Is China a threat or an opportunity for your company? Are there real growth opportunities for you in the world’s fastest growing market? Expertise and insight from Technomic Asia China, a market strategy consulting firm with more than 20 years in China.
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Modern Materials Handling has an article that features Jim Tompkins, president & CEO of Tompkins Associates, and Technomic Asia’s Steve Ganster.
A quick excerpt:
U.S. companies planning to build their success on domestic markets alone will be gone in five years. That’s Jim Tompkins’ opinion, anyway. As president & CEO of Tompkins Associates, he sees an opportunity for U.S. companies to take advantage of the changing demographics among China’s 1.3 billion people.
The article also includes this quote from Steve:
“In 20 years [China’s] economy will be as big as the U.S. Automotive will be as big or bigger in less time than that. Warehousing and land costs are going up, as are labor costs, and it will push them to more automation,” [Ganster said.]
Since Hong Kong’s return to China from Britain in 1997, entry to the mainland has become even easier and faster—visas are processed with great speed and little hassle, making entry points into Shenzhen, the booming megalopolis adjacent to Hong Kong, among the busiest in the world. But all this has been upset in recent weeks: the Chinese government has mysteriously stopped issuing multiple-entry visas—an essential tool for Hong Kong’s doing business with China—in a move that has sparked confusion and frustration.
[…]
Most China analysts, though, expect these difficulties to disappear after the Olympics. “They’re having a few jitters, but China isn’t going to cut off its nose to spite its face,” says Kent Kedl, a consultant at Technomic Asia, a Shanghai-based market strategy firm. Plans are already afoot to give Hong Kong permanent residents of any nationality visa-free access to the mainland within the next few years, the kind of privilege that millions of Asians who work in the West can only dream about. “Getting my Chinese staff to the U.S. is an absolute nightmare,” says Kedl. “Let’s have a bit of perspective.”
In my previous podcast, I talked about how you can’t succeed by simply being in China — you have to BE GOOD. In today’s follow-up, we share some examples of companies and strategies that ARE GOOD.
In the past podcast, I referenced the famous quote from Woody Allen — “90 percent of life is just showing up” — and posited that this was not the case in China any more. Just showing up is being opportunistic, getting lucky (to a certain extent) and being at the right place at the right time.
While this still can happen in China, it is more likely that the winners here will be those that are not willing to just be here, but are pursuing being GOOD here, thinking and executing strategically. I would encourage you, again, to get your international teams in a room and challenge yourself to assess whether you are being opportunistic or strategic. If you are the former, pat yourselves on the back and thank your lucky stars that, just by showing up, you are still standing and are doing OK. Then roll up your sleeves and get to work on becoming good!
IndustryWeek’s Adrienne Selko reported on the China presentation here. From the IW article:
Companies should develop operations in China that export back to the U.S. as well as sell to customers within China, says Tompkins. “Integrate sourcing from China with product sales in China and make Asia part of your overall global supply chain and customer base,” he adds. This dual strategy also recognizes the growing middle class in China, currently estimated at 100 million. Opportunities for sales and distribution will expand as the middle class continues to grow.
Western companies require “competitive intelligence” in their Asian business strategies in order to be successful, however. “It is a mistake to assume that what works in the U.S. States or Europe will work in China,” says Ganster.
RALEIGH, NC, and CLEVELAND, OH, April 22, 2008 — China, the world’s largest manufacturing base, is in the midst of a major marketplace transformation. Recent discussion about manufacturing restructuring, escalating labor costs due to tighter laws, and rising raw material and energy costs have all raised questions about the new business environment emerging in China. This uncertainty presents a unique opportunity for material handling equipment manufacturers, technology integration providers and 3PLs.
Jim Tompkins, CEO of Tompkins Associates, and Steve Ganster, Senior VP with Technomic Asia (a division of Tompkins Associates), addressed China’s changing business climate this morning at the 2008 North American Material Handling Show in Cleveland.
“The smartest move that material handling and related companies can make is to adopt a dual strategy,” says Tompkins. “Now, it is all about ‘globalization’ instead of ‘China-fication.’” Tompkins advises companies to develop operations in China that export back to the United States as well as sell to customers within China. “Integrate sourcing from China with product sales in China and make Asia part of your overall global supply chain and customer base,” he adds.
This dual strategy also recognizes the growing middle class in China, currently estimated at 100 million. Opportunities for sales and distribution will expand as the middle class continues to grow.
Western companies require “competitive intelligence” in their Asian business strategies in order to be successful, however. “It is a mistake to assume that what works in the United States or Europe will work in China,” says Ganster. “People, thought processes, how technology is viewed, and even the different terrain must be considered when establishing China as part of the global supply chain.”
Ganster also points out that China’s material handling industry has grown aggressively due to continued construction and industrial expansion. “Material handling equipment sales have increased 25-30 percent a year over the last four years,” he notes. “And the opening of China’s logistics market will provide a huge opportunity for suppliers to the warehouse industry.”
On the other hand, the country’s level of technology (including WMS) is still in the embryonic stage, with only about 5 percent of warehouses in China reporting that they have sufficient IT systems. “Many Chinese companies are writing their own WMS programs that are not built to international standards, and this will only add to their difficulties in globalizing,” Ganster says.
It is predicted that China will move from manual labor to automation at a much greater rate in the next five years. Manufacturers there are seeking new ways to increase productivity while cutting costs, which opens up a sure-fire niche for companies in the material handling industry.
Building a dual strategy and understanding how to compete intelligently will provide an edge for logistics, material handling, and systems integration companies to conquer the changing tides in China.
Earlier this month, the American Chamber of Commerce in Shanghai released the findings of a study conducted among 66 of the chamber’s member companies, assessing their global competitiveness and ways in which they might become more competitive.
