A World of Opportunity Manufacturing Outsourcing Opportunities in China

9Apr/140

The Real Cost of taking on a China Project

Head West and turn...

Head West and turn...

Sourcing from China can be a daunting and expensive undertaking for the inexperienced. Timelines are usually doubled and risk is imminent when going it alone.  The internet of things has broken down many barriers to communication and there is a perception that information can be gathered and analyzed based on what is available on the web.  Many have found out the hard way that details and quality can be lost in translation resulting in supply chain nightmares and missed deadlines.  Does your company have any KPIs for lost opportunity cost?

Assume for a moment that you are the SVP of Operations for a U.S. firm in Des Moines that manufactures some sort of metal and plastic assembly.  Sales have been flat and finally in that Monday morning meeting the inevitable question arises.  “What are we doing about China?” your boss asks.  You have a solid team of purchasing professionals, none of which can point to Hong Kong on a map.  However, through the internet one of your go-getters, Bill, has begun to put a spreadsheet together of die cast and injection molding companies in the Guangdong Province, which he’s researched as being a hotbed for these industries.  Since Guangzhou is a FTZ (Free Trade Zone) Bill with his Operations Management degree, has identified this as the logical place to start.  He’s shared a couple of months of emails with “agents” posing as direct factory managers and is ready to take his associates to China.  Just say the word.

Assuming that Bill and the others now have passports and visas in hand, they begin booking flights, hotels, trains, and ferries to venture out into the Middle Kingdom.  In all they’ll be gone for just under three weeks.  Since this is the company’s first sojourn to Asia, you’ll undoubtedly accompany them on this exciting new foray into the land of the dragon along with your Ops VP.  Now you and your four valuable employees will be out of pocket the majority of a month leaving yours and their day to day responsibilities to others or to simply take a break from existing projects.  How much time and capital do you think this will require?  You may be surprised.

The following lists conservatively typical expenses by line item for a 2 ½ week trip to China.  Remember, you’ll require a full 24 hour day of travel to and from and a day of recovery once you’ve arrived.

Cost for single trip, five personnel, to China

Cost for single trip, five personnel, to China

 

The good news is there are competent firms in place to assist in your project management initiatives.  In a recent poll on Linked In, 150 Supply Chain professionals weighed in with their response to the question, What is the best way to manufacture outsourcing in China? (See diagram below). 57% of respondents chose “Establish a trusted partner in China.”  Perhaps a good portion of the voters had already been through the trial and error process.  Or it could be that those who have succeeded in tandem with a firm watching out for their best interests can easily quantify the decision to engage a reputable partner for monitoring manufacturing, quality control, packaging, labeling and logistics.

Linked in Poll-150 respondents

Linked in Poll-150 respondents

In his article 10 tips to better sourcing William Atkinson of Purchasing Magazine explains that regardless of their China story, those who have enjoyed a successful relationship with China have done so through proper guidance and preparation.  In this critical juncture of global commerce, fluctuating currencies, and competitive pressure, it is imperative to select a reliable partner whom you can trust, knows the local governments and regulations, has engineers on staff who understand your products and who can help you gain a foothold in this valuable region of the world.

 

Baysource Global President, David Alexander can be reached at david.alexander@baysourceglobal.net

www.baysourceglobal.com

24Oct/130

New Product Development and the Adaptation Curve Part II

In our four part series New Product Development and the Adaptation Curve dedicated to new product developers, innovators and inventors, we explore the 8 top considerations when developing a new product.  Whether a seasoned marketing professional or first timer, these eight critical components include aspects related to product design, positioning, manufacturing, distribution and financing.

 Ample Capital  

Beyond personal savings, innovators look to family and friends, explore small business loans and even tap into retirement accounts to raise money for their startup products. The initial outlay of inventory capital—that which could be tied up for months is often the greatest obstacle to overcome. Minimum order requirements (MOQs) by factories usually cause a lump in the throat for the first time product developer.  Even if you have the greatest gadget in the world, how do you plan on financing that first big P.O.?  You’ve likely invested significantly to develop your innovation—a figure that has hopefully been taken into consideration for ROI and overall budget.  While established corporations have ample cash flow for typical starting inventories, this may be the greatest initial hurdle for those new to the process.

