Remember that old expression, “Not for all the tea in China?” Well, China's well-known tea market has a new competitor: The country's consumers are cultivating a growing taste for coffee, according to recent news reports. 

Coffee sales in China were up 20 percent in 2011 over the previous year, and coffee shops are becoming more popular places to socialize.

The general consumer market in China – from automobiles to makeup to really any consumer good you can think of – is growing at a rapid pace. At a recent parliamentary session, China's Premier Wen Jiabao said that his first priority for 2012 is expanding consumer demand through policies that encourage consumption.

These are not the most intriguing things I have heard about China’s consumer market lately, however. Steve Ganster, with Tompkins International’s Shanghai-based office, and Bruce Tompkins of The Supply Chain Consortium, just released a podcast about consumers in China that provides amazing insights and knowledge. It’s available here:

http://www.tompkinsinc.com/industries/consumer-products/consumer-products-podcast.asp

Listen to the podcast audio or read the text transcript to find out:

• Who is the "female prestige consumer" in China and what does she buy?
• What motivates someone in China to buy something, from essential goods to luxury products?
• How can the infrastructure keep up with more and more new stores popping up?
• What does this growing consumer market mean for supply chains?

GoGoGo!

Jim

Photo Credit: Dyobmit

I traveled around the world a few weeks ago – from the US to Europe to Asia and back to the US.

Of course, I stayed updated on major news via the Internet. What I found especially interesting was the circle of major economic concerns going in both directions between the US and Europe and the US and China.

I don’t recall a time in recent memory when it has been so important to stay on top of these evolving economic issues.

The concerns between the US and Europe have to do with the stability of our respective economies. Today, we celebrate a deal in which European leaders have agreed to a restructuring of Greece’s debt and a new path forward for improving the European Union’s economic outlook. In response, stocks rallied around the world (as of this writing).

This is good news, because much of what I have been hearing here and in Europe centers on worries about the Greek bailout and the viability of the Euro. They are not out of the woods yet, but a good sign.

I also found that Europeans are very concerned about the ongoing high unemployment rate in the US and the potential implications of a double-dip recession. Well, although there are still big worries, more good news came today in the form of the latest US economic report showing that the US economy grew 2.5% in the third quarter of this year. The US needs stronger growth for jobs to rebound and consumers to maintain and increase their confidence and spending levels, but the report is positive and also had a hand in the day’s higher stock market returns.

As you might guess, concerns between the US and China were concentrated on trade when I was in Asia. Whereas the US focused on Chinese currency being undervalued, the Chinese were focused on US consumer spending and the affect this would have on the continued growth of the economy in China.

Of course, these are all very important concerns as the world continues to grapple with the residue of past policies and the Great Recession. But they also tell us a lot about how world economies and policies are interconnected and thus, the importance of global supply chains.

It is simply amazing to sit in a meeting in the UK discussing a North American company, and I meet with a person from Africa. Then in a supply chain meeting in Germany involving a US company, I meet with a person from South America. Next, at a dinner in Seoul, Korea, an unknown Korean in the restaurant tells me how sorry he is that Steve Jobs has passed away.

And lastly, at a meeting in China involving an Italian retailer, I meet with a supply chain professional from India.

So, my “worldly view” is that even though I am not really fond of the song, it certainly is a small, highly interconnected world that we inhabit after all. And we are all working together in the world of business through the magic of global supply chains.

What are your thoughts of how supply chains are interconnected around the globe? What have you been hearing in your travels?

Go!Go!Go!

Jim

More Resources

Is Your Supply Chain a Source of Hidden Profits? 

White Paper: Leveraging Asia Supply Chains for Increased Value

European Operations Are Moving East, but How Far?

Replacing China Myths with Fact Podcast - Part 1, Part 2 and Part 3

With China currently boasting the #1 apparel and #2 accessory markets in the world, there’s no doubt that the fashion industry there is enjoying an explosive phase.

In fact, Michael Zakkour, a principal at Technomic Asia (a wholly owned subsidiary of Tompkins International) recently spoke at a Fashion Institute of Technology event in New York about China consumers’ growing need for luxury and “affordable luxury” brands.

Michael noted in his presentation that many China consumers have the desire to show to others they are living the good life now, hence the affordable luxury factor. And this market is increasingly driven by young females. China’s growing middle and upper middle class – with 300 million consumers – is also driving the growth in the luxury goods market and the need for more “affordable luxury.”

So with all these consumer preference changes, the modern supply chain of China is now the nexus of China. While Chinese consumers only spent $100 each on clothing in 2009, they are poised to spend much more now, especially for affordable luxury. Chinese consumers love for brands is prevalent in Shanghai and Beijing, and the opportunities and new territory is in the interior of China.