Remember when Woody Allen said, “Ninety percent of life is just showing up”? The considering the size, fragmentation and competitiveness in the Chinese marketplace these days, just being there is not enough. Kent sums it up: “You can’t just be here. You have to be good.”
Three key take-aways from the study:
-China is losing it’s competitiveness
-Successful companies are adopting a dual strategy in China (listen for explanation)
-Companies should push China strategies to go deeper into China
Kent addresses the first two take-aways in today’s podcast. In the next episode, we’ll dive deeper into this third point.
In the meantime, if you have any questions or are looking for more insight into this report and its significance, e-mail Kent.
Kent Kedl spoke to Marketplace’s Scott Tong about efforts underway in China to beef up the country’s rail system. Listen to the story or read the transcript here to hear how Kent compares China and its economy are like a skilled but clumsy 7-foot-2, basketball-playing teenager.
Steve Ganster is featured in a Journal of Commerce article discussing the recent WTO ruling against China. A World Trade Organization panel ruled that by raising its tariffs on imported vehicle components, China violated its obligations to the WTO. From the JoC article:
The Chinese market for imported vehicles and components is booming, and the WTO ruling will have little or no economic impact on that growth, Ganster said. “The impact will be mostly psychological,” he said. In little more than a decade, China has become one of the world’s largest auto markets, and it is a profitable “magnet” of U.S. producers of autos, original equipment and after-market parts. Restrictions on foreign ownership have been relaxed, and many parts suppliers are wholly owned by non-Chinese investors.
You can read the full article on the JoC’s Web site (subscription required).
In its first official condemnation of Chinese commercial practices, the World Trade Organization sided with the United States, Canada and the European Union in ruling that China has been unfairly taxing imported car parts at the same rate at which it taxes whole automobiles.
The basis of the compliant is that China’s higher taxes on imported car parts give its domestic auto makers incentive to use domestic-made parts, which in turn motivates foreign parts manufacturers to establish operations in China. The United States, Canada and the EU claim these incentives cause lost jobs in their respective countries and say that China promised not to tax car parts as is does whole cars when it joined the WTO in 2001.
Steven Ganster, managing director of Technomic Asia, a consulting firm that helps Western companies develop China business strategies, agrees that China should come into line with its WTO commitments but said cost concerns are not the only reason companies look to China for business opportunities.
“Lower costs are perhaps the first thing many people think of when they think about setting up shop in China,” said Ganster, who leads Technomic Asia’s U.S. office in Chicago. “Depending on the business, motivations include gaining direct access to local markets, better control of the supply chain and more effective distribution.”
Technomic Asia’s clients include many Fortune 500 companies and dozens of small and midsize businesses, including many automotive manufacturers and parts suppliers. Ganster and his colleague Kent Kedl, who runs Technomic Asia’s Shanghai headquarters, are the co-authors of “The China Ready Company,” a book that guides executives through the considerations to be made in developing a strategy for doing business in or with China.
“The WTO and foreign governments need to continue to pressure China to uphold the agreements it made when it joined the organization, but foreign manufacturers shouldn’t sit and wait for WTO sanctions to force China to change its tariffs or other practices,” Kedl said. “No one knows how long that could take, but it won’t be quick. Rather than wait, foreign companies should become more active in China to assess their opportunities and to build an effective supply chain in-country.”
As China’s over-heated stock markets started to take a bit of a dive early last year, Kent Kedl had a bit of an epiphany: For months, the market had been steadily rising, a China dot-com bubble of sorts in the making. People here were dumping everything into the stock market. Then, on February 27, 2007, Chinese stocks dropped about 9 percent after seeing a record close just the day before. The global reaction was crazy. The U.S. stock market dropped 3.3 percent, its worst close since the days following 9/11. Economic pundits were trying to guess “What does this mean?” and many were predicting a continued slide for all markets.
Journalists and pundits mostly predicted doom and gloom, maybe because it just played better in the press: If it bleeds, it leads, and the bleeding global markets sure led the news those days! However, after a few days, when things cooled down a bit and the foreign press actually started paying attention to the Chinese markets, they started saying, “Wow, we learned something there and we won’t overreact like that again!”
The current situation in China seems a perfect situation to test out this new-found skill in a measured response. While certainly not as explosive as a stock market tumble, the multiple changes happening in the Chinese economy over the past six months might add up to something of seismic importance. In particular, it seems that a number of forces are combining to cause prices to rise in China (both business and retail) and some new regulations are in place that, in some foreigner’s views, make China a less attractive place to do business.
What can we learn from what we are going through? Here are four things, all of which revolve around China’s relatively new role in the global economy:
1) Don’t over-react
The recent changes in China are not a death knell for global business. What is happening here are just the normal growing pains of a developing economy showing signs of budding maturity and the problems that go along with it.
2) Don’t under-react
China IS going to be a growing consuming market and it WILL suck up a lot of raw material and energy resources. And this WILL have an impact on other nations and economies by making these resources more expensive. It is a reality. It is happening. Sitting and complaining about it is NOT going to help. What emergency plans do you have that address potential future scenarios involving a growing China?
3) Don’t over or under-react, but DO REACT
Many a fortune cookie tells us, in some form, that in the midst of great chaos one may find great opportunity. Well, now seems a time of – if not GREAT chaos – then of some modicum of chaos in global markets. So how can you react and take advantage of it?
4) Look at all of your options
The lesson here is that companies should certainly consider their growth possibilities in China. It is (and will remain for some time) the most compelling market in the world. However, companies should not look at China at the cost of ignoring other markets. If the changes in China are motivating companies to consider all of their options, then I think this is possibly a good thing and is healthier for everyone involved.
