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Liability Games in China

cathy chen — Sun, 25 Jul 2010 20:15:00 GMT

When something goes wrong with a product and it's your company logo at stake, their needs to be a clear structure set up to tell who is liable for damages and blame. When setting up partnerships with suppliers in China, professionals know that this action should be one of their number one priorities. It is also one of the most difficult contracts to ensure, as was clear by the multitudes of questions at a recent "Product Liabilities breakfast held by the Global Supply Chain Council at MI Thai. "You can never be too careful, said Willi Vett, Partner and Head of Shanghai office at the Beiten Burkhardt international Law Firm. "Don't ever forget how a company got sued after they put a cat in the microwave and it died…the customer said no one told them they shouldn't put live animals inside the microwave.

Less extreme examples have to do with the costs of recalls, insurance coverage and direct product quality claims. Manufacturers have strict liability in terms of end products, and they are liable for defects and loss of cause for the defects regardless of how it arose. Vett says that there has been a change of burden of proof of the cut of the manufacturer. However, sellers and importers have a less clear role in terms of liability in China as they are only liable if it can be proved that they did something wrong themselves. This means that it must be proven that the buyer/seller know that the product was defective, which falls under a component of negligence. Most dangerous for buyers is if they cannot show directly where a product came from.

Vett also mentions that in terms of counterfeit products, the burden of proof is changing. Vett cited a BMW case that was published by the higher courts. The plaintiff bought a BMW that was completely counterfeit, and when the car broke down it caused damaged. The buyer went back to their BMW dealer, and tried to sue. "If BMW didn't have a very extensive responsibility contract in place they would have been liable, continued Vett. "If you allow someone else to use your brand, then you also have to check that the quality is in order, or else you might become liable yourself - in terms of OEM manufacturing, if you put your label on it, you are liable for the product.

Wilhelm Baumeister, QA Management, Sandvik Mining & Construction, says that one of his biggest challenges in ensuring proper liability understanding and management is that his company implements standards according to the iSO-9001 booklet which means that he is able to string all of the standards together and make them traceable, which means Sanvik can prove "this worker has done this task to this procedure on this day with this machine. Because this is a global contract, the language is in English. "Our Chinese suppliers do not necessarily speak English, Baumeister continued. "They often say right away - okay, where do I sign - this makes my hair go up because i have to enforce the contract once it has been signed.

Another participant voiced the fact that Chinese manufacturers are also a challenge in terms of liability because you need to ensure that the workforce has been trained to the correct standards and afterwards stay updated and in a position to qualify and improve their work. "I want to know how you handle this in your company, the participant addressed the audience. "There are certain procedures we give, we want to see them followed and we need to see their documentation but it's hard to get it.

"You offload responsibility to your supplier as much as possible, Baumeister answered. "But in the end we are still liable - if one of our machines stands still for one day it costs 5 million dollars in loss of income and what follows are multiple damages and a long triangle of claims; so we are trying to do our best to offload this as far as we can.

Jul 26, 2010 4:15 AM

A Matter of Cost Comparing Labor Prices in China & India

Frances Karamouzis — Sun, 25 Jul 2010 20:00:00 GMT

One of the most frequently asked questions about China is an attempt to verify the competitive cost structures variables for sourcing business consulting, IT consulting, applications development, maintenance and management or some type business process management services. And more specifically, many clients ask about labor costs as it is one of the single largest components of total cost of sourcing calculations. A comprehensive analysis of the total cost of sourcing for a business or IT process involves an analysis of two components: standard costs (such as labor, real estate, telecommunications and project management) and incremental globalization costs (such as remote management, communications, project trips and incremental legal costs).Also, enterprises should consider the costs of managing or mitigating potential risks (such as country risks, security risks or maturity risk) to arrive at a risk-adjusted total cost of sourcing.

Gartner's analysis of a comparative cost structure assessment between India and China reveals that a total cost of sourcing business case for a vendor or a captive center varies widely depending on enterprise specific business and IT requirements, scope, scale and appetite for risk.The variability is based on city locations (where coastal China cities might be as much as 30% more expensive than inland China locations), availability of specific skill sets, risk factors (country, security, competency, and maturity risk) as well as available vendor options.

Based on analyzing over 240 business case analyses over the last 2 years, Gartner research shows that there is not a simple or absolute ranking of global sourcing country locations by cost.Furthermore, given the current volume levels for China global sourcing, there is not enough critical mass of completed deals, or a critical mass of established vendors with extensive track records, and authenticated data.However, based on extensive analysis including breakdowns of major variables of costs, Gartner has concluded that the cost structures in China for the largest components of standard costs (namely, labor, real estate, telecommunications) are indeed within an extremely competitive range relative to many of the leading global delivery locations (including India). Therefore, the continued "cost is king mentality of clients will inevitably continue to drive interest in the analysis of China as a global sourcing destination. Unfortunately, there is no clear yes or no answer as to whether China is cheaper than India, the answer is deal specific and primarily driven by scope, scale, skill set requirements, language requirements and risk thresholds.

A more detailed look at costs reveals that there a several factors that have a large variability across city locations in China, therefore, it is imperative that enterprises understand the factors with extensive hi-low ranges. These factors include: (1) the variability of wage rates and attrition across various cities in China (2) the short versus long term cost of real estate as rates vary dramatically over multi year periods given short term government or technology park subsidies (3) large standard deviations in the investment ranges required for human resources readiness (technical, language and soft skills training) as well as IT Services process business models (4) economic variations based regulatory requirements (5) government and legal requirements to manage risk (6) security issues (7) additional investment needed for low English speaking capability and/or cultural affinity.

Clients must explore and ensure deal-specific due diligence for the incremental globalization factors and analyze risk management costs. Clients need to ensure they assess a thorough total cost of sourcing analysis over a multi-year period in order to determine cost benefits and manage risks.

Common Mistakes

The five most common mistakes enterprise buyers with regard to cost comparisons are as follows:

1) Enterprise buyers (especially those who have sourced work in India) often compare a rate card from a Tier 1 vendor with operations in India (I.e.IBM, Accenture, Tata, infosys or Wipro) to a rate card of a tier 3 or tier 4 vendor in China. Simply comparing a rate card for a specific skill set is not a proper comparison because the elements built into a rate that is quoted by a vendor include elements of disaster recovery, and business continuity

2) Comparison of pure wage rate charts. For example, if you look at some wage rate charts in China, you may see a quoted number such as 9K per year for specific for a programmer. However, the total cost to the employer is far more because China has a federal tax that is required (similar in nature to US social security taxes) which are currently 50%. Therefore, the cost to the employer is actually 13.5 K (9K plus 4.5K). Beyond that, if the programmer requires a certain level of English proficiency, a premium of of 10 to 15% must be factored into the wage rate above and beyond the market based rate.