Likewise, Michael comments in this China Business Blog and Podcast about the essential research that is necessary before entering China with your product line or marketing strategy. He also lists some fun factoids to keep in mind.

China’s different markets and consumer preferences need to be well understood before developing a business or entry strategy. Companies that want to win a bigger share of this growing market need to be aggressive – but opportunity is well worth the risk.

And as I write this, Michael is once again sharing his share insights on China’s consumer retail, and fashion markets and trends at a well-known conference in New York City. I guess this shows that business leaders are just as hungry for information on Asia business strategies as the Chinese consumers are for finer apparel and accessories.

More Resources

How Luxury and Fashion Brands Can Successfully Launch in China

Fashion Institute of Technology presentation

China is Changing Supply Chains Around the World: Facts and Trends

China 2.0 - What the New Reality in China Means to You 

Caught Between the Tiger and the Dragon: This business novel by Jim Tompkins is a modern-day fable that cleverly brings to life the ups and downs of business interactions with China.

It’s tempting to look at China and other low-cost countries as an “either/or” proposition in terms of moving manufacturing there from the US. Some would like to see it as a black or white issue:

• Either companies can manufacture in low-cost countries like China more cheaply…
• Or, when they are no longer as cheap, companies stop manufacturing there.

The assumption that many people who see it this way would make is that companies would then bring back manufacturing to the US, once wages in countries like China increase.

It is not an “either/or” dilemma, however. There are many other factors to consider here.

Case in point – the best companies are moving operations to low-cost countries not only to save money, but also to enhance their opportunities to tap into the market of the country itself.

Yes, China does currently offer a low-cost manufacturing and sourcing opportunity, but the country itself also represents a rapidly growing market. Some smaller cities in China are seeing 30 percent market growth, and China’s GNP is rising. This growing market is a huge incentive for companies to manufacture in China and then sell in China.

This brings up the discussion of whether or not manufacturing operations that were moved to locations outside of the US will ever move back to the US. This isn’t bound to happen soon, and even if it somehow did, it would be a step backward.

Not only do the factories in the US no longer exist to return to, the low-paying, low-skill jobs that would come with them are not what the US needs. In my opinion, this scenario would represent returning to a lower standard of living in the US.

I found a recent report by the Federal Reserve Bank of San Francisco very interesting. The FRBSF’s research shows that more than half the amount that US consumers spend on products made in China actually stays here – going to American companies, workers, marketers, retailers, and transport providers.

So don’t fall into the trap of using assumptions and misconceptions about China – especially considering the opportunity that the country’s consumer market represents.

For more valuable information on this topic, check out this series of podcasts on Replacing China Myths with Facts.

Understanding Globalism in China

China’s Business Evolution

China’s Overall Evolution

More Resources

Caught Between the Tiger and the Dragon

Asia Supply Chain Excellence Report - August 2011

China Business Report: AmCham Shanghai & Technomic Asia Survey Shows U.S. Companies Thrive in China

Photo Credit: kiwinz

In the early 1970s, I was a fresh-faced, new Ph.D. with big dreams, empty pockets, a beard and little hair.

Four decades later, I’ve got a company I’m proud of, a family that I couldn’t live without, the same beard and even less hair. So much has changed for me over the past 40 years, including the world that I gratefully work in as a consultant, an engineer and a global entrepreneur.

In the 1980s, I was lecturing throughout China for the Chinese Secretary of Commerce with series of lectures on warehousing, inventory management and logistics (before it was even called supply chain). I could not have predicted or even come close to the world that we see today – the proliferation of global marketplaces and the emergence of China as a global supply chain hub.

So let’s take a brief look at what has change in the past four decades.

In 1970…

• There were roughly 3.7 billion people on earth, and China was the most populous country in the world.
• Fifty-five percent of the world’s population lived in four countries/regions: China (22%), India (15%), the area now known as the European Union (EU) (12%) and the United States (6%).
• China’s portion of global GDP was just less than 1%, while the U.S. had 26.5% and the EU was at 27%.

In 2010…

• The world’s population was around 6.8 billion.
• The same four countries/regions still had the largest population, but the number is now 49%: China (20%), India (17%), EU (7%), and U.S. (5%).
• Global GDP was three times what it was in 1970, but China’s slice of GDP was around 7%.
• The U.S. portion of global GDP remained relatively constant over the past 40 years (around 26.5%), and there has been a relative decline in the share of world output during this same period by the EU members from 36% to 27%.

Recently, the rate of change has accelerated exponentially. Just five years ago, China had only 16 companies on the Fortune Global 500 list and the U.S. had 176. In 2010, China had 46 companies on the list, and the U.S. dropped to 139.

Major changes are under way in today’s global market, as China continues to evolve into a larger competitor in the industry.  You can find more facts and trends on how China is impacting global supply chains found in Tompkins’ latest whitepaper, China is Changing Supply Chains Around the World: Facts and Trends. 