Inventory Financing / Purchase Order Funding / Factoring

There are a half dozen inventory financing groups (IFGs) in the U.S. who provide bridge capital, purchasing and taking title to inventory which goes to a third party distribution warehouse. You then pay the IFG as for the cost of goods plus any in and out fees required by the warehouse as you sell merchandise.  Purchase order financing is a new twist on Factoring, an older practice in which small businesses sell invoices at a discount for faster recovery of cash, providing the factoring company with a substantial fee.  The caveat is that the invoices must be to reputable clients, i.e. Wal Mart to be considered.

Advantages

These can be good options that allow you to purchase greater quantities thus commanding volume discounts.  Another benefit is that you don’t have to give up equity to outside investors.  Many times the factories’ terms require money down at the time of placing the purchase order.  IFGs make it possible to abide by these terms.  These companies will want to know:

  1. Your sales and marketing strategy (refer to Part I of the series) and about your team
  2. The quality of the products produced
  3. Your margins
  4. Inventory turns
  5. Your credit worthiness and track record

Disadvantages

Personal guarantees and background checks are almost always standard protocol which usually means demonstrating some form of net worth whether savings, retirement funds, property, creditworthiness and no criminal records.  They may also not take a chance on a new client—one who has no real balance sheet to speak of.  Another downside is that these lenders charge interest rates that can be as high as 40% annually.  Lastly, there is always a time requirement (term) for making good on these loans which are usually around 60 days. If you are unsuccessful in meeting your sales plan, stiff penalties may be imposed.

 

Crowdfunding

In just the past few years companies like Kickstarter have created tech based forums which bring creative projects to life and are open to investment by the general public.  To date, over five million people have pledged over $800 million and funded more than 50,000 projects to date on Kickstarter in categories such as films, music and the arts, video games and inventions.

                                      

Advantages

Crowdfunding is catching on and becoming more accepted as a means of raising capital.  Investors do so at their own risk and there is little to no governance or regulation meaning no reporting or other administrative overhead.  Crowdfunding is really an eco-system for philanthropy and those playing in this space have an entrepreneurial spirit.  Mostly, investors do not generally require any form of equity or preferred stock so your ownership is not diluted.  On April 12, 2013 the JOBS (Jumpstart Our Business) Act, was signed into law and is designed to increase job creation and economic growth.  The good news is that it eases fundraising regulations imposed by the SEC enabling more entrepreneurs to raise capital.

Disadvantages

Because blocks of investments can be minimal—as low as $1,000 or less, investors may be less motivated to provide insight or contribute to the long term success of a project.

Seed Capital / Angel Investors

Advantages

The difference between Seed Capital and Venture Capital is that Seed money comes from individuals vs. institutional investors. Most angel (seed) investors have a wider appetite for risk and a savvy track record for assisting startups with building their businesses.  These professionals are also versed in providing feedback on pro-formas (financial targets for top line revenues and margins; cash flow models and debt.  Generally seed investors are less hands on in the day to day running of the business once they have a sound idea of your business plan.  Seed investments are less administratively complex with less formal corporate contracts and governance.

Disadvantages

Seed capital usually comes at a cost—Equity. There is risk on both sides.  The investor may never recover their investment or you may give away too much ownership.  Usually the latter results because it is just so tempting for the inventor to commence their dream.

 

Coming next:

Educating the Masses 

How will you announce the arrival of your new product to the world?  Magazines?  PR campaign?  Put an ad in the paper?  Direct Response Television (DRTV) is a great but often expensive form of advertising and one of the best ways to demonstrate a new application or use as well as building brand equity.  It’s great to have a video on your web site but again, how will you drive viewers and a following?

David Alexander is Founder of Baysource Global, a contract manufacturing and project management group with offices in Tampa and Shanghai.  Baysource focuses on product development, strategic sourcing, manufacturing, and China strategy.  www.baysourceglobal.com

 

1Oct/132

New Product Development and The Adaptation Curve Part I

In our four part series New Product Development and the Adaptation Curve dedicated to new product developers, innovators and inventors, we explore the 8 top considerations when developing a new product.  Whether a seasoned marketing professional or first timer, these eight critical components include aspects related to product design,  positioning, manufacturing, and distribution.