3) Assuming competency and skill sets in China and India are equivalent. A project manager or business analysts or even a programmer as designated on an human resource inventory in each of the respective region are not at all equivalent. Project management expertise is quite different. For example, at this particular juncture, a "experienced' project manager in India can claim a track record of projects involving significant complexity and project size that simply has not yet materialized in China as of yet. Also, the label of of progammer or software engineer in China often refers to someone with experience with embedded (R&D) engineering expertise versus the more commonly used reference in India is related to Enterprise Apps skills.

4) Assuming that there is one singular China cost structure. China is a vast country with over 20 designated hub cities. Cost structures across these various cities may vary by as much as 30%.

5) Incorrect Calculation of total cost of sourcing or risk adjusted total cost of sourcing. Quite often enterprises do not properly account for or comprehensively analyze the following:
. multi-year sustainability of cost structures
. do not include differentials in program and project management overhead costs
. cross cultural communications cost impacts
. vendor competency/execution differentials
. risk mitigation and/or management costs
. potential currency rate fluctuations

Jul 26, 2010 4:00 AM

Doing It: The Rise of the Chinese Sports Brands

cathy chen — Sun, 25 Jul 2010 20:00:00 GMT

Walking the streets in China today, you may notice many young teenagers wearing sports clothing with unfamiliar logos emblazoned on their chests. Looking at the curvy L that is Li Ning's signature or the sideways V that stands for Anta, you may wonder to yourself, is that a knock-off Nike shirt? No, in fact, these two Chinese brands are well established and are quickly becoming Nike's biggest competition in China. China's sportswear market is poised to expand at an annual average of 18% to RMB149. 1 billion by 2013, according to an estimate by ZOU Marketing inc. Zou Marketing also notes that branded sportswear in particular has experienced double-digit growth since 2000. While Nike remains the number one sports brand with 16.7% market share in 2009, Li Ning surpassed Adidas to become the second most popular brand in China with 14.2% of the market compared to Adidas' 13.9 percent, according to AdAge.

Though Li Ning holds the second place, Anta's net revenue was actually higher than Li Ning's in 2009 with a net profit of 21.6% compared to Li Ning's 11.7%.Other domestic players, such as Dongxiang, Xtep, 361, Hongxing Sports, Peak, and Kangwei are also competing for their share of the pie and have achieved high growth rates in the rapidly expanding market. While Li Ning and Anta managed growth rates of about 20% last year, some smaller brands have been enjoying growth rates of 30% or more. Marie Jiang, analyst at JLM Pacific Epoch, says that this recent emergence of domestic brands will make the market-place more competitive to the established international brands trying to grow in the Chinese marketplace.

Stiff Competition

Building a brand name and facing stiff price competition are the two main challenges for Chinese brands competing against the big names like Nike and Puma. In 2002, Dongxiang acquired Kappa, a European brand, and has been working on a marketing campaign that creates a new image targeting an upscale, fashion conscious crowd who don't have or are not ready to shell out money for the more expensive Nike or Adidas. Chinese brands worked on international imaging through sponsorship; in this instance it was Shaquille O'Neal who gave them the right to use his image, name, and shirt number on their basketball products sold in China. Li Ning also produced a "Shaq line of shoes. Not to be outdone, other brands have been upping the game by signing similar sponsorship deals with international sports stars. Anta signed deals with three players of the famous U.S.basket ball team, the Houston Rockets; Xtep signed the English Premier League Birmingham City Football Club; and Peak signed Shane Battier, also with the Houston Rockets.

Home Game

Besides targeting the international market, sportswear brands are trying to expand into another market much closer to home. While competition remains intense in Tier 1 cities, brands have realized there is a huge, untapped market in Tier 2 and Tier 3 cities. "Li Ming and Anta penetrate everywhere, even into villages. Nike and Adidas are at the higher end, and most people can't afford the price, says Jiang. With Chinese brands penetrating into international markets and taking over the domestic market, are foreign brands such as Nike and Adidas doomed? Perhaps not. According to a recent UBS analysis, Nike could successfully penetrate lower level markets in China by lowering its price. Jiang, however, disagrees with this approach. She says, "Coach and other brands names have penetrated Tier 2 and Tier 3 cities, which still have wealthy people willing to buy brand names. But if Nike and Adidas lower their price, they may run the risk of ruining their brand image, so they should seek other ways to penetrate these markets.

Online

Another way brands are reaching the market is through Taobao and ecommerce. In April of 2008, Li Ning opened it's own channel on Taobao. Sales were such that in 2009, Li Ning started to offer its merchandise on its own website. In 2010, Li Ning plans to make it even easier to shop online by allowing users to buy from their website with cellphones and sending coupons through cellphone messaging. Even if Li Ning didn't have its own online store, other enterprising citizens would have capitalized on the opportunity. As simple search within Taobao turned up 17,427 individual "stores offering Li Ning merchandise. As Ben Cavender of China Market Research Group observed, "it will disturb things, but ecommerce is here to stay. It will make store distributors provide better service. Kappa is starting to sell on Taobao, but distributors won't walk away because Kappa has market pull. Though storefronts are suffering from the loss of business, they are still a necessary part of the distribution chain. Customers benefit from browsing the store and trying out the physical merchandise, even if they end up then ordering it online. Some brands are dealing with the distributor backlash by buying out or owning their distributors.

Which domestic brands survive to battle Nike is still in question. Analysts have differing opinions. A January report from China Construction Bank favors secondtier brands such as Peak and Xtep, which they believe have a better chance of capturing the lower tier markets. However, analysts from UBS and Core Pacific Yamaichi think that smaller brands will not be competitive in the long-term, and will eventually lose out to the bigger brands, which have larger advertising budgets and are eyeing the lower tier market. Whether or not surviving brands will be able to compete with global brands is also a question that remains to be answered. "A name like Li Ning and an identity so much centered around Chinese nationalism don't travel. Plus, the company needs to truly differentiate from its competitors in a way that is globally relevant in order to expand to international markets, commented Francesco Wesel from integrated Marketing Communication on an online article from Adage. What is not in question: China's sportswear market is expanding and the battle between domestic and foreign sportswear brands is far from over.

During a recent retail summit held by the Global Supply Chain Council, delegates discussed the upcoming role of domestic brands.

Jul 26, 2010 4:00 AM

Cloud Computing - A Whether Update

cathy chen — Sun, 25 Jul 2010 19:30:00 GMT

Everyday it seems we hear something about cloud computing. As a topic, it pops up everywhere. Industry experts describe its paradigm shifting potential for customers, while major suppliers are buying up companies with cloud related capabilities while proclaiming astronomical business potential. Everyone seems to be offering some variation of service. It has been around for years, but suddenly it is being identified as the top strategic technology for 2010. Something is going on.

What is it?

Definitions abound, but a common element of all cloud computing definitions is that it involves the provision of services over the internet, thus deriving its name from that fluffy internet cloud appearing in technical diagrams. Beyond this, details diverge and are frequently driven by the perspective of the definer. Frequently, definition efforts launch into descriptions of characteristics of cloud computing, citing:
. scalability - the consumer uses as much or little as needed at any given time;
. full management by the provider, so the consumer needs only device with access to the internet (which usually entails a browser);
. charges relating to use, frequently time.

