“2009 changes in the China supply chain” was the theme of the SCLG workshop held recently in Houghton. The delegates wanted to learn more about buying from suppliers in China, and about handling competition from there, both at the strategic level, and also in practical operational terms (presented in case studies by speakers from Cadac and Hollard Insurance).
Dr Martyn Davies of Frontier Advisory has a wealth of experience in trade relations between China and the whole continent of Africa. Dispelling many of the clichéd stereotypes we are usually fed, his first point was that the global cost of labour is set in China, not by politicians in any country that competes with China, nor can they control trade. Low labour costs in China are accompanied by work force discipline, and also intense domestic competition. These all build up to economies of scale which enable a dominant position around the globe. Meanwhile, SA manufacturers have to live with obstacles such as a perpetually volatile currency which obstructs planning.
China is now seizing the opportunity to use their financial reserves for counter-cyclical investments, not only in the obvious area of natural resources, but even in service industries such as the recently announced Fantawild Adventure theme park in Johannesburg, at a cost of $250 million and aimed at attracting 2 million visitors a year by 2012. Shades of the global spread of American culture via Disney.
At the more prosaic level of procurement from China, one example has been Cadac, who have evolved from being a fairly typical SA manufacturing company struggling with a cost price higher than their competitors’ selling price, into a trading company exploiting their brand leadership by specialising in logistics, manufacturing outsourcing, and R&D.
It would not often occur to us that a major part of an insurance company’s business is controlling the cost of settling claims such as windscreens, which is why it made sense for Hollard to deal with a major plant in China producing 10% of the global market- a reminder of the spectrum of low- to high-tech manufacturing in that country, from toys to PC’s and other electronics products.
There are of course plenty of potential gin traps for companies interested in following in their footsteps. A hands-off approach is definitely not to be recommended, unless expensive lessons are covered in your budget. Supply chain architecture needs to cover the whole gamut of expertise from quality management, manufacturing engineering and tool investment, through procurement contracts and pricing, to logistics (including transport within China). The cash-to-cash cycle requires focus, and constant new product development helps in the intellectual property battle.
Many of our economics and manufacturing operations textbooks mention only the days when Japan and Germany led the way, but a gradual shift in favour of China has turned into a loud crunching sound in the last 2 years. We talk a lot about “agility”, but do we act more like a scared tortoise, or perhaps a Canute?
Footnote
Dr Martyn Davies was the organiser of the recent launch of the offices of the China-Africa Development Fund in Johannesburg, and is CEO of Frontier Advisory, the leading research and strategy firm specializing in emerging markets. He has lived, worked and studied in Asia for 14 years and is currently writing a book on China’s commercial engagement of Africa. He has been a regular commentator in local and international media, from the BBC to Al-Jezeera to Davos.
The workshop leader was Craig Voortman, author, consultant and manager at the department of transportation and SCM at the University of Johannesburg, who has just returned from a study trip to China
SCLG is a non-profit organisation registered in South Africa, affiliated to the Supply Chain & Logistics Group of Dubai. See www.sclgme.org and for further details contact Dave Tootill on 083 453 8318.