Product Development Costs 

Most inventors underestimate the cost for designing a manufacturing ready product.  Tools and molds can easily run into the five to six figure range and can dwarf first year profits.  Most any product requires both two dimensional (2D) and three dimensional (3D) engineering drawings that specify material requirements, accurate measurements and tolerances which are very minute, allowable thresholds or variances in gaps, thickness, or practical limits without significantly affecting function of a component.  These are the physical requirements of a product. There are also electromechanical tolerances which measure allowable ranges of energy output or resistance.

2D & 3D drawings are computer generated or Computer Aided Designs (CAD) are then used for creating the tooling for parts whether metal, plastic or other materials, even cut and sew projects.  The first commercial applications were in the automotive and aerospace industries.  Through the use of some of the most common software such as Solidworks and AutoCAD, two of the more widely used platforms, designers create the physical properties of a product.  Depending on the complexity of the part and the actual quantity of components this cost can range from the low to tens of thousands of dollars.

 

Distribution Channels

Some products are ideal for Big Box retail but unless you know how to navigate this space, most category managers are not going to take a chance with a single line item vendor.  Determining how to sell your product comes down to the “4-P’s” or Product, Promotion, Price and Placement.  Entire marketing strategies are built around this.  How you position your product will dictate your brand strategy.  From there it is necessary to determine price, sales tactics and a marketing campaign and budget.

Products are sold through single or multiple channels.  Often and most overlooked by new product developers is the benefit of working through wholesale/distributor channels.  These organizations have years of traction and relationships with retailers and can be the best avenues for introducing your product.  They have sales teams in place and assumedly the category expertise for not only implementing your programs but also helping positioning and building your brand.  Your distributor is your customer and investing the time to work with and support this resource will pay off tenfold.

Think about all the valued functions that are fulfilled by a strong distributor partner.  They have the infrastructure in place that includes:

  • Sales; category expertise and feedback
  • Warehousing; the ability to handle large single shipments
  • Customer service and support—Activity based interface with multiple customers
  • Inventory reporting; purchasing and replenishment
  • Shipping and logistics

 

28Jun/131

New Product Development and “The Adaption Curve”

 

Nobody has an ugly baby.  The same goes for new product developers.  Whether an independent entrepreneur or seasoned marketing team, once a new product concept is developed and months, even years in some cases are invested, our babies become prettier every day.  The same unconditional love and support that builds as our children mature and develop transfers into the professional mindset of innovators.

 

Creating a viable and robust market for a new product takes enormous resource, planning and resolve.  The sheer capital to unveil and furthermore generate brand equity is often the most overlooked aspect of getting a product to market.  Take the Segway for instance.  This emission free, efficient mode of personal transportation has been around for over a decade.  With some quick, simple training even children can master riding this marvel.  Reaching top speeds of 12.5 mph it has a range of up to 24 miles on a single charge.  Still commercial acceptance has been scant.  Why wouldn’t every warehouse and airport have a fleet of them?

 

Recently two Swedish designers have developed an entirely new concept for biking safety in the form of the Hovding, an airbag which deploys vies-a- vie algorithmic intelligence protecting riders from head trauma in the event of a fall or crash.  This revolutionary “bike helmet” is worn around riders’ necks and actually becomes a stylized accessory.  At $520 prospects for commercial distribution of any scale in the next five years may be slim.  However according to Forbes writer Jeremy Bogaisky this startup has already taken in $13 million in venture capital.  He cites bicycle industry analyst Gary Coffrin who gives a great summation stating “The adaptation curve for such a unique product at this price point is not likely to be rapid.”

 

Taking the tech factor down a notch, in my own gym sits a clever form of a door stop called “James the Doorman.”  I would imagine the designers, Black+Bum had their “Eureka” design moment and the wheels started spinning.  Honestly I have never seen such a cool variety of a door stop and  without knowing much about how they developed this unique version of an age old application, I can’t comment on what lengths they went to in commercializing their product.  I do know that the one in my club is the only that I have ever seen.