That may be exciting, but it is not all that new. Talk is actually being driven by the explosion of service offerings and service providers, a mix that is changing the way customers approach and contract cloud computing services. The service offerings involve software as a service; platform as a service; and infrastructure as a service. The service providers include the familiar companies, but also include your search engine provider, your telecoms provider and even your book and consumer product seller, each vying to sell you often sophisticated services in the simplest of ways.

Who cares?

Of the many benefits to cloud computing, technical advantages are frequently first noted. These include on-demand computing services, saving time and money by avoiding investment in hardware, software, network infrastructure; and pooled computing resources across multiple users, so fluctuations in demand are more easily met.

There are operational advantages which increase opportunities for collaboration and knowledge sharing as files are available to any designated users from any location (with internet access). Control of data can be enhanced, as the paradigm shifts from shipping data around to controlling access to data, and on a real-time basis.

However, challenges are quite wieldy. The services contracting model, which has developed over many years to address significant concerns sufficient to allow third party services to be incorporated into business operations, is facing a tough go with cloud computing. Especially among the new breed of service providers with little outsourcing experience, suppliers are emphasizing low cost offerings and have limited capacity for or interest in contractual commitments or customer requirements.

This situation requires customers to exercise significant judgment, diligence and restraint. Not all service / contractual arrangements fill all needs. On one end of the spectrum, some "nice to-have tools, routines and non-sensitive data may allow use of a standardized, low-cost cloud computing service with few contractual protections. A move toward the other end of the spectrum, such as toward mission critical data and applications, gives rise to the need for security and predictably.

Then there are the regulatory challenges, of which many have already become legend. Businesses involved in any kind of regulated activity face obvious risks, where restrictions on data disclosure, access and even location of storage will have to be carefully considered in the context of any cloud computing solution. Issues may rise under import/export control regulations as data moves around the cloud, often to non-identified locations and parties holding the data. Data retention and disposal requirements can present challenges in cloud computing. But the grand regulatory challenge by far relates to privacy and security issues related to regulating personal information. Customers must determine how to ensure compliance with these various laws and standards while taking maximum advantage of the benefits of cloud computing.

Applying to the Supply Chain

Cloud computing is also beneficial and risky for supply chain operations. With applications as diverse as customer relationship management, human resources and accounting being made available through cloud computing offerings, supply chain organizations will increasingly face the appeal of obtaining powerful functionality without the time and costs of arranging for the people, applications and facilities required to do-it-yourself is absolutely huge. However, equally huge is for those organizations will be retaining requisite control of critical proprietary data, so that they have confidence that it will be where it needs to be, and won't be where it shouldn't or cannot be- whether such requirements are driven by business need or law. Such responsibility cannot be delegated and seeing to such needs will almost certainly require increasing judgment, discipline and, in some cases, powerful restraint.

Ultimately, cloud computing is a variation of outsourcing. In this sense, many of the risks are the same as the risks faced for years in more traditional outsourcing. They also must be mitigated the same way - through successful navigation of appropriate due diligence up front, appropriate contractual protections that account for higher risk data and applications, and continuing vigilant governance.

Ultimately, cloud computing is a variation of outsourcing, so many of the risks are the same ones faced for years in more traditional outsourcing.

Jul 26, 2010 3:30 AM

Thin ice: Examining the facts behind Foxconn, Apple and the "crisis" facing the EMS market

cathy chen — Sun, 25 Jul 2010 19:00:00 GMT

Suicides. Spreading strikes. Militaristically zealous management and aggressive security guards. Pay raises and suicide contracts. These recent dramatic headlines have shoved Foxconn, the trade name of Taiwan-based Hon Hai, from relative anonymity straight into the unwelcome limelight, dragging its big-name customers like Apple, Dell and Sony along behind it. But while the glare of publicity may be bright, it has blinded many to the real story, which is about much more than suicides at a single electronics company in Southern China. While the shrill voices of daily news have been pointing fingers at individual players, the issues, real and illusory, at Foxconn are symptomatic of the dynamic, pressured relationships between all the usually anonymous EMS providers and their brand-name customers, their employees, governments and society at large.

Myth: Foxconn is the Bad Guy

Before looking at the wider issues, we should consider what is actually happening at Foxconn, and clear up a wide array of misunderstandings intensified by headline hype.

Foxconn is the largest electronic manufacturing services (EMS) provider in the world, more than twice the size of its' next-largest competitor Quanta, and with more than 300,000 employees at their Longhua and Shenzhen campuses alone. It is also notorious for an aggressive management style. "They come in like an occupation army, said one former Foxconn manager. "That approach served them well in the past, but i think they'll have to change now.

But whether management changes or not, Foxconn is hardly the only EMS firm that manages "aggressively, and while many have criticized Foxconn's on-site factory work environment, Foxconn actually offers working conditions similar to those at the other leading EMS players, and substantially better than those at many of their suppliers. One insider noted that while the company is aggressive in their business approach, they also provide their workers with swimming pools, exercise rooms and on-site counseling centers for staff. One supplier to Apple said that, in their experience, Foxconn is far from a sweatshop, and actually provides a better environment than many Chinese companies. For example Wintek, one of Foxconn's suppliers, was accused earlier this year of not protecting its workers against the toxic chemical nhexane, which is used to clean Apple components. Many employees subsequently exhibited extensive damage to their peripheral nervous system and spinal cord, causing to muscular weakness, atrophy and in some cases, paralysis.

Another misleading assertion is the link between the suicides and overtime. "in my three years of interviewing migrant workers ...I found that the greatest pressure comes more from interpersonal and emotional concerns than factory conditions, said Leslie T.Chang, author of Factory Girls: From Village to City in a Changing China, in a recent report for research house CLSA. "Laboring long hours is the reason they come to the city in the first place. According to other sources, most factory workers actually expect the ability to apply for overtime work, as this is how they make extra money on top of their base monthly salary - which averages around RMB900. Factories that do not offer overtime have a hard time filling spaces on their factory floor. While some argue that the only reason workers want overtime is because they are underpaid, the counterargument is that many of the migrant workers have one goal: to save as much as humanly possible in as short a period of time, and send it home.

Behind the Suicides

However, the 10 disturbing suicides plus three attempts that have been reported do not express a sense of worker satisfaction, and to outsiders the tragedies suggest an even darker corner in Foxconn's closet. The first suicide reported was a result of one worker being accused of stealing an iPod and then being interrogated in a small room for hours. The interrogation, and the worker's ensuing deadly leap from the roof, enraged the public. Unfortunately, the same Spartan management style that brought Foxconn to dominance was ill suited to coping with ensuing employee dissatisfaction and media coverage. Eventually compensation was granted to the worker's family. The suicides kept coming, but seemingly spawned by dissatisfaction in the given worker's personal life - although one worker referred to the prospect of generous compensation from Foxconn in his final letter.

