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China Jet Battle 11/16/2010

China Airplane industry

Today there was an article in the Wall Street Journal announcing China’s newest big jet orders. The first 100 orders were announced for a jetliner set to compete with Boeing and Airbus. The C919 was unveiled at the Zhuhai air show in Southern China.

The C919’s maker Commercial Aircraft Corp. has not released exactly how many planes have been ordered nor the price of the single aisle, 160 aisle jetliner. This project marks a long-time coming initiative that China has been working towards. Beijing rates the development of a large passenger jet up there with its space program in terms of pride.

Both the United States and other countries’ suppliers are working on the C919. GE and Safran SA won a $10 Billion deal to make the engines.

Fun Number Facts I thought I would throw in:
-Passenger stats through 2010 are up 18% from 2009 to  200.7 million passengers.
-Boeing estimates that China will need 4,330 new planes over the next 20 years.
-China is set to be the 2nd largest plane market in the near future.
100– the number of announced orders thus far for the C919
2014– the expected year for the C919’s 1st flight
2016– The expected year of delivery for the first C919’s (only mock ups at this point)
$480 Billion- Estimated market size for the aircraft manufacturing marketing in China over the next 20 years
102 – The number of planes ordered from a C919 competitor, Airbus, this month in China

Full Article

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Manufacturing in Tibet? China continues to to invest inland. 11/15/2010

An article on China Tibet Online‘s website caught my eye yesterday.  It talks about a new industrial park project to be located near Lhasa, Tibet.  The “Tibet Ethnic Culture Industrial Park” concept is going to try to attract new investors for the project at next week’s 5th China Beijing International Cultural and Creative Industry Expo to be held later next week.  The industrial park will focus on manufacturing of cultural handicraft’s and similar products to support Tibet’s growing tourist industry.

I haven’t been to Tibet, but I cant say that I’m overly excited to hear about investment in the manufacturing sector in the region.  I have been told that Tibet truly is one of the most beautiful parts of China – hopefully I can get there before it becomes over-industrialized.

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China Continues to Grow Beyond Low Cost Labor 11/14/2010

A recent article I found online discusses a very important topic: China moving beyond just a source of cheap goods and low cost labor.  Despite what you may have heard and read, China has become a very advanced economy from what it once was.  Many international firms like GE, Motorola, and General Motors have invested significantly to develop large research and development centers throughout China.  The article discusses a recent survey conducted by KPMG which shows a growing interest among global manufacturers to leverage the large pool of skilled engineers and other highly trained individuals to increase the amount of “value-add” activities that there businesses are conducting in the region.

I’ve inserted a brief form the article below:

“China and India have become more than just centers for low-cost manufacturing for some global companies. The survey showed that a significant percentage of global manufacturers are willing to source research and development and the manufacturing of goods where important intellectual property is involved has increased to 29 and 33 percent, respectively.

‘If you would have looked at the survey three years ago, it would have been zero percent…no one would have ever done product innovation or R&D in India or China. Many really sophisticated companies are saying they’ll make it in China if they’re selling it in China.'”

I actually don’t subscribe to the theory that three years ago none of these global manufacturers were eyeing China as a potential R&D destinations – 5 years ago I was working inside GE’s medical R&D center in Wuxi, just outside of Shanghai on a number of different projects that had been underway for quite some time.  What I do support however, is the notion that most manufacturers are only recently beginning to view China as a potential destination for R&D investment.  Especially as more and more companies are eyeing the Chinese domestic market for their goods.  Local R&D will benefit these companies in many ways, especially when it come to modiyfing existing designs to suit Chinese market demands and applications.

I’d love to hear more of your thoughts on this…please feel free to share!

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China and the Wine Industry 11/12/2010

china wine auction chateau lafite rothschild 1869As an avid wine enthusiast, I think it is necessary to write a post about China’s growing position in the wine world. It may be surprising for some of us to hear that Hong Kong is now the world’s 2nd largest center for Wine Auctions in the world. It has surpassed London and is second only to New York. In fact, a world record was set this year at an auction in Hong Kong with the most expensive bottles of wine ever sold on record. Three bottles of 1869 Château Lafite-Rothschild (world famous French wine from the Bordeaux region) were sold for an astounding, $232,692 USD…each! The one auction sold $8.4 million worth of wine!

As more and more Chinese have started to enjoy the wonderful world of wine and wine collecting, entrepreneurs have been finding ways to capitalize. A number of abandoned factories in Hong Kong have been converted into wine storage units complete with motion detectors, chiller rooms, humidity monitors and automated temperature controls: all the necessary precautions for storing world class wine. If only I could have a wine cellar that big!

You can only imagine the importance for the different wine makers of the world to take advantage of the already huge, and growing market for wine consumption and sales in China. As for producing wine? I think that will be left  to the professionals.

Want to attend a huge food and wine expo? The China International Foodstuff Exposition (CIFE). The 7th annual expo held in Guangzhou, in the same facility as the Canton fair, is going to be held from June 2-June 4th, 2011. The expo this past year had over 25,000 visitors , 523 exhibitors from 23 countries/regions. CIFE is known to be the largest trade fair for the food and beverage industry in South China.