 

Every week we hear from inventors and product developers who have put great thought into products which offer unique solutions to every day needs.  Often though there are many missing pieces to their overall strategies.  Below are the Top 8 Hurdles to Successful New Product Launches.  In the coming months, I will be writing a series which individually expands on each of these, why they are often overlooked and how they are important for taking new products to market.

Product Development Costs 

Most inventors underestimate the cost for designing a manufacturing ready product.  Tools and molds can easily run into the five to six figure range and can dwarf first year profits.  Developing engineering drawings—those that translate into production and material specifications  require time and money.

Distribution Channels

Some products are ideal for Big Box retail but unless you know how to navigate this space, most category managers are not going to take a chance with a single line item vendor.  It creates additional administrative work for the system, and most inventors don’t have the capital to market their products.  Specialty and on-line retailers generally are better proving grounds for a products’ acceptance but you still have to generate interest and traffic.  Oh, and did you get a UPC code yet?

Inventory Capital 

Minimum order requirements (MOQs) by factories usually cause a lump in the throat.  Even if you have the greatest gadget in the world, how do you plan on financing that first big order?

Educating the Masses 

How will you announce the arrival of your new product to the world?  Magazines?  PR campaign?  Put an ad in the paper?  Direct Response Television (DRTV) is a great but often expensive form of advertising and one of the best ways to demonstrate a new application or use as well as building brand equity.  It’s great to have a video on your web site but again, how will you drive viewers and a following?

Price vs. Value 

In the initial phase of your product’s life-cycle there will likely not be the scale (volume) to drive down production cost.  Unless you can convince consumers they should pay a premium retail price, break-even may be longer off than you expect.  Plus, buyers will tell you whether your SRP (Suggested Retail Price) is in line with their category. 

Regulatory and Testing Requirements 

With your product in the public domain, most retailers will require some sort of regulatory or product safety testing and compliance with groups such as the Consumer Product Safety Commission (CPSC), Underwriters Laboratories (UL) and others.  Depending on what industry you are in, your item may require testing and certification by default.  To you this means additional time, red tape and money.

Patent and Intellectual Property Protection 

This is perhaps the most critical and misunderstood area of product development.  In many cases developers could have saved themselves months of work simply by doing some basic research and analysis.  The United States Patent and Trademark Office site has become more navigable and efficient thanks to improvements in their search functions.  There are three ways to begin your inquiry using key words, designs or a combination to see if someone else has registered a similar product.  Even if they have you may be able to make some functional changes to distinguish yours but again, many underestimate the time and capital required to protect the investment of your innovation.

Aftermarket Sales and Support

Now that you’ve got a patent pending, finalized your business plan, raised early stage capital, have product on the warehouse shelf and are starting to generate traction don’t forget the basic administrative requirements.  If you hit the lotto and are selling to Wal Mart, using retail link is a requirement.  This entails sending a staff member for training and ultimately using their on line tool daily or weekly.  Is someone manning the phones for product questions and concerns?  How robust is your web site?  Oh, we haven’t even discussed how much this will cost to build.

While these hurdles aren’t surmountable, it is critical to factor in all the critical and time consuming elements of bringing a product to life.  Even this list is not comprehensive enough to account for the unexpected turns in the pathway to new product development.  If it were easy, everyone would be doing it.

 

Be on the lookout for “The Adaption Curve” the follow up series which explores the product development lifecycle.  We will break down each topic in greater detail.  To sign up for our mailing list go to http://baysourceblog.com/contact-us/

 

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David Alexander is president of Baysource Global www.baysourceglobal.com and has a decade of experience with new product development and contract manufacturing.

11Mar/130

Using a China Agent vs Going Direct

 

As companies weigh the pros and cons of working directly with a factory vs. dealing through an agent for their China sourcing needs there are many points to consider.

Here are my top ten:

 

1.  The scale or dollar volume purchased annually. (I published an article in M&A Magazine which argued it requires $40-$50MM in throughput for any ROI on a direct sourcing office.)