In any population of 300,000 young people in urban China, one should statistically expect at least as many suicides per year as seen at Foxconn recently. Factory workers are overwhelmingly younger than 25, and the suicide rate among Chinese youth (similar to youth everywhere) is higher than the overall average. Many U.S.universities would be ecstatic if their suicide rates fell to levels as low as those at Foxconn China.

Even a concentration of suicides at a single manufacturer may not be the manufacturer's fault. Aggressive media coverage tends to exacerbate the globally well-documented "Werther effect of suicide clusters. "Reports from other countries have identified suicide clusters in schools, military units and other closed communities similar to the 'company town' environment at Foxconn, said Michael Phillips, director of the Shanghai Suicide Research and Prevention Center at the Shanghai Mental Health Center, in a recent opinion piece for the Asian Wall Street Journal. "This is most common in adolescents and young adults [all the recent suicides have been in their teens or early 20s] and there is always a contagion element to clusters because the individuals know each other or have been exposed to prior suicides by personal communication, the media or the internet.

Myth: The Apple's Gone Bad

While Foxconn has already caught its share of the heat, some reporters are already looking up the value chain at Foxconn's corporate customers. This involves Apple in particular, as the company has also been getting a lot of flack in this media blitz for lying down on CSR and for the fact that it seems to have little knowledge about the actions of its suppliers. In February 2010, a CSR investigation (initiated by Apple) discovered child labor in its suppliers' factories. While by the time the workers were discovered, they were legally of working age the revelation, in combination with the Foxconn scandal, has rattled Apple's image with Western consumers and made some observers wonder whether it is losing control of its supply chain.

That's extremely unlikely. Rather, the media feeding frenzy grows because Apple, like Foxconn, represents an easy target. In Apple's case, it's in part the extreme of secrecy and detail orientation in product development, though the resulting product design has created millions of devoted Apple fans the world over. A supply chain manager at a competitor in the mobile device sector says that they do think Apple is on the extreme side when it comes to their outsourcing strategy. But the difference is of degree, not of kind. "Apple is well aware of Foxconn's practices and is attentive to the world at large, says one former Apple supply chain manager. "Apple pushes Foxconn to improve the working environment.

In 2007, three academics writing for the Personal Computing industry Center took apart an iPod to gain a clearer understanding of Apple's sourcing and supply chain, and to understand which parts of the value chain were delivering the most profit. In Who Captures Value in a Global innovation System? The case of Apple's iPod, the authors revealed that the iPod, like virtually every other consumer electronics product available today, is a combination of many companies' efforts. Toshiba makes the hard drive (themselves outsourcing some components), the most expensive component in the iPod. Broadcomm, inventec and Samsumg all contribute components as well. Foxconn manages the overall upstream supply chain, assembles and delivers to distribution points, and then supports after-sale service. Nothing in this model suggests anything extraordinary, though the report does note that "Apple is particularly sensitive about its supply base.

A Problem of Cost

Looking beyond Apple and Foxconn, what substantial supply chain issues really lurk behind the stories? Rather than media hype and speculation, supply chain managers should be paying attention to how the manufacturing environment in China is changing. A primary issue is increasing labor costs. Manufacturing job growth in China has accelerated rapidly again this year, and seems to have recovered almost entirely from the 2008/2009 downturn. Rising demand for manufacturing labor, rising minimum wages and an increased sense of worth on the part of potential laborers have all put strong upward pressure on labor costs. In late May, headlines covering a strike at a Honda-owned parts factory in Foshan (near Shenzhen) began to appear alongside the Foxconn stories. The Honda employees won about a 25% wage increase. At the same time, workers struck at a Japanese-owned manufacturing facility in Xi'an and at a Taiwanese-owned facility near Shanghai. Nearly concurrently, Foxconn announced a pay raise of over 30-50% for its Shenzhen plant, bringing the base salary of its workers from RMB900 to RMB1200-2000. Numerous provincial governments subsequently announced they would raise local minimum wage levels. For companies operating in China, labor costs are going up.

Business as Usual

The EMS companies survive on relatively small margins. Can they survive in a more expensive environment? One supply chain manager at a leading EMS player says that the strikes at Honda and in Xi'an are more worrisome than the over-reported situation at Foxconn. The macro factors driving increased negotiating power on the part of employees will continue to nudge labor costs up for manufacturers. However, since labor costs are not yet a major component of overall costs, manufacturers have some room to manage labor cost increases.

Manufacturing wages have also been climbing roughly in line with GDP in China for at least a decade, yet manufacturers have survived. "A sample of 120 Taiwan tech vendors shows remarkably steady margins, on an aggregate, through many years of wage hikes, says Bhavtosh Vajpayee, head of technology research for CLSA. "Despite a decade of wage inflation, China or India will remain preferred outsourcing destinations for hardware and services. Demand volatility and non-labor input costs have a much stronger influence on margins.

Arthur Kroeber, head of the research house Dragonomics, also says that since workers in China aren't permitted to independently organize and there are still so many of them, China won't see a paradigm shift soon.

"China's massive underclass of workers is often seen as a source of social unrest, but in reality [these workers] are a force for stability, says Chang in her CLSA report. "Repeated predictions of rising unrest - during an Asia-wide recession in the late 1990s and again in the recent global economic down - turn - have not come to pass."

Customer Distancing

The other issue is the demand side. Will the recent media frenzy negatively impact Foxconn's relationship with its customers, namely Apple, and shift the power relationship between the brands and their suppliers? As mud drips off of Foxconn onto Apple and Dell, will the brands try to distance themselves?

As a rule, during initial stages of discussions between brands and EMS players, the negotiation advantage tilts towards brands, due in part to overcapacity in the EMS space and the lower barrier to entry. A sales representative for one of the leading EMS says that he as seen a lot of desperation among the EMS players recently. "Last year, we were at the final stage of negotiation for a big project, and we'd already accepted terms that would have cut our margin to 1%, he said. "Then the brand rep said we would be required to pay a multi-million contract signing fee. The sales representative's company walked away from the deal, but their competitor took it anyway. "They are losing money, he continued. "How long can this go on?

Forward looking prospects

However, no substantial change is likely in the short term. Once a relationship is established between an EMS supplier and a brand, savvy EMS players are able to make the relationship sticky - meaning the cost of shifting suppliers becomes intolerably high so that the EMS player's negotiating power increases. "[Our major customer] may press us for a few more pennies off the price, said one EMS development manager. "But we counter by saying we'll grant the discount if they give us a larger piece of the service contract. Foxconn is exceptionally good at being sticky - few of the insiders we spoke to felt that Foxconn is at any risk of losing substantial business as a result of the recent media attention, because their highprofile and highly demanding brand customers have come to rely so deeply on Foxconn's partnership - going far beyond product production and covering virtually all of the value chain: from cooperation in R&D to retail distribution and after-market services.

At the same time, the increase in labor costs is also manageable. Historically, Taiwanese tech-sector companies have been able to maintain their margins over time because they are constantly on top of their pricing. While the Shenzhen site will be more expensive to operate, Foxconn, along with competitors Quanta and Wistron, are already developing other manufacturing sites in western China.
Foxconn will likely downsize dramatically in Shenzhen and Longhua, moving the mass production work farther north and west, while the more detailed finishing and export work will stay on the coast. Not only are labor costs less out west, but land prices are also cheaper, as local governments are very keen to give large employers a break to attract them to their town.

