3PLs) Bypassing wholesalers and

distributors (going direct to retail points)

What is your China distribution strategy for the coming 2 to 3 years? (Please tick all that apply)

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 RelationshipsCarefully 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.

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,”

Source: Global Supply Chain Council and Ceva Logistics


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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 never-ending 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.

WarehousingWhat is showing little sign of change at the moment is

the dearth of logistics properties in key areas in China,

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 sub-suppliers 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.”

30%29%

37%

31%

11%

20%18%

6%

Pre-assembled, floor ready displays

Custom pallets Collaborative carrier management

Customer specific, custom packaging

Returns management/reverse logistics CPFR

Customer specific pallet configuration

Differentiated logistics service Cross-docking, flow-through

Green light receiving

Consortium transport buying strategies

11%

12%11%

Which innovative practices have you launched?

40%19%

15%38%

64%29%29%

Domestic transportation

Freight forwarding Reverse logistics

Order processing Warehousing

Order processing Logistics information systems

Product customisation

Inventory management

4PL services

14%

19%25%

4 International transportation 27%

In the next 1-2 years, what services will increase?


Being 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 ShareholdersThere 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

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

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A Word from the Wise: What Today’s Global Sourcing and IPO Leaders Have to Say

Cindy Tse

“Simon Shen, ASSA ABLOYPhilippe Thegner, Federal-Mogul Philip Pan, Electrolux Antoine Gaugler, EADS

37%


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Organizational challenge

Supply market specific challenge

What are the most challenging issues your IPO is facing?

Source: 2012 Global Sourcing & IPO Leadership Survey, GSCC & Gibson Consulting Group

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 BoxPhilip 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 LessWhat 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 ActThe 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

59%

56%

49%

41%

36%

32%

22%

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)

Hiring and retaining talent

Convincing global stakeholders to convert from incumbent suppliers

Engaging and influencing key stakeholders

Fulfilling requirements of internal stakeholders

Complexity and changes to legislation/regulations


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49%

43%

42%

38%

32%

31%

28%

20%

19%

17%

15%

11%

Increase visivility/communication betwenn all parties(Suppliers, IPO, HQ, BUs)

Develop clear roles, processes, tools, and responsibilities across regions

Enhance communication among key stakeholders

More focus on total cost of ownership

Roll out stronger supplier development programs

Increase training investment to build internal/external capabilities

Joint workshops with global stakeholder

Consolidate even more spend to China

Apply clear key performance indicators(KPls) and reward programs across regions

Migrate spend to other cost competitive regions

Outsourcing some of the product categories/processes

Better managment of currency exchange and raw materialspricing fluctuations (using traders)

Organizational challenge

Supply market specific challenge

Which programs or initatives are being developed to cope with procurement issues?

Source: 2012 Global Sourcing & IPO Leadership Survey, GSCC & Gibson Consulting Group

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.

IPO 101

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.


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North Korea Uncovered The Final Frontier in the Global Supply Chain

The 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 state-run. 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 PartnerA 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

Emile Dirks


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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.

InfrastructureOf 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 HopeThings 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


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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 IndustriesApart 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 dual-use 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.

Workers at a seafood processing plant in Rason


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Tae-an Heavy Machine Tool Complex. A vast range of machinery is used to make shaped steel, turbine components, etc.

FEATURE

“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 OutlookThe 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.


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THE LINkS

Innovation through commercializationThere’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 teamworkWe’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

Three Snapshots of Chinese Innovation: [part two]

An interview with GM ChinA’s president

► Glenn Leibowitz & Eric Roth

China 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.


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 ChinaWe 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 developmentI’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 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.

59

THE LINkS

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.

In the next issue…PHARMACEUTICAL INNOVATION: ASTRAZENECA’S EXPERIENCE IN CHINA

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. Kevin Wale


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.

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.

60

THE LINkS

what’s up in Japan?

the world’s third largest economy is recovering –

slowly but surely

Economic Statistics JapanInflation (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

80.0

82.0

84.0

86.0

88.0

90.0

92.0

94.0

96.0

98.0

100.0

98.0

96.094.0

92.0

90.0

88.0

86.0

84.0

82.0

80.0

Industrial Production Index

Source: Ministry of Economy, Trade and Industry

► Pelham Higgins


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

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

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.

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.

JR East continues to upgrade its train station shopping facilities

THE LINkS

61

95

100

105

110

115

120

130

125

120

115

110

105

100

85

Japanese 3PL Revenues Index (2005 = 100)

Source: Logi-Biz, September 2011

We need to move faster, not just in expansion, but

to create synergies across the group.

Hiroshi Mikitani, CEO of Rakuten

Commercial real estate looks promising for investors


62

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63

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Jones Lang LaSalle25/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 3333www.joneslanglasalle.com.cn

PrologisPlaza 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 1688www.prologis.com

SpaceframeRoom 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 3488www.spaceframe.com.cn

Yupei GroupNo. 2500 Jinchang Road, Shanghai 200331上海市普陀区金昌路2500号，邮编：200331+86 (21) 6627 7577www.yupeigroup.com

Barloworld Supply Chain Software15/F NCI Tower, 12A JianguomenwaiAvenue, 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 3103www.barloworldscs.com

Wallenius Wilhelmsen LogisticsRm. 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 1609www.2wglobal.com

YatFai Logistics39-H, Fortune Building, 88 Fuhua SanRoad 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 6898www.yatfai.com

AsiaInspection2201-03, 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 9888www.asiainspection.com

Bain & Company31/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 5588www.bain.com

Baker & McKenzieSuite 3401 China World Tower 2 China World Trade Center,1 Jianguomenwai Dajie, Beijing 100004+86 (10) 6535 3800www.bakernet.com

Booz & CompanySuite 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 9800www.booz.com/cn

ESP InternationalPan 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 2746www.espint.com

forflow consulting1706 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 6808www.forflow.com

PROFESSIONAL SERVICES

PROFESSIONAL SERVICES

REAL ESTATE SERVICES

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 3366www.tollgroup.com

LOGISTICS SERVICES REAL ESTATE SERVICES IT & SOFTWARE SOLUTIONS

IT & SOFTWARE SOLUTIONS


SEEBURGERSuite 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 1825www.seeburger.cn

SPS CommerceSection 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 0888www.spscommerce.com

SupplyOnSuite 1501, Silver Centre, 1388 NorthShanxi 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 8042www.supplyon.com

TradeCardRoom 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 9265www.tradecard.com

VocollectUnit 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 7000www.vocollect.com

64

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And much more!

The essential guide to vendors in supply chain management, logistics and procurement.

VendorsDirectory.com gives you access to up-to-date information across a wide range of business services, from logistics providers and consultants to HR experts, lawyers and IT solutions.

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CHEP40/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 2488www.chep.com

Dexion (Shanghai) Logistics EquipmentRoom 1102, Block A, Phase 1 ZhangJiang 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 4413www.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 8820www.loscam.com

Schoeller Arca SystemsUnit 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 5080www.schoellerarcasystems.com

May 31Shanghai

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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。

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The Magazine for G

lobal Supply Chain LeadersM

ay / JUN

E 2012The State of Logistics in China 中

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2012 May-June Issue