The lopsided stereotype of Business in China

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There has been an understandable bias against companies who outsource manufacturing in China. However, as the economy moves to a global marketplace, strategies need to consider emerging markets for goods and services in all parts of the world. Key points were made recently in a WSJ article by Jeremy Haft titled “The China Syndrome,” where he clearly points out that “China’s rise need not drive America’s fall.” The article looks at the overall U.S. economy, where he states that “efficiently produces a wide variety of goods and services.” He goes on to say that “In most industries, we’re decades ahead of China. And, huge swaths of our economy — like the services sector and high-tech manufacturing — don’t even exist in China yet.”

China Map

This should be enough to allay unfounded fears that exist about outsourcing in China. Companies like Baysource Global work on projects where there is a high degree of low value add/high labor requirement in the actual manufacturing of the product. It remains that the products’ engineering and innovation are the product of their U.S. intellectual property holders. The fact of the matter is that as the base of wealth grows, China consumers will want quality products and services. As Haft goes on to say, “China is increasingly buying American and growing five times faster than any other market for U.S. exports.”

So before the uneducated make claims about a lopsided relationship between the two countries, they should consider this exciting age we are in. As Mr. Haft ends, “By tapping into its expansion and capitalizing on our strengths, America’s companies have a once-in-a-century windfall opportunity to build value, make money and create jobs here at home — not shutter the shop.”

David Alexander
BaySource Outsourcing Solutions

Outsourcing to China

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Many do not realize the huge benefits to outsourcing in China.  Post here to give us your opinion. 

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David Alexander
BaySource Outsourcing Solutions

How Chindia will impact the world economy

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25jagdish1.jpgJanuary 25, 2008
Among the large emerging economies such as Brazil, Russia, Nigeria and Indonesia, it is the rise of China and India (Chindia) which will have (and already has) enormous business implications during the first half of this Century mostly beneficial to the world. First, both nations will require enormous natural resources because not only are they manufacturing and service centers of the world, but because of their own rapidly expanding domestic consumer markets. And this demand for natural and industrial resources such as oil, gas, coal, copper, bauxite, aluminum, iron and steel will be for many years.While China today is roughly nine times as big as India, it is expected that China will very soon become an aged and affl uent nation, similar to what happened to Japan, Singapore, Taiwan and others and will begin to plateau its economic growth. Also, it will outsource manufacturing to other nations, especially in Africa and other resource rich nations.The rapid aging of Chinese population attributed to its one child policy implemented over two generations will impact its domestic economic growth. On the other hand, while India is at present one tenth in size of China, it will experience accelerated growth in less than ten years with better infrastructure, political reforms and fi nancial transparency.

Also, India will refocus on manufacturing both for global supply as well as for its domestic demand. Unlike China, however, India’s manufacturing will be selective and largely concentrated on high-end aerospace, military, space and consumer durables including automobiles and appliances. It will begin to catch up with China and some experts even believe that its growth rate will surpass that of China. In any case, both nations with more than a billion people each, will have enormous need for industrial, agricultural and other natural resources and raw materials.

Since a vast majority of these untapped resources are in other dormant or emerging economies in Africa, Caribbean, Latin America, Central Asia and Russia, the rise of Chindia will create economic boom for them which otherwise did not happen for nearly 200 years of colonial rule.

Second, the global integration of China and India will be radically different. India’s economy and enterprises will be globally integrated especially with other advanced countries (Europe, US, Canada, UK, Australia, Singapore, Japan, South Korea) through large scale acquisitions of well established and well respected foreign companies with technology, branding and manufacturing assets.

The journey has already begun with Mittal Steel’s acquisition of Arcelor, Tata Steel’s [Get Quote] acquisition of Corus Steel, and Hindalo’s acquisition of Novelis (largest North American sheet aluminum company). And it will not be limited to industrial raw materials and to private enterprises of India. For example, several large public sector units (PSUs) of India such as ONGC [Get Quote] (Oil and Natural Gas Corporation), Indian oil [Get Quote] and SBI [Get Quote] (State Bank of India), who have the domestic scale and capital reserve, are starting to fl ex their acquisition muscles. Similarly,

Wipro [Get Quote], an information technology (IT), engineering services, as well as consumer products company, has recently made several worldwide acquisitions (including Infocrossing, a data center company in the US, and Unza, a personal care consumer products company in Singapore).