While reaching global markets from Chongqing and other inland locations may be marginally more expensive, the move to the inland provinces also puts EMS providers closer to some of China's large and fast-growing domestic markets.

Foxconn and their figurehead Guo have also proven their ability to evolve fast. In late May, the company took the unprecedented step of inviting six buses full of journalists for a tour of their Longhua facility. For a company that is famously secretive and protective of their customers' products, the media bus tour reflects on the likely speed with which they're going to transform what they're doing in Longhua.

While discussion, concessions and media hype may continue for some time, the relationships between the brands and the EMS will not likely stray greatly from their current course. The recent incidents at Foxconn and Honda, and countless others that are happening around the country, though less reported, are merely smaller symptoms of an epoch-level transition in the global economy and supply chains. The major forces affecting the China supply chain will remain as they've been for some time: steadily rising wages and more demanding employees here; contract manufactures moving up the value chain, and brands eager to hand over more of it to the manufacturers, world-wide; and consolidation of the manufacturers, because of the paramount importance of economies of scale. Supply chain leaders will do well to remain focused on the global tides affecting supply chain management, and to ignore the regularly appearing froth on the waves.

EMS Branding Risk?

In some peoples mind, these brand names have outsourced too many secrets, and face having their name brand technology used for by and EMS trying to break into the retail market. Early in the last decade, Flextronics famously decided against developing an own-branded product in the mobile device sector, believing that they'd risk too much by going into
competition with their competitors. "Foxconn will never do what HTC and such have done, said one ex-Foxconn employee. "To launch their own brand doesn't make sense. An ex-Apple manager echoes that Foxconn will not betray its customers and in fact is in line with Apple's business strategy. "i believe Foxconn is the right partner for Apple, said the manager. "They have the same concept for supply chain management. Apple wants to move to online business, while Foxconn wants to continue their vertical integration.
The bottom line is that branded products produce more margin than unbranded ones; services and solutions produce more margin than hardware. The zeal for margin will keep brands and their EMS suppliers on the battlefield, though sometimes fighting in league with one another.

Jul 26, 2010 3:00 AM

Taming the iP Dragon

cathy chen — Sun, 25 Jul 2010 19:00:00 GMT

Increasingly, international manufacturers are motivated to be in China due to the growing domestic demand of the Chinese marketplace. It is easy to see why when you consider that last year, Chinese consumers bought more automobiles than Americans for the first time in history. Tim Lee, General Motors Shanghai-based president of international operations recently said that he thinks it won't be long before GM will sell more cars in China than in its home market.

However, despite this optimism, all is not well in Chinese - Western relations. Perhaps the most high profile case is that Google, one of the world's most ambitious and recognizable technology companies, was willing to pull out of China; defying censorship regulations despite its 30% share of China's internet search market. The key issue this action raises needs to be addressed by Chinese policy makers and must be rigorously considered by all global executives and risk managers who are seeking to do business in China. I am talking about intellectual property (iP) theft.

Google's allegation of state-supported iP theft raises questions about the ability of any business to safeguard iP in China and just how many companies avoid the Chinese market because they fear they could lose their most valuable assets; iP rights.

China's extremely loose iP regime has been a key element in the country's growth, and until Google's recent stand, western businesses have been willing to trade on these terms; balancing iP risk against their own short- and long-term business development goals in China and Asia. However, I argue that western businesses will increasingly develop duel strategies to balance their regional sourcing goals in order to harness low cost sourcing requirements with alternative strategies for gaining access to domestic Asian markets. One such strategy will be India.

According to a study performed by the London School of Economics, both India and China are capable of world class manufacturing processes. The study on the supply chains of the two countries' automotive industries, found that two-thirds of their domestic suppliers were able to meet western quality standards and have a large sub contract base to outsource component manufacture. The recent flow of major global companies setting up sourcing operations in India emphasises India's growing attraction as a manufacturing base for western companies: Fiat and Chrysler, BMW, Ford, and Jaguar Land Rover have all recently established India sourcing; Walmart is looking to make India a major sourcing hub and Atlas Copco set up global sourcing in India

India is now in the early stages of a manufacturing revolution of the kind that China commenced in the 1990s, and it is increasingly seen as a viable alternative to China for sourcing manufactured goods. Add to this that India, with its legal system roots planted in English law, is seen as a much safer environment for international firms to protect iP, and India could become a serious threat to China's manufacturing dominance.

Also, as trade between China and India continues to grow to be one of the world's largest trading blocks, India could become the Asian base of choice from which western companies centre regional market strategies and also gain access to the huge Chinese market. To address this challenge I argue, China must tame the iP dragon in two ways; tighten its iP regulatory framework to protect western investment, whilst also continuing to internationalise via M&A, and cooperation, to secure its own iP.

The internationalisation route has already been followed by Huawei Technologies, Haier, Sun Tech Solar and Chery international, and more recently by Geely's $1.8bn acquisition of Volvo. In this way China can tame the iP dragon and maintain its country of choice position amongst western companies in the long term.

David Henshall is founder of Purchasing Practice (www.purchasing-practice. com), a niche consultancy specializing in procurement.

Jul 26, 2010 3:00 AM

Merck Sharp & Dohme plans new site in Hangzhou

Max Henry — Thu, 22 Jul 2010 02:15:00 GMT

Merck Sharp & Dohme (MSD), a leading global pharmaceutical manufacturers, began work on a new manufacturing factory in east China' s Hangzhou City, Zhejiang Province on Monday as part of its expansion plan in China.

According to the local government, the first phase of the project covers 75,000 sq m of land and involves RMB700 million of investment. Total investment will surpass RMB1 billion (about US$147.6 million), making it one of its largest pharmaceutical packaging projects in recent years.

The factory is expected to start production by the first quarter of 2012 and will have an annual packaging capacity of over 300 million packs.

Jul 22, 2010 10:15 AM

Chrysler choose Shanghai for APAC Logistics hub

Thu, 22 Jul 2010 02:00:00 GMT

Chrysler (China) Sales Co., Ltd. announced that it has recently signed an agreement with Shanghai Tongsheng Logistics Park Investment & Development Co., Ltd. to jointly establish a logistics center in Yangshan Port, Shanghai, media reported.

The new logistics facility to be built in Yangshan Port would serve as Chrysler's Asia-Pacific logistics center. Chrysler has previously created the auto parts transshipment center in Singapore and now is set to transfer this facility to Shanghai. Given that its auto sales keep booming in the Chinese market, Chrysler has made up its mind to expand business in the country and grow stronger gradually.

When completed, the center will greatly simplify customs clearance procedures, shorten the operating hours of auto parts for Chrysler, and offer Chrysler's Chinese dealers and customers more efficient services and better products in the meanwhile.