Full Article
World Record china Wine Auction

Photo: Reuters

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Panjiva’s Trade Data in for Month of October 11/12/2010

U.S. October Trade Shipments ChartPanjiva, an online trade platform used by sourcing and supply chain professionals to screen US import data, posted in a recent blog post that global trade activity saw a 2% decrease in global manufacturers shipping to the United States from September to October this year. This decrease marks a noticeable difference from the 3% increase that Panjiva reported during the same period in 2009.

What’s driving this decline? Most likely the weakened US dollar. As the US dollar continues to weaken against other global currencies like the Chinese Yuan, it makes it significantly more costly to import products from countries with strong currencies.

The positive result however, is that as the US dollar weakens, US exports become significantly more attractive to foreign buyers. I think we are going to see a dramatic increase in US exports over the next 12 months as the dollar doesn’t look like it’s poised to gain strength any time soon.

See Panjiva’s Post

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How to Source Products from China. Part 1. 11/11/2010

Sourcing from Chinese manufacturers can be a daunting task.  Many companies, both big and small, don’t know how they should go about sourcing products from China.  To help you get started, I’ve compiled a list of tips, cautions, resources and recommendations below.

Starting the China Sourcing Process

The first thing you need to do is figure out which products you want to source and make sure that it makes financial and logistical sense.    Long are the days when you could source just about anything in China and save a significant amount of money.   Rising logistics costs and the valuation of the Chinese RMB have all had an impact on the China Sourcing projects, and you have to make sure that your products are appropriate for sending to overseas manufacturers.  If your products are large in volume for example, you may end up spending every dollar you save on increased logistics costs.  Another thing to take into consideration is lead times.  The average number of days it takes for goods to get from a manufacturer in China to a Customer here in the United States is 28 days, so you have to ask yourself…”will my customers be able to accept this increase in lead times?”

One great way to determine if it makes sense to source from China is to check out what other companies in your industry are doing.  If no one is sourcing in China, there might be a good reason why.  On the other hand, maybe you can be the first one there!

Finding China Suppliers

After you have determined that your products may be a good fit for China sourcing, the next step is to find suppliers.   There are many ways to find suppliers.  Online search engines like Panjiva.com, Alibaba.com, Made-In-China.com, and GlobalSources.com all offer access to hundreds of thousands of Chinese suppliers.  Another way to search for suppliers is by attending trade shows in China that are specific to your industry – this option will give you a much better feel for the types of products in your particular industry that Chinese manufacturers are able to provide, but does require getting on a long haul flight to China and you will need a China Business Visa.  While there are a handful of China Sourcing Trade Shows in the United States every year, you will find trade shows in China to be much larger and will have a significantly larger pool of suppliers to meet with.

Another option is to find and contact a company that specializes in sourcing products from China.  These companies come in all shapes and sizes ans typically follow one of two business models.  Some will identify a Chinese manufacturer, buy the parts and resell them to you (at a profit of course).  This “middle-man” business model has been the most common, but as China sourcing costs have crept higher in recent years, many  companies have been looking to eliminate the middle men and go directly to the suppliers themselves.  Our company charges a fee to establish a source of supply and you can be sure that you are getting the “true” price.  Firms like ours are fewer and far between compared to the companies that use the “broker” approach, but is a preferred option for some.

CAUTION: Make sure you conduct supplier due diligence.

No matter which method you use to identify your suppliers, be sure to do your homework.  Conducting due diligence on your potential manufacturers in China can save you a lot of money.  I have heard countless horror stories about companies sending payment in advance and never receiving goods, receiving 100% defective parts, etc.  Just as with every other part of your business, you are only as strong as your weakest link.  So be sure to research the suppliers with all the resources available to you.  I recommend always asking for references.  Ask the Chinese supplier for references based in your area or your industry.  Use tools like Panjiva.com to validate the customer base that the suppliers claims to have.  And, if this supplier is critical to your business, its probably worth going to China to meet with management, tour the factory and continue to validate the suppliers claims.  If traveling to China doesn’t seem like your cup of tea or if you are inexperienced conducting factory audits, it might be a good idea to solicit the help of a 3rd party audit firm.  There are many of these firms in China, and you can even find firms with offices in the United States.  Our company recently launched a website – FactoryAudits.com –  while we are certainly not the only provider of such services, taking a look at our site will give you a good idea of pricing for audit services.

Ill continue this post over the next few weeks.  Appreciate all your feedback and comments!

Other posts that might interest you:

6 steps to a successful strategic sourcing program

China Manufacturers:  Factory Inspections

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Representative Office or WFOE in China? 11/8/2010

Most of the links below are to the various resources available from Understand-China.com.

Setting up a Representative Office always sounds like the easiest way to establish a business in China.  Years ago it may very well have been, but these days, largely due to Chinese government crackdown, it may make more sense to set up a WFOE or Wholly Foreign Owned Enterprise – especially if China is part of your company’s long term strategy.  Let me tell you why….

