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Walmart in China – Fascinating! 8/25/2010

This video is not new, but I watched it again the other day and found it fascinating yet again.  It is about Walmart’s operations worldwide, but the part on China begins at 42 minutes.  I have shown this video to countless friends and colleagues over the past few months.  I find Walmart’s rapid expansion in China over the last decade to be a great case study for large multinationals entering the China market not for sourcing and access to low cost labor, but instead offering their products and services to the Chinese domestic consumers.

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6 Steps to a Successful Strategic Sourcing Program 8/25/2010

Here is some help for those who are looking at expanding their sourcing into low cost regions.  While not a comprehensive guide by any means, this post is simply to help ease the process.

Step 1.

Start Slowly!  Try to limit the number of part numbers or SKU’s that you are focusing on in the beginning.  Don’t try to source every product or component you purchase at once.  This is a strategic decision for your company, not something that should be attempted overnight.

Step 2.

Do Your Due Diligence!  Visit the suppliers or have a 3rd party company assess their factories – if you don’t have a robust assessment process, seek help from someone who is an expert.  Check references – ask the potential suppliers to provide references for other customers in your local region.  In addition, conduct extensive testing – we have all heard about companies that have imported goods from overseas that are tainted with chemicals, do not perform as promised, and have caused significant product recalls.  You don’t want your company to be on the front page of every newspaper.

Step 3.

Provide Realistic Forecasting.  Don’t promise large order quantities to suppliers in an attempt to drive down pricing.  Negotiate realistic pricing based on realistic volumes and you will benefit from the mutually beneficial relationship and avoid costly delays and missed cost expectations.  The same thing goes for delivery expectations.  If your lead times are exceptionally tight – make sure to buffer inventory levels or schedule deliveries accordingly.  International Air Freight costs will quickly absorb any cost savings you gained by going overseas in the first place.

Step 4.

Always 2nd Source.  Establishing a second source from day one can help make sure you are keeping your suppliers honest, but more importantly helps your organization limit risks of a supplier keeping you line down.

Step 5.

Partner With Your Suppliers. Find suppliers that share your company’s vision and that can support you long term.  Building a sustainable relationship based on honest pricing, delivery and quality expectations will benefit your company for years to come.

Step 6.

Always Remain Focused on Continuous Improvement. Be sure to work with your supplier partners to continuously enhance process steps and quality procedures.  Partner with them on new product development projects and let them know how much you value your relationship with them.  Building these types of relationships will give you the upper hand on the competition and help you create the most value for your shareholders.

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Is it time to leave China? 8/23/2010

A great article in the Wall Street Journal this morning titled “Southeast Asia Tries to Link Up to Compete”.  Like many others, the authors discuss the impact of rising wages in China.  What I found most interesting though, is that these authors brought up a good point that I have been sharing with our customers for months – the point that, despite these wage increases, China is still the best option for many companies sourcing goods from low cost regions.  I have chatted with tens of companies over the last few months about Vietnam, India, etc.  While these geographies do have very competitive labor rates, often significantly cheaper than China’s, they lack the infrastructure, skilled workforces, and production experience required to support robust supply chains.

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China RMB Appreciation Affects U.S. Decision Makers 8/5/2010

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In late June, the People’s Bank of China made the decision to allow the Renminbi, or the Yuan, to once again appreciate against the US Dollar, after nearly a two-year freeze period. As world economic conditions slowly begin to improve and pressure from trading partners mount, Beijing is allowing for a more flexible exchange rate.

Beijing’s decision could possibly lead to increases in labor and production costs and has left some US companies uncomfortable with future China investments. Fortunately, historical data and perspectives from industry experts prove otherwise.

China still boasts an extraordinarily large low-wage labor pool, robust infrastructure, extensive investment incentives and preferential tax policies to encourage continued foreign investment. China will remain on the forefront for quite some time.

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Welcome to Understand China: The Blog 8/1/2010

Welcome to our blog!
We are excited to have you here.  We hope that this blog will complement the Understand China site and provide additional, up to date news, commentary, opinion and insight into the complexities of the Chinese market.  If you have any questions that you would like me to address, please feel free to contact me and will respond as soon as possible.
Mike McSweeney on behalf of the entire Understand China Team.
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