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Taming the Tiger

By Clifford F. Lynch

DC Velocity, May 2005

On Jan. 17, virtually unnoticed by the rest of the world, the architect of China’s economic reforms died in Beijing. For the past 15 years, former Chinese premier Zhao Ziyang had been under house arrest after being ousted as the country’s Communist party leader. His crimes? Advocating the market reforms that eventually transformed a backward Chinese economy into the powerhouse it is today, and opposing the military suppression of the 1989 pro-democracy student demonstrations at Tiananmen Square.

We can only wonder what he must have been thinking in his later years as he watched China’s transformation into a major global economic force with a gross domestic product (GDP) or $6.449 trillion and a reputation as the world’s workshop. Did he feel vindicated? Was he concerned? Whatever the case, soaring demand for Chinese-made goods has enormous implications for U.S. businesses. Right now Canada remains the number one source of U.S. imports, but China is quickly closing the gap.

Despite America’s enormous appetite for inexpensive Chinese goods, U.S. companies still find it difficult to negotiate the process of exporting from China. Whether it’s cultural differences or a gross misreading of local economics and business customs, they’ve found countless ways to get into trouble. To help companies steer clear of some of the more common logistics-related problems, we offer the following tips:

  1. Hire locally. If you want to do business in China, you’ll need Chinese employees – even if it means training them from the ground up. Global 3PL Schenker, for example, sends qualified Chinese logisticians to Germany, Austria, and Sweden for 12 months of training in the automotive, electronics and consumer goods industries. They then return to China to work in a Schenker facility. It’s far easier to educate Chinese employees on the fine points of logistics than it is to teach an American the Chinese ways of doing business.
  2. Forget everything you’ve learned about DC economics. In China, the normal rules do not apply. For example, I worked with a 20,000-square-foot, two-story warehouse in Shanghai, staffed by 25 or 30 warehouse workers (the exact number was hard to tell). Daily operations were strictly manual: Eight or 10 workers stationed on the second floor would push cases down a slide to the loading dock, where another five or six would load them into trucks. Others moved product around the building on hand trucks. This facility was clearly a candidate for automation, right? Not at all. Not only did this method work just fine, but an analysis revealed that with an average wage of 50 cents per hour (most Chinese workers still earn less than $1 an hour), the payback for a single forklift would be a whopping 17.2 years!
  3. Keep in mind that piracy still runs rampant. Although the Chinese government is taking a stab at corrective measures, the Jolly Roger is still flying in China. Protections against piracy of intellectual property – whether ideas or brands – are practically non-existent. There’s nothing the Chinese can’t copy – whether it’s software or the uniforms of company delivery people. Beware.
  4. Forget just-in-time; think just-in-case. This is not the place to try out the latest inventory reduction techniques. Unfortunately, the Chinese have more port loading resources than the United States has unloading facilities; and for the time being, port congestion and delays at home will be the norm. Those delays, combined with inland transportation capacity problems, ensure that lead times will be long and delivery dates erratic.
  5. Consider going it alone. At one time, all business was done as a joint venture with a Chinese partner. Today, that’s changed. The government no longer insists on JVs. Now that the constraints have been lifted, many companies are concluding that their Chinese partners simply aren’t adding the expected value and are deciding to go it alone.

 

 

 

 

 

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