Rep Office Restrictions

Rep Offices in China are intended for the sole purpose of promoting a business in China.  Thats it.  And while the initial investment may be more attractive compared to the registered capital requirements involved with setting up a WFOE, there are still a number of other costs and limitations to consider.

  • You cannot conduct any kind of profit generating activity of any kind.
  • You are not allowed to hire employees directly – the Chinese Government forces you to use approved HR firms.
  • You are required to have a Chief Representative that is responsible for managing the day-to-day operation.
  • An Office is REQUIRED.  (usually you will need to sign a 12 month lease in a Chinese government approved building)
  • You will be subjected to annual audits, which means you will either a) need a bookkeeper, or b) need to hire an accounting firm to reconcile your books.
  • Last but not least – You are required to pay taxes……10% on all expenses.  If your annual operating budget is $200,000 your annual tax bill will be $20,000.

Wholly Foreign Owned Enterprises (WFOE) a.k.a. Foreign Invested Commercial Enterprises (FICE)

WFOE’s allow for maximum flexibility.  When you set up a WFOE in China, you essentially have the same incorporation status as any Chinese domestically owned company.  In addition, as a legal entity, you are permitted to conduct business transactions (as long as it is within the scope of your business license of course), hire employees, etc.  You also have the flexibility to setup your office in the building of your choosing.

See also:  Incorporating a Business in China

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Business in Tianjin? 11/6/2010

The Holiday Inn Tianjin Riverside Hotel really surprised me on a recent trip.  I checked into the hotel today after a long journey from the US.  A very nice, new, modern hotel located right on the river.  Fairly easy access to the Tianjin Railway Station which is convenient for anyone taking the high speed train to/from Beijing.  As you may or may not know, Holiday Inn Hotels in China are nothing like Holiday Inns in the USA.  In China, it is a luxury hotel chain comparable to Westin’s, Hyatt’s, Marco Polo Hotels, etc.  The only thing you have to watch out for are some of the locations that are older and are starting to age.  This one however, was in great shape.  The rooms were large and the Hotel is centrally located – convenient for most of downtown Tianjin.  Note:  If you are headed to TEDA – you may want to explore other options.

Phone :  +86 (22) 2627 8888  Address:  Phoenix Shopping Mall, East Haihe Road, Hebei District, Tianjin  (Near ‘Eye of Tianjin’)

Bottom Line:  Brand New (2008).  Very good place to stay.  Great location.  Breakfast is OK.

Trip Advisor Link

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China Manufacturers: Factory Inspections 11/5/2010

Many people and companies choose to source products from Chinese manufacturers that they meet online, and at trade shows.  While sites like Alibaba.com offer quick introductions to thousands of Chinese suppliers, you must make sure that you are aligning yourself with the right Chinese Suppliers that will be able to support your business and meet your customer’s expectations.  Sites like Panjiva.com can be very helpful in conducting preliminary supplier due diligence, but nothing will compare to actually physically visiting and auditing your potential suppliers.  Understanding the inner workings of their operations as well as their strengths and weaknesses will give you the peace of mind you need to move forward with the relationship.

Whether you choose to audit your suppliers or have a 3rd party China auditing company do it on your behalf, the important thing is that its gets done.  Talk to anyone who has been sourcing from China for any length of time and they can tell you a good story about how they have had bad experiences with certain vendors.
To help you get started, I have posted a picture of an example factory audit.  I pulled this one from factoryaudits.com – you can check out their website for more info on how they help companies with China audit requirements.

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Headed to Asia World Expo? Hong Kong Sky City Marriott just works. Just watch out for the Typhoons :) 11/4/2010

On a recent trip to Hong Kong I decided to book a room at the Hong Kong Sky City Marriott Hotel.  I was coming in late on a Thursday evening last month and needed to be at the Asia World Expo for a Trade Show the next morning.  The hotel is located adjacent to the Asia World Expo and a 1 minute drive to Hong Kong International Airport (HKIA or HKG).  I couldn’t have made a better decision – I got a great rate (especially for a nice Hong Kong Hotel).  They have a complimentary shuttle from the arrival hall to the hotel which leaves every 15 minutes and the journey takes all of 80 seconds.  The rooms were great.  In the morning you can almost roll out of bed and hit the Asia World Expo Building which is connected by an elevated walkway from the lobby entrance.  The only thing I had to watch out for was the Category 5 Typhoon Magi which was headed my way the day I arrived.  Fortunately for me the storm headed north and missed HK the following afternoon.

After my stop at the Expo I had to head to Hong Kong Island and Kowloon for a few meetings.  I took the train into the city from the World Expo station – couldn’t have been more convenient.  I was in the city in 25 minutes, connected to the MTR and i was at my meeting.

Bottom line:  If you need a hotel for a trade show or exhibition at Asia World Expo Hong Kong, the Sky City Marriott Hotel just works.  As long as you don’t NEED to be downtown in the evenings, I would even recommend staying here for non Expo trips.  You just cant beat the price in HK.

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