Finally, Ranbaxy [Get Quote] and Dr. Reddy’s have become significant players in the global pharma industry largely through acquisitions. So have Mafatlal and Raymonds in fashion and garments. In other words, India will contribute to global growth as much, if not more, through revitalizing and investing in Western assets as it would through growth of its domestic consumer markets.

On the other hand, China’s growth will be proportionately more domestic and only on a selective basis through global acquisitions. This is due to several reasons. First, China has begun to focus on domestic demand especially in consumer markets such as consumer electronics, appliances, automobiles and financial services. It has the physical infrastructure as well as large scale domestic state-owned enterprises such as Haier, Lenovo, China Mobil, Petro China and China Development Bank [Get Quote] to capitalize on domestic demand.

Second, the advanced world seems less willing to sell their assets to China (especially technology assets) due to what I believe are myopic misperceptions about the peaceful rise of China (in contrast to rise of India).

For example, Chinese oil company, CNOOC’s attempt to buy Unocal as well as Haier’s (the largest Chinese appliance company) attempt to buy Maytag Company in the US, met with political resistance. The obvious exception is IBM’s sale of its personal computer (PC) business to Lenovo. But it is more an exception.

Consequently, Chinese enterprises that have the scale and incumbency advantage to dominate the domestic Chinese markets will end up expanding globally by first going to other emerging economies such as countries in Africa, Caribbean, Latin American and the ASEAN as well as in Central Asia and India, both through trade as well as foreign direct investment (FDI). In addition, despite history and current uneasiness of rise of China, it is inevitable that both Japan and South Korea will quickly integrate their economies with China, just as what Taiwan has already done.

This will result in rapid growth in bilateral trade as well as reciprocal foreign direct investment between China and Japan and China and South Korea. Consequently, the largest trading bloc will be Asia especially with free trade with India. This will require formation of a new currency comparable to the Euro; and it will become the dominant currency of the world similar to the rise of the dollar as a global currency after World War I.

While the global integration paths taken by China and India will be different, their impact on businesses worldwide either as suppliers, customers, partners or competitors will be benefi cial and enormous. In fact, it is no exaggeration to state that the future survival of most admired enterprises from all advanced economies including the United States, Canada, Europe, Australia, Japan, and South Korea will depend on how quickly they participate in ensuing rise of China and India even if they have to distance from their own government’s politics and public opinion.

This includes companies such as General Electric, HSBC, Mercedes Benz, Siemens, Alcatel and many others.

Extracted from: Chindia Rising by Jagdish N Sheth.

Made in China page four

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”Chinese businessmen would never send their CEO to do the groundwork straight away so it sends the signal that you’re not nearly as important as you present,” Goodham says.

If you’re small, talk yourself up, says Austrade’s senior trade commissioner in China, Peter Osborne.

”Talk about who you sell to, who your buyers are. Spruik your big clients. And make sure you meet the Chinese equivalent of yourself in the factory. If you’re the chief executive but you’ve never met your counterpart, they’re not taking you seriously,” Osborne says. 

One lesson often painfully learned by Australian business owners is that every order placed has to be extremely clear and detailed.

Emails between DealsDirect staff and Chinese manufacturers are in dot points to minimise the risk of miscommunication. 

”Ordering whatever you’ve seen in a picture, or even ordering the sample, will get you into trouble. You need to spell out exactly what you want. If you want the blue MP3 player you’ve got to specify the exact colour, size, and what accessories, if any, you expect to be included,” Goodhand says.

Negotiating a contract with each manufacturer is important. It forces each party to settle on procedures that kick in when something goes wrong. It is also an opportunity for the Australian business owner to gain respect and build a relationship with the manufacturer.

”The Chinese are likely to say yes to any order. They want to get their products out of the country. But they’ll work out the other party’s weaknesses very quickly.

”If in your eyes you don’t offer long term potential they will take advantage of whatever short term opportunity you represent. But if you can convince them that you’re serious and you’re the right company to work with, long term benefits will flow,” Hunt says.