China’s Role in Global Supply Chain

Strategies: Past, Present and future

About Us

Baysource Global is a bridge for small and medium sized companies who want to

capture all possible advantages of working with China as a low cost supplier of manufactured products as well as a

potential market for U.S. branded goods and

services.

Talking Points

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Why China?1

A Paradigm Shift: Sourcing Goes To China

Looking Ahead: Global Supply Chain Trends

Today’s Global Sourcing Environment

Why China?

• Low cost labor• Low Start up costs• A decade of gov’t

stimulus• Advanced

Infrastructure• Innovation

The Rise of China

1949 1958 1966 1976 1978 1997 2001 2008

Accession into WTO

Founding of the PRC

Beijing Olympics

Hong Kong Handover

Open Door

Policy

The Great Leap

Forward

Cultural Revolution

Begins

Cultural Revolution

Ends

Why China?

China as a strategic manufacturing destination

Low Costs Ideal location for start up projects

Profits

Why Not India or Other Developing Nations?

India rate of investment not as high

Less Politically StableLack of infrastructure

Southeast Asia rate of investment not as high

Geographical limitations

Eastern Europe high inflation

Higher Labor costsTried it

Latin America high inflation

Higher labor costs

A PARADIGM SHIFT: SOURCING GOES TO CHINA

The Walmart Effect

"Wal-Mart is one of the key forces that propelled global outsourcing -- off-shoring of U.S. jobs -- precisely because it

controls so much of the purchasing power of the U.S. economy."

Calling the shots in the Global Economy

• ~1990 became most aggressive U.S. company in pursuing a global sourcing strategy

• Setting price points and forcing suppliers to meet targets

• Shifting the balance of power: Big-box retailers call the shots vs. brands

An Empire Built On Bargains

American

Brand Name Items

Private Label Items

VS.

An Empire built on Bargains

• Retail leverage increases as dependence on American brand share reduced by Private-label programs

• PL as market share in Europe near 50% by early 2000s• US Retailers following wave now augment their category

management; develop National Brand Equivalent (NBE) quality standards

• Move to offshore sourcing for (low hanging fruit) categories such as socks (Fruit of the Loom) and food storage (Rubbermaid)

• Sourcing & Supply Chain become fixtures in Org Charts

Jumping On the Savings Bandwagon

The Trend Continues…

• Brands hop on the bandwagon

• Industrial and commercial industries follow

• Traditional Purchasing & Supply Chain Evolve

Cost – Below the Line Hidden Costs

Cost

Materials

Inventory Management

Plant, Property, and Equipment

China Factories

The Devil Is In the Details

China Factory Costs

China &New Product Development

• Lowest Start up costs

• China stimulates investment

• Multitude of manufacturers and industries

• Flexible manufacturing

What China Has Become

• Greater emphasis on innovation• Improved technology• Advanced infrastructure development• Economic development zone hub (SEZs)

LOOKING AHEAD: TODAY’S

GLOBAL SUPPLY CHAIN ENVIRONMENT

So What?

• Evolution of the Supply Chain Strategy• New Era & sophistication for Senior Supply Chain Professionals• Dawn of the CPO – Chief Procurement Officer – Proficiency in

– Carrying cost of capital– Sourcing – International freight, 3PL, – Quality, testing & Standards accountability– Personnel

• New balance of re-shoring and offshoