Opinion: November 2007 Archives
The New York TImes today reports China's explanation for blocking the visit to Hong Kong last week of a U.S. carrier battle group and other American warships. The lack of hospitality was actually in retaliation against the upgrading of Taiwan's Patriot anti-missile batteries, proposed by the Bush administration. Even two minesweepers were turned away from Hong Kong's protected harbour when seeking shelter from a storm. Although China later rescinded its decision, the Pentagon launched a formal complaint as senior U.S. naval commanders said they were 'perplexed and troubled.'
Yet two commentaries today on China's global supply chain dynamics give a different perspective of the expanding levels of engagement. Author and Boston Consulting Group senior partner Hal Sirkin writes in the Washington Times that the era of the global supply chain has arrived, and companies need to deal with it and adapt accordingly. While the U.S. and Chinese militaries might not be the best of friends, relations are much better between the Consumer Product Safety Commission (CPSC) in the U.S. and its Chinese counterpart, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), who have concluded an agreement supposed to resolve safety issues. The real responsibility for ensuring safety, however, Sirkin writes, lies in 'corporate boardrooms and with corporate managers' and their ability to monitor global supply chains. Low-cost demands extra vigilence, and companies should monitor their suppliers instead of simply blaming 'the Chinese.'
Bradley Feuling today in Industry Week adds an interesting assessment of the status of the China supply chain. Whereas cost was originally the primary driver for companies entering China, quality has since become increasingly important, and this has emphasised machinery investment and internationally recognised certifications. But today, according to Feuling, companies must pay more particular attention to the China supply chain itself. As opposed to squabbling as independent operators for supply chain knowledge, execution and talent, Chinese manufacturers can take advantage of new competitive advantages as China's expansion continues. In fact,
By further developing a supply chain and procedural mindset, we may witness a true great leap forward rapidly approaching.
In July 2007 The Boston Consulting Group put out a report grandly titled Sourcing from China - Lessons from the Leaders. Only 15 pages long, however, it's an easy read that summarizes in simple terms a list of ten best practices, without raising any of these to the essential pedestal so often seen in literature discussing sourcing in China. The list includes, amongst others:
- Enabling collaboration across regional and functional boundaries; and (my favourite)
- Providing internal education to increase awareness and understanding...
The last point is discussed rather late in the document, which is a pity since, according to several surveys on the issue, the greatest difficulty in sourcing from China is not currency fluctuation, broken contracts or quality, but opposition from inside the organisation...
As an example of its call for firms to look beyond the city limits of Shanghai, Beijing and Guangzhou and to explore the opportunities of cities like Wuhan, Chengdu, Xi’an and Xiamen, All roads lead to China today commended U.S. hedge fund Chilton Investment for its plans to establish an office in Western China, as reported in China Daily.
all I can say is that its about time…Many PE/VC funds have shied away from believing that the best deals are here. The problem is that for firms in Shanghai, there is a tour that everyone makes and with so much attention, so much ‘love,’ that expected valuations are off the chart… Hopefully we are entering a time where opportunities in the West are given more consideration.
The China Briefing Blog on Thursday reported on the confusion and uncertainty caused in the real estate sector by new guidelines for FDI. A new catalogue for foreign investment aimed to limit investment in industries not perceived by Beijing as problem areas seemed effectively to have terminated foreign investment in the real estate industry. Where the 2004 catalogue classified foreign investment in new residential developments as ‘encouraged,’ it is now absent, while foreign investment in property brokerages and agencies are now listed in the ‘restricted’ category. One sector where foreign investors will enjoy significant encouragement in the new catalogue, however, is high-tech industry.
Michael Pettis in China Financial Markets yesterday commented on the recent flurry of Chinese acquisition plans abroad. While several Chinese companies listed on the Shanghai and Shenzhen markets can use their expensive share prices to make foreign acquisitions, the problem is that their currency, like the RMB itself, has limited value abroad. In addition, they are hamstrung by the restrictions on foreign ownership which mean they cannot exchange their shares for foreign holdings, and they also cannot raise enough cash directly, making it very difficult to buy foreign-listed shares.
The November/December edition of Chaina magazine leads with an appraisal of The who, what and why of the China supply chain in 2007.
As the 2007 edition of the magazine’s annual look at the companies, people, technologies, ideas and regions in China supply chain and logistics that you need to know about, Lenovo is singled out as a leading Chinese multinational of 2007. The feature also relates the emergence of Vietnam in opening up for business and even possibly rivaling China, and covers leading issues during 2007 such as greener and more ethical supply chains, and the activities of leading multinationals such as IBM and Intel as well as those of relative newcomers in China like Tesco.
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