 

2.  The number of varying categories and SKUs being sourced.

 

3.  The complexity of products being sourced. Cotton socks are a lot less difficult to make and package than electromechanical items with sophisticated firmware and specialized components.

 

4.  Experience levels, competence and proficiency with the language of the country with whom they're dealing.

 

5.  The  sheer number of factories the buyers/agents have worked with including access to the owners or very least factory bosses and relationships with those individuals; the length of time and history with those factories and dollars of business placed with them; the ability to get production bumped forward in the schedule;  the ability to receive favorable payment terms which impacts cash flow of any business.

 

6.  Competency with provincial government regulations and requirements. (How would a New Yorker fare in an Alabama factory or vice versa?)

 

7.  Ability to travel to/from factory within one day for urgent matters, product/packaging changes, and production oversight.

 

8.  Quality Control-Generally considered the most critical.  The standard process for measuring QC and the depth of practices such as random and in production sampling, testing equipment and facilities, reports, photos, and now video.

 

9.  Experience with logistics, freight terms and all export documentation and activities.

 

10.  Does the agent or factory (for direct) share your sense of urgency and same philosophies and principals?  Are they vested in the outcome and long term success of the business?

29Jan/130

The year of the Black Snake

 

Legend of Chinese New Year

The 2013 Chinese New year is Sunday, February 10th with celebrations lasting the following week. Also known as the Spring Festival, Chinese New Year is the most important social and economic holiday in China. With origins dating back centuries, the event marks the end of the winter season. According to legend, every spring a monster would destroy villages and anything that came in its way. One spring, the villagers hung red lanterns and threw burning bamboo when the monster arrived. The monster fled never to return again, thus spring festival was born.

This year is the year of the Black snake and begins on February 10th  ending  February 24 and  is named for steady progress and attention to detail. It is said that great prosperity will come to those who are silent and observant, waiting for the perfect moment. However, bad fortune will fall upon those who make quick hasty decisions.

23Jan/131

Will China remain a strategic manufacturing destination?

 

We continue to hear about the dynamics affecting China’s place as factory to the world. Increased labor costs, currency fluctuations, and shipping cost increases have affected decisions about whether or not offshoring strategy makes sense. Certainly there are products that simply aren't feasible for contract manufacturing scenarios. Here are the top five reasons China is still an ultimate destination for products that are highly labor intense or are in the startup phase.

Labor vs other countries

Labor costs may be up to 30% lower in other countries like Viet Nam and India. However this is offset by superior supply chain advantages such as roadways and utilities. Skill levels are also higher thanks to Western training and a little osmosis over the past 15 years. This means China’s productivity continues to rise other countries in Asia are less efficient overall.

Flexibility

Because China’s manufacturing base tends to be cellular, meaning a production or assembly line can be producing one thing today and another tomorrow, China workers are frequently adaptable to ever changing tasks. Much of this can be attributed to the highly seasonal nature of Western retail needs such as Christmas lights or plush toys. China also presents many options for qualified suppliers whose initial minimum order quantities are less than traditional manufacturers. Often a China manufacturer will begin with molds having less cavitation than is generally required until volumes reach a critical mass. This all translates into less startup cost, quicker return on investment and greatly reduced risk.

Availability of materials and manufacturing

Because China now makes a fifth of the world’s manufactured goods, there is a ready source of supply for various components, parts and necessary materials. China is also home to thousands of industrial parks thanks to investment by not only the Chinese government but also foreign direct investment by Western firms. Shanghai and Guangzhou are known manufacturing hubs and have some of the heaviest investment and infrastructure along with some of the largest workforces in the country. Special Economic Zones created by the PRC have attractive tax incentives for FDI and are given more independence on international trade and economic activities.

China Innovation and Investment

Because as we mentioned China’s skill levels have vastly improved, China is now focusing more on innovation and creative manufacturing practices. Also, with labor increases have come increased capital investment in the form of automation—something that used to be last resort if a task or function could be completed manually. So what does this all mean?