Jul 22, 2010 10:00 AM

GM plans to grow India's sourcing

Thu, 22 Jul 2010 02:00:00 GMT

General Motors India, the local arm of the Detroit-based car manufacturer, is strengthening its India plans as it intends to locally source more than 90% of its requirements for making commercial and passenger vehicles.

The strategy, which would be executed within the next two years, would benefit a host of existing and potential Indian suppliers, auto component makers and other allied companies.

GM India currently sources only 60% of auto parts and ancillary for its passenger cars from India. “When we launch commercial vehicles, localisation rate would be 90%. And that would mean purchasing and making everything in India,” says GM India president and managing director Karl Slym. “Within a couple of years, we would reach that mark in passenger cars.

Some components are just not available in India and existing contracts (with international suppliers) need to expire before looking at local suppliers.”

The company has been focusing on creating capabilities on suppliers end such that they can quote for orders outside GM India. As of the end of the first quarter, Indian suppliers were able to get $500-million business allocation from GM outside India, and the magic number doesn’t seem too far away. “We still think that it can be double than what it is now. Of course, the activities outside India have meant that volumes are lower in Europe and North America. So, it will probably put a bit of time lag, but our plan would be to get to $1 billion by the end of the financial year,” adds Mr Slym.

“The company is also planning some MUV and SUV launches with the help of its new parent, SAIC, making India and China the sourcing hubs. So, with higher localisation, they can reduce the input cost, thereby bringing down prices of other car models as has happened in the case of Beat, which is priced very aggressively,” says IDFC SSKI Securities director research Ramnath Subramaniam.

However, commercial-vehicle segment could become a bone of contention where the market is dominated by Tata Motors and Ashok Leyland. An international major like Volvo has only recently been able to make a dent in their combined market share after years of trying, says an industry analyst.

But GM India is strengthening its supplier base and manufacturing capacities. In November, the company will begin production at its power train plant with a total capacity of three lakh petrol and diesel engines, entailing an investment of $200 million. “Our engine plant will start operating from November, and the Beat will have petrol and diesel engines from there,” adds Mr Slym.

Jul 22, 2010 10:00 AM

Monthly throughput at Shanghai and Shenzhen declines

Max Henry — Thu, 22 Jul 2010 02:00:00 GMT

Analysts foresee a slowdown in global trade on the horizon as the mainland's two biggest ports, Shanghai and Shenzhen, report lower volumes last month compared with May.

The volume of containers through Shanghai, the world's busiest container port, fell 4.7 per cent to 2.44 million 20-foot equivalent units (teu) from 2.56 million teu in May, according to Shanghai International Port Group, the Shanghai-listed operator of the city's ports.

Shanghai's cargo throughput fell 4.95 per cent to 35.97 million tonnes from 37.85 million tonnes in May.

The container throughput in Shenzhen, the mainland's second-busiest port, fell 1.4 per cent to 1.91 million teu from 1.93 million teu in May, after three consecutive months of increases to May, according to the Shenzhen Ports Association.
Shenzhen's cargo throughput fell 1.3 per cent to 18.74 million tonnes from 18.99 million tonnes in May.

"The global recovery has reached a turning point as the momentum provided by the inventory cycle wears off," Melissa Kidd wrote in a report for Lombard Street Research, a London economic think tank.

"Recent falls in the BDI (Baltic Dry Index), with weakening hard commodity demand in China and softening global data, point to a slowing down in the global recovery."

But, Charles de Trenck, an analyst at consultancy Transport Trackers, pointed to the double-digit year-on-year growth, as opposed to the month-on-month figures, of the Shanghai and Shenzhen ports in June.

"These are not bad numbers," de Trenck said.

Shenzhen's container throughput grew a sizzling 35.2 per cent year on year last month, while Shanghai's container throughput growth was 21.4 per cent year on year.

However, he predicted slower growth for the mainland's port throughput in the coming months, because retailers in the United States were likely to slow down their inventory restocking.

In Hong Kong, estimates from the Port Development Council show the pace of growth and the volume of containers through the city's port were still on the rise compared with the first part of last year. Figures for May show 15.2 per cent year-on-year growth to a little more than 2 million teu, up from 1.7 million teu.

Hong Kong, through its Kwai Chung, river trade and mid-stream operations, handled almost 9.4 million teu in the first five months of this year, up 15.5 per cent compared with last year.

These figures show a gradual month-on-month improvement in container volumes which could gain in strength as the container shipping sector moves into the peak season, starting around now, as goods are shipped to meet pre-Christmas demand.
Based on current projections, Hong Kong is on course to handle about 23.5 million teu, the same level as in 2006.

One of the problems facing shippers, de Trenck said, was a shortage of containers that could grow more acute if container volumes continued to rise in the peak season.

He said the liner industry thought the shortage "was going to be solved, but it could last the whole summer".

Part of the problem has been caused by container lines cutting the speed of their ships to reduce fuel consumption and increase available capacity, resulting in containers kept on board ships at sea for longer.

Asian shippers groups estimated the slow sailing had reduced the number of containers available by about 20 per cent. Container liners cannot easily "change their schedules around" either by increasing the speed of their ships or withdrawing ships from service, de Trenck said. This is because most carriers are in alliances with other shipping lines and each contributes vessels or deck space to each route or service.

Jul 22, 2010 10:00 AM

Demag Cranes opens new plant in India

Max Henry — Thu, 22 Jul 2010 02:00:00 GMT

Following a construction phase of just eight months, Demag Cranes inaugurated its new production plant in Chakan, India, together with customers and partners. This marks an expansion of the company’s production capacities on the sub-continent of some 8,000 square metres to cover a total of more than 10,400 square metres with a possible extension of 6,000 square metres.

Besides Standard Cranes and crane components, the product range in future will also include the technically more complex Process Cranes which are specifically integrated into the production process to meet the customer’s individual needs. Aloysius Rauen, Chief Executive Officer of Demag Cranes AG emphasises: “The expansion of our production with a clear concentration on the requirements of the Indian market reflects the core element of our strategy to make our customers’ wishes the focus of our activities. This investment of more than EUR eight million also underlines our strategic commitment in the BRIC countries.”

The plant, which is located 30 kilometres from Pune, is designed for a production capacity of up to 600 Standard Cranes and 100 Process Cranes per year. Parts for the KBK crane construction kit are also manufactured at the location – up to 24 kilometres of KBK rails can be produced per year.

The spare parts logistics operation has also already been running from Chakan since March; the production of components such as rope-hoist and open-winch crabs as well as KBK has commenced. For components which the company does not manufacture itself, Demag Cranes utilises a network of local suppliers. Thomas H. Hagen, Board Member of Demag Cranes AG and Chief Operating Officer of the Group, commends the teamwork during development of the locally produced Process Crane: “The new crane is the result of extremely productive and innovative teamwork between Indian and German engineers who have worked to meet the particular requirements of the Indian market and its procurement opportunities. This success demonstrates again that we are on the right path with the integration of our Group.”