Where do you see China in 10 years? How has your company responded to global market shifts? I’d like to hear your viewpoints.

Go! Go! Go!

Jim

More Resources 

China Impacts All Global Supply Chains

Tompkins International in Asia

Technomic Asia

The China Ready Company

Caught Between the Tiger and The Dragon

Having been in the industry for more than 35 years, I remember when supply chains were much more straightforward than they are today. In fact, I even recall when the term “supply chain” first started being widely used.

Today’s supply chains cover exponentially more miles, connect many more trading partners, are increasingly complex, and employ a constantly changing set of global capabilities.

A large part of this transformation has been the evolution of China from a primitive, low-cost manufacturing location to an ever-advancing global supply chain hub. Now, more than ever, companies are looking to China to improve service, reduce transportation costs and decrease inventory costs by using that country’s hubbing and consolidation capabilities.

A recent Tompkins report, China is Changing Supply Chains Around the World: Facts and Trends, explains how to get the most out of China’s supply chain activities.  The paper also explores China’s growing market for consumer goods that many companies will want to capitalize on in the near future.

An important tip: If your company is not already working with local, knowledgeable subject matter experts in China, then now is the time to begin. A “boots on the ground” strategy is the secret to conducting successful business engagements in China.

What are your plans for China? What trends do you see in this portion of the global market?

Go! Go! Go!

Jim

Resources

China is Changing Supply Chains Around the World

Webinar: Special Briefing on Opportunities in China’s Warehousing Market

Sourcing 2.0: China Strategy for the Fortune 1000

It was a big story that wasn't told in the news media, but for any company with a China strategy or any company who is planning one, it's very important. The highly positive performance in China by US companies in 2010 was the significant story that was missed by media after the AmCham Shanghai survey of business executives was published earlier this year.

The headline should have been, The Importance of China to the Health of US Firms. But after the survey results were released, the media frenzy that followed focused on US-China relations, trade practices and issues around the survey.

The overlooked yet most critical take-away from this major China business survey of hundreds of executives was the success that the majority of companies have experienced as their market share rose and profitable growth continued to increase. The survey showed a great deal of optimism about China business strategies over the next year and in coming years.

For more analysis and insight into the survey results, listen to this interview with Steve Ganster. Steve is the general manager of Technomic Asia, which helped conduct the survey. He talks about where this optimism is coming from, and what Western companies should expect now and in the future when establishing a China strategy.

More Resources

China Business Blog and Podcast - US Business Execs in China Indicate Positive Growth

U.S. businesses see 'impressive financial results' in China

Supply Chain Challenges in Asia

 
Photo Credit: phogel

If you tried to contact your business partners in China recently, you probably got voicemail or out-of-office responses.

In case you haven’t heard, most of the country is on vacation due to the most important of the traditional Chinese holidays – the 15-day Chinese New Year. This includes some of our company’s employees, especially those based in Shanghai at Technomic Asia, a subsidiary of Tompkins International.

This year, our Chinese friends and business associates are spending time with their families and friends as they welcome the “Year of the Rabbit.” The rabbit is known as a symbol of good luck, and as 2011 will be a year for industries to bounce back after the recession, it is great to have some luck on our side along with skills and insight!

In fact, right before this holiday, a survey of U.S. businesses in China – sponsored by AmCham-Shanghai and implemented by Technomic Asia – showed that U.S. companies in China are thriving. And as the growing consumer market in China continues to offer opportunities, we should not discount the financial impact on the U.S. economy from this performance in both profit returns and job creation.

As I have learned, the tradition of this holiday is to give gifts. So I was interested to see how American businesses prepared as Chinese shoppers planned what gifts to give. Demand can soar for all sorts of goods during the Chinese New Year, especially premium ones. The Associated Press reported that big-ticket high-tech items such as iPhones are selling out or only purchasable with reservations.

More modest (but still meaningful) gifts such as cherries or red Washington apples are popular too, as red is considered to be a lucky color in China. Washington State reportedly sent about 9 million pounds of apples to China last year. Many big-name brands tie in the holiday's traditions with their own products. For example, US businesses are known to package their goods for export to China in appropriately "lucky" colors - not only in red, but in gold, which is a symbol of good fortune.

I hope we can all enjoy good fortune this coming year. If you are celebrating the Chinese New Year, have a great holiday and let me know what kind of gifts you gave and received this year.

P.S. Last year, 2010, was the Year of the Tiger. Next year, 2012, will be the Year of the Dragon. So we could consider 2011 as a year that is Caught Between the Tiger and the Dragon.