Ideal Product Development

China continues to be an ideal partner for new product developers and innovators. While labor costs have increased over the past five years, China’s productivity has increased tenfold. China offers the flexibility required to take on a variety of new projects and with lower minimum order quantities. There is a steady supply chain for materials and different manufacturing services and China continues to invest in technology, facilities and innovation. While China may not be suitable for some manufacturing due to increasing freight costs and currency fluctuations, every project must be carefully weighed and evaluated on its own merit.

18Jul/120

Running out of time

I had a dear friend, Dr. Dick Bowers who played and coached basketball for the University of Tennessee Volunteers. He ultimately became athletic director at the University of South Florida and personally led the charge to bring the first football program to the school which in a meteoric fashion became members of the Big East and even jumped briefly to the #2 football team in the country—all within the first ten years of the program’s inception.

 "We advance our customers goals in a fraction of the time compared to attempting to navigate China on their own."

When Dick passed away, dignitaries, business leaders, even the Mayor of Tampa were present at his service. He was the kind of man you loved and looked up to and made everyone feel important. Of all his sports accomplishments Dick used to say that he was most proud of the fact that while he was with the Tennessee basketball program they never lost a game. “We may have run out of time,” he would chuckle… and would continue, “but we never lost a game.”

Like so many things in life, our business success is measured within the framework of time broken down in eras, years, quarters, months, weeks and days and often tight one-hour deadlines. We look at financial results and measure our success by what we accomplish within the context of time. We can grow, stagnate or lose ground to the proverbial hourglass.  For nearly a decade as we have continued to refine our message, the notion of what we best do has become clear. We don’t sell anything. We save our clients valuable time.

Your company is no different than a basketball team. You recruit and assemble the best players you can find, constantly plan and strategize and you play the game. Your financial results tell the story of whether you’ve won or lost and are determined by whether you’ve scored more points (profits) than what it costs to run your operation within a fiscal year.

In the new, flat global landscape low cost manufacturing hubs are found where labor is abundant in supply. China has continued to be forefront as factory to the world for products that require a high degree of labor. Productivity gains, improved quality processes, advances in distribution and know-how have kept China at the forefront of all low cost manufacturing countries. But with hundreds of thousands of factories, selecting the right manufacturer and executing on plans can be a daunting if not problematic and time consuming ordeal.

We have invested significantly in building a competent team of strategic thinkers, capable managers and dedicated partners who serve our clients in the areas of factory identification, manufacturing expertise and project management. We advance our customers’ goals in a fraction of the time compared to attempting to navigate China on their own. We do this all while meeting cost targets, providing on-time, accurate deliveries of products made to specification, of the correct materials, and of superior quality. Contract manufacturing is complex and challenging even when hiring third party factories in the U.S. let alone China. Without a prepared team that is coached and experienced, the game of doing business in China can be perilous.

We all have the same 24 hours a day to succeed. How we best allocate and use that time is our choice. Even if you play a little basketball yourself, would you be able compete with a well coached NCAA team?

7Feb/123

Are China and the U.S. Striking a Balance?

 Could we be striking a balance?

People fall into two schools of thought these days.  There are those that think China outsourcing has run its course.  They subscribe to the notion that the appreciation of China’s currency (RMB), labor shortages and cost increases and increased fuel prices mean cost savings opportunities have substantially diminished.  In contrast, the other side of the coin spells out what others have believed for years—startup costs and tooling are less in China, products with high labor content have to be outsourced and China will always be “Factory to the World.”  For several reasons, they are both correct.

Rising wages

In a December 15, 2011 Wall Street Journal article it was reported that China's Ministry of Human Resources and Social Security, announced 21 provinces and municipalities had, on average, instituted annual minimum wage increases of 22% by October of last year. Officials in Shenzhen, in China's southern manufacturing heartland, said in November that they would raise the city's minimum wage by 15% in January, to attract more workers.  While wage hikes are nothing new, they have reached a point where factories are no longer able to absorb the increases meaning higher costs are passed on to consumers.  However, with last year’s economy taking a turn for the worse, demand dampened driving commodity costs down.  The result was China’s digging in its heels on allowing currency to rise against the dollar.