Demag Cranes Group has been operational in India since 1997. It has more than 600 customers in the country for all three of its business segments – Industrial Cranes, Services and Port Technology.

Jul 22, 2010 10:00 AM

China Post to list unit in Shanghai

Thu, 22 Jul 2010 02:00:00 GMT

China Post, the official postal service of China, is planning to list the shares of China Postal Express & Logistics Corporation, its express and logistics unit, in Shanghai or Shenzhen next year, a source familiar with the matter said on Thursday.

The float will make China Postal Express & Logistics Corporation the first listed express company in China, said Shao Zhonglin, deputy secretary-general of the China Express Association.

The integrated unit was set up with a registered capital of 200 million yuan ($29.51 million) on June 29 and combines the express and logistics operations of the group.

Liu Andong, general manager of China Post, said the integration of the express unit EMS Corporation and the logistics arm China Post Logistics Co Ltd was part of the plans to transform itself into a modernized post group.

EMS was established in 1985 to operate the country's postal express mail service, while China Post Logistics was founded in 2003 to manage comprehensive businesses such as warehousing, distribution, and transportation.

In 2009, EMS earned revenue of around 15 billion yuan, and was the market leader in China, said a July 5 report in the 21st Century Business Herald.

The new entity will own the "all night" cargo aviation network and also have the largest domestic express service network. It will also promote resource sharing between the two sectors and help reduce costs, said the group.

Jul 22, 2010 10:00 AM

India needs $500-billion logistics investment for growth: McKinsey

Thu, 22 Jul 2010 02:00:00 GMT

The country's existing network of roads, rail and waterways will be insufficient as freight movement will increase about three-fold in the coming decade and the shortfall in logistics will put India's growth at risk. To overcome this major problem, based on the current trends, India requires to spend $500 billion over the next 10 years, said McKinsey in its report on 'Transforming the nation's logistics infrastructure,' which was released in Chennai recently during the inaugural session of the two-day national logistics seminar, organised by CII.

Since a large part of India's future logistics network is still to be built, the country has a chance to build infrastructure optimally, to meet the growing demand. Doing so requires an integrated and coordinated approach in which the development of each mode railways, waterways and roads is matched to the needs and existing assets are better utilised, the report said.

The McKinsey suggested ways to increase the Indian rail's share to 46% in its report.

According to the report, if India fails to achieve this, waste caused by poor logistics infrastructure will increase from the current level of $45 billion (equivalent to 4.3% of GDP) to $140 billion by 2020 (more than 5% of the GDP).

To achieve the desired results, McKinsey report has suggested four major shifts for the Indian authorities which include building the right network and ensuring flows on the right mode, comprising an integrated mesh and seven high-density long-distance corridors (rail and coastal waterways), 150 medium-distance rail and road connectors and about 700 last mile links; secondly, creating enablers to maximise the efficient use of the network which includes developing 15 to 20 logistics parks, providing standards for containers and pallets and upgrading the skilled workforce.

Thirdly, extracting more from existing assets by increasing the share of toll plazas with electronic tolling, using stainless steel wagons with higher load carrying capacity and increasing spend on maintenance of roads; and fourthly, allocating more investment to rail and reallocating within roads and rail. Based on the current trends, $500 billion is estimated to be spent on logistics infrastructure in the next one decade, with roads accounting for more than 50% of the spend, followed by rail with 40%.

Jul 22, 2010 10:00 AM

Samsung chooses Thailand over Vietnam for new air cond plant

Thu, 22 Jul 2010 02:00:00 GMT

Samsung, the South Korean electrical appliance manufacturer, has decided to set up its new air-conditioner production line in Thailand instead of Vietnam, the better to meet higher-than-expected local demand.

The new line will raise capacity to 3 million units a year, from 800,000 now, said Somporn Jangreenapawong, business leader for air-conditioners at Thai Samsung Electronic.

Construction will start in the second half of the year, with the new production to start next year. The company declined to disclose the investment cost.

Mr Somporn previously said the parent company would set up the new production in Vietnam, where Samsung also does some manufacturing. However, strong growth in demand among Thai consumers changed the executives' minds.

"In the first half, Thailand's air-conditioner sales jumped by 130%," he said. "They saw our high potential after we grew despite the political chaos."

The additional output will also help serve demand in Russia and Australia, as well as various European and Asian markets.

In the first half alone, the company beat the full-year target of 40% sales growth to 140,000 units by selling 160,000 air-conditioners. The full-year target has since been raised to 100% growth, or 200,000 sets.

The company is also optimistic it can lift its market share to 20% this year, from 14% in the first half and on par with the current market leader.

Research by GFK Retail and Technology showed Thailand's air-conditioner market in the first four months grew by 79% year-on-year in terms of volume and 62% by value. The full-year increase is estimated at 22%.

However, Samsung projects full-year growth of 30-35% for the overall market. With only 18% of the population now using air-conditioners, there is much room for growth, said Mr Somporn.

Sasitorn Khoopatanakul, the company's group air-conditioner business leader, said the main growth engines were the hotter weather, the elimination of excise tax on units last year, which resulted in a cut of 10% in retail prices, and the growing trend towards health-consciousness that encourages people to opt for more expensive units with filters.

The company also attributed its success to aggressive marketing since the start of the year, with more than 20 new models introduced.

Other factors are its vastly expanded distribution network, with new dealers nationwide; its air-conditioner specialist shops, which offer integrated services, from sales to after-sales service; and logistics that focus on providing the greatest convenience to its clients.

Samsung will increase the number of its specialist shops to 110 in the second half of the year, from 80 now.

It also hopes to see the contribution of the specialist shops increase to 25% of total sales, from 10% in the first half, while sales through modern trade channels will decline from 30% to 25% and from consumer electronics shops from 49% to 42%. Business-to-business channels account for the remainder.

Jul 22, 2010 10:00 AM

Honda to source more components from India

Thu, 22 Jul 2010 02:00:00 GMT

Auto major Honda Motors is on a localisation drive in the country to reduce costs and beat the currency blues. The company is looking forward to utilising its existing manufacturing facilities to the optimum in wake of its proposed new small car of which around 80 per cent will be sourced locally.

After the jazz debacle which was termed as a premium hatchback, Honda has realised that pricing is the primary deal maker in India and thus the need for localisation has become even more imperative.

"We are looking at big volumes for our small car so it makes more sense to localise rather than importing," said Jnaneswar Sen, vice president (marketing), Honda Siel Cars India.

Honda is one of many global companies to realise the sourcing advantages India offers taking into account the sheer size of the country and the cost advantages.

Experts feel that it is only a matter of time before India becomes the global auto manufacturing hub.

"India is on its way to become a hub for auto manufacturing as the cost advantages a company can get over here are quite good," said Rakesh Batra, partner at Ernst and Young.

With the global markets plagued by currency fluctuations importing components isn’t a feasible option. So, it is only natural for international auto makers to set up their own production facilities in the country and also tie up with local vendors for components.

Honda with its localisation drive intends to make its vehicles more cost competitive and in turn also hedge its margins. Wth the new small car being priced below Rs 5 lakh it is possible that Honda might have a winning formula in hand.