More Resources

Highlights of China Business Report

AmCham Shanghai

Tompkins International, Chinese

Photo Credit: Tanakawho

A team from Tompkins International was just at the CeMAT Asia event in Shanghai to talk with people who lead material handling operations and technology for companies in China. The show was a big success, and the team did a great job!

Denny McKnight, a partner with Tompkins International, shared some thoughts in this interview from the show, and you can also see some photos taken at CeMAT, if you’re interested.

Denny presented some valuable information to attendees on the topic of order fulfillment technologies in China for expanding markets. And because the China market is exploding these days, I thought others might also find this information to be beneficial.

First off, do you know what DC technology is available in China and how is it used? There are four categories you should be familiar with:

  •   Information Technology Systems:

For the most part, legacy or Enterprise Resource Planning (ERP) systems are prevalent in the warehouse and distribution centers of China. However, work goals and tasks are not always managed as efficiently as they could be, and manual entry of data is typical.

  •   Storage Systems:

A wide range of technology is at work here, and typically the right technology is being used for the right operation; however, logistics can be an issue as there is a mis-match between storage capacity and the use of industrial trucks and their capacities.

  •   Order Fulfillment:

This represents a major area for great improvement, and ultimately the cost savings that come with these improvements. There are too many product touches during fulfillment operations in China, and paper-based picking is widely used.

  •   3PL Usage:

Contracts with 3PLs in China are for short durations, and the use of higher technology solutions for 3PLs is too expensive for most to take advantage of as yet.

So, there’s certainly a lot of opportunity for companies moving operations into China as DC technology throughout supply chains becomes further established there. More useful information about China can be found in this PDF of the presentation from the event

Does your company have a China strategy? What information can you add to what we know about DC operations in China?

GoGoGo!

Jim

1. Putting structure before strategy

2. Taking a “snapshot view” of the market

3. Encountering unexpected competition with supplies

4. Lack of due diligence in partner selection

5. Poor supplier relationship management

6. Not having enough support for the local operation

7. Being naïve during the financial planning process

 

Books: 

The China Ready Company by Steve Ganster and Kent D. Kedl: The ultimate resource for Western companies to use when forming a China strategy

Caught Between the Tiger and the Dragon: A business novel about moving operations to China

Articles: 

A Peek into Market and Distribution Capabilities of High-Tech and Home Appliance Industries in China

Podcast:

Forecasting Business and Investment in China for 2010: Click here to listen or see the text transcript

More on Technomic Asia

http://www.tompkinsinc.com/operations/mergers-and-acquisitions.asp

Guest Blogger: Shibesh Banerji, Principal, Global Supply Chain Services, Tompkins Associates 

In April, guest blogger Shibesh Banerji talked about some recent shifts in China’s policies and trade practices that are affecting supply chains in high-tech industries.  This latest post is a follow-up.

Jim


I last wrote about China’s updated policy guidelines and how they are viewed as a sign that China recognizes the importance of fair competition, along with some points about the role played by global companies in developing the country’s high-tech capabilities.

Now I want to follow up with this important factor – specifically, how reverse migration of R&D talent to China comes into play.

There have been many articles written and opinions expressed about companies relocating their R&D activities to China. Yet, no other news has drawn as much attention as Mark R. Pinto’s (CTO, Applied Materials) decision to move to China to build a $250M research facility in Xi’an. According to some industry experts, the moment has been defined as the "beginning of a trend of reverse migration to China" (Read more in this article). 

Before overreacting, let’s try to examine the situation rationally. First of all, one of the key drivers for the move is China’s surging power demand. Solar technology is expected to play a significant role in supporting China’s future energy needs. It is estimated that two-thirds of the world’s solar panels will be produced in China by the end of 2010. 

Secondly, Applied Materials’ complex will primarily engage in fitting and assembling all the machine components manufactured in the U.S. and Europe to build the final assembly line for solar panel production.  Thirdly, it makes perfect sense to be close to raw material factories and end-consumers in order to create a sustainable manufacturing supply chain. 

And finally, Xi’an’s city government sold a 75-year land lease to Applied Materials at a deep discount and is reimbursing the company for roughly a quarter of the lab complex’s operating cost for five years. This means that they definitely made the offer attractive enough that Applied Materials could not refuse it.

So, one can argue for or against the logic of reverse migration to China, but technology innovation leaders need to be extremely careful while making their future decisions and ensure that while trying to achieve short term financial gains, they do not lose their “recipe” for sustainable innovation. 

What are your thoughts?  Are you for or against the logic of reverse migration to China?

For a more in-depth look into China’s high-tech industry and the current state of their supply chain capabilities, read the article “A Peek into Market and Distribution Capabilities of High-Tech and Home Appliance Industries in China.”

More Resources

Download the White Paper: Global Trade Management Technology

High Technology Industry: Resources and More Information

Technomic Asia: China Business Strategy Consulting