Since the mid-90s companies sought out the labor machine that China represents with its nearly 800 million strong workforce to remain competitive in Western markets.  China’s family planning practices in place since the 1970s translate into a tightening demographic of available workers.  This has also meant that China has moved more inland to expand its available workforce.  Even so, the average hourly wage earner still makes only around $70 per week on the low end and up to $80 at the high end.   While this is nearly double what it was around 2001, compared to the 2011 U.S. Federal minimum wage of $7.25 per hour/$290 per week the 275% premium speaks for itself.  Add to that mandatory unemployment taxes, healthcare benefits and other layers of overhead U.S. companies have to absorb and the costs begin to add up.

U.S. Manufacturing on the rise

According to a February 1, 2012 Bloomberg report in which she sums up the U.S. manufacturing landscape, Caroline Baum states that “manufacturing employment peaked at 19.5 million in 1979, when it represented almost 22 percent of the workforce. Last year, the 11.7 million manufacturing workers accounted for less than 9 percent of total employment, according to preliminary data from the Bureau of Labor Statistics. During that time, the value of U.S. manufacturing output kept increasing, thanks to strong productivity growth.”  So in other words, Advantage U.S. 

And she goes on. “Manufacturing employment has increased 334,000 since the low in December 2009. Southern, non-union states offer an increasingly hospitable environment for factories. NCR Corp. opened a new plant in Georgia to produce automated teller machines. Caterpillar Inc. plans to build a new construction- equipment factory in the U.S. Ford Motor Co. is bringing 2,000 jobs back from China and Mexico after reaching an agreement with the United Auto Workers union. Even a family-owned North Carolina furniture manufacturer decided to reopen a factory that has been shuttered for more than a decade.”

Advantage-U.S.

China’s Innovation

What comparative advantages China may be giving away in labor and productivity however is being bolstered by innovation which takes China to an entirely new level on the global playing field.  China has doubled the number of international patents created since 2005 and is launching products at a fraction of the time as its Western counterparts.  Mckinsey Quarterly's February report cites their government’s emphasis on indigenous innovation, underlined in the latest five-year plan. Chinese authorities view innovation as critical both to the domestic economy’s long-term health and to the global competiveness of Chinese companies. China has already created the seeds of 22 Silicon Valley–like innovation hubs within the life sciences and biotech industries. In semiconductors, the government has been consolidating innovation clusters to create centers of manufacturing excellence.  And the report goes on to say that because of its large market, much of China’s innovation is staying there.

Advantage-China

Striking the balance-bringing it together

Because of the cross pollination of U.S. industry standards, quality processes and knowledge transfer, more and more firms are combining China’s vast low cost labor machine, ingenuity and speed to market to become multi-national in scope.  Solar power companies, the auto industry and a new medical initiative sponsored by the Chinese and U.S. governments are creating opportunities for both our countries to leverage their strengths.  Read the joint statement here.

China wins because they gain access to medical innovation and improved standards of healthcare.  The U.S. gains access to an untapped market for highly profitable products and services.  This bi-lateral agreement fosters long-term cooperation with China in the areas of research, training, regulation and the adoption of an environment that will increase accessibility to healthcare services in China. Participating U.S. companies initially include 3M, Abbott, Chindex, Cisco, General Electric, IBM, Intel, Johnson & Johnson, Medtronic, Microsoft, Motorola, and Pfizer. Supporting organizations include AdvaMed, the Alliance for Healthcare Competitiveness, the American Chamber of Commerce in China, and the American Chamber of Commerce in Shanghai, PhRMA and the U.S.-China Business Council.

As we continue to increase trust, enhance communication, and cooperate in developing life improving technologies and innovations, a new frontier of collaboration is emerging that will change the world as we know it.

 

David Alexander is the founder of Baysource Global and Executive Vice President of Direct Source China, a strategic sourcing and strategy firm with offices in Miami, Tampa and Shanghai.

22Nov/110

Are You Marketing to China?

It's a simple question, but it does carry a lot of weight...

With the middle-class consumer demographic growing rapidly in China, companies who are not including China in their target audience could find themselves falling behind in the years to come. Here's more...
 

 Are you ready to talk to them?