Jul 22, 2010 10:00 AM

China Merchants acquires Loscam

Max Henry — Mon, 05 Jul 2010 11:00:00 GMT

Hong Kong-based conglomerate China Merchants Group has acquired Australian pallet maker Loscam Ltd, Locam said in a statement on Monday.

The business was sold by private equity group Affinity Equity Partners for an estimated sum of at least US$ 550 million. Loscam did not disclose the exact sale price. Affinity acquired the company in 2005 for US$ 208 million from DB Capital Partners.

"The addition of Loscam to our group is a major milestone and provides a great opportunity for our business," China Merchants Group president Fu Yuning he said in a statement distributed by Loscam.

China Merchants is a major shareholder in China International Marine Containers Group, the world's largest shipping container maker, which had been tipped to win the bidding for Loscam.

Loscam was advised by Credit Suisse Group AG and Deutsche Bank AG while Bank of America Corp.’s Merrill Lynch unit was the adviser to China Merchants.

The purchase makes China Merchants, which has $39 billion in assets, the number one provider of reusable wooden pallets and plastic produce bins in seven Asian nations including Thailand, Indonesia and Singapore, the company said.

Loscam makes and hires out wooden and plastic pallets, and is a competitor to listed Brambles or CHEP. The company, based in Australia, has 11 offices throughout Asia.

Jul 5, 2010 7:00 PM

Ford invests US$450 in new car plant in Thailand

Fri, 02 Jul 2010 09:00:00 GMT

Ford is investing $450 million in a new passenger car plant in Thailand, cementing the country's status as an Asian manufacturing base for the automaker despite prolonged political unrest.

The plant with an annual production capacity of 150,000 vehicles will begin assembling the next-generation Ford Focus from 2012, the company said Thursday. Some 85 percent of cars produced at the facility will be sold overseas and the rest in Thailand.

Ford said up to 2,200 people will be employed at the factory slated for construction in the eastern seaboard province of Rayong that serves as a base for automakers and other industries.

The investment announcement comes after two months of anti-government protests in the Thai capital Bangkok were ended by a final army crackdown in May.

The protests started peacefully in mid-March but turned violent as the government tried to end them. At least 90 people, mostly protesters, were killed and arson damaged more than 30 buildings in central Bangkok.

Analysts had warned the violence, the latest convulsion in a political crisis that erupted with a coup in 2006, and fears of more unrest could chill foreign investment in Thailand, the second-largest economy in Southeast Asia.

Ford said in a statement that Thailand's top class automotive, logistics and export infrastructure was a factor in its decision to build the new plant in Rayong.

"This investment underscores our long term commitment to Thailand, and its role as a global production and export hub for Ford," said Joe Hinrichs, president of Ford's Asia and Africa business.

Jul 2, 2010 5:00 PM

Compal to build new plant in Chongqing

Fri, 02 Jul 2010 09:00:00 GMT

Rock Hsu, chairman of Taiwan's Kinpo Group, has announced that the group's Compal Electronics will set up a new notebook computer manufacturing base in Chongqing by 2011.

According to reports in Taiwanese local media, with the entry of Compal, Chongqing has already attracted four Taiwanese leading notebook foundries, including Hon Hai, Quanta, Inventec, and Compal, making the city the second-largest notebook manufacturing base on the Chinese mainland, second to the East China area.

Hsu also revealed that the scale of its new manufacturing base in Chongqing will be smaller than its existing plant in Kunshan, which will still be Compal's manufacturing base camp.

He said that Kinpo Group will stick to its strategy to decentralize its production capacity and to distribute in Europe, Central and South America, and Southeast Asia. In addition, its subsidiary in Thailand, Cal-Comp Electronics and Communications Company Limited, will double its production capacity; Kinpo also plans to establish plants in Brazil and the U.S.; and the group's power supply subsidiary Acbel Polytec Inc. will set up branch in Europe.

Jul 2, 2010 5:00 PM

DHL set up a new Sustainable Supply Chain Centre with NUS

Fri, 02 Jul 2010 09:00:00 GMT

DHL and the National University of Singapore (NUS) have set up a S$3 million Sustainable Supply Chain Centre that will help companies in the sector make more efficient use of resources.

With strong growth projected for the Asian logistics industry, DHL said having sustainable solutions will give companies an edge.

Climate change is a significant environmental issue for the transport and logistics industry. And market players want to put in place more sustainable measures.

DHL noted that customers are increasingly demanding firms to adopt a more sustainable supply chain agenda.

Paul Graham, CEO (Asia Pacific), DHL Supply Chain: said "There are a number of things we do, in terms of how we design our routes and express business, to ensure they travel less distance but still deliver the service, re-kitting our aircraft fleet to more efficient engines to ensure we're reducing the carbon footprint, and the packaging we use."

DHL aims to reduce its carbon footprint across its business by 10 per cent by 2012 and 30 per cent by 2020.

It is also injecting S$3 million of seed money to jointly develop the new Sustainability Supply Chain Centre.

The facility aims to provide industry benchmarks in areas of sustainable logistics solutions, something observers said is lacking globally.

Meanwhile, Singapore's Economic Development Board (EDB) added that it will look at increasing the awareness on best practices among logistics players.

Kelvin Wong, director of Logistics & Urban Solutions, Economic Development Board said: "A lot of sustainable supply chains are really an unknown today. Most companies are really trying to figure out what they should be doing.

"This centre is about bringing together that group of ideas, that knowledge and putting up a more systematic and structured way to help companies think about sustainability."

Jul 2, 2010 5:00 PM

Indonesia must cut logistics fees, say Nissan CEO

Fri, 02 Jul 2010 08:00:00 GMT

Nissan Motor Company Ltd CEO Carlos Ghosn assumes logistic fee cut in Indonesia would lead to unlimited investments. The reduction will be made possible by improving infrastructure facilities, such as transportation.

According to Ghosn, the growth of vehicles should be supported by good infrastructure in order to lower logistic fees. Indonesia, he continues, is also still in need of more harbors, streets, airports and energy.

Ghosn also supports the government’s plan of acquiring Rp 2,000 trillion to develop infrastructure.

"The plan is good news because infrastructure development is the solution to unlimited investments,” he said after meeting Vice President Boediono at the Vice Presidential Palace in Jakarta on Tuesday, June 29.

At the meeting, Ghosn expressed his optimism on the high prospect of vehicle industry in Indonesia. He also explained about an expansion plan to Indonesia by adding the number of dealers and suppliers.

The 30-minute meeting was also used by Ghosn to deliver a presentation on eco-friendly cars and his view on vehicle industry development and how to gain profit without damaging the environment.

The presentation is relevant to Nissan’s experiences in working on eco-friendly cars in Thailand and Japan.

The world’s famous brand will also increase its investment considering the enormity of Indonesian domestic market. Indonesia is also said to be able to export goods if the logistic fees can be more competitive.

Jul 2, 2010 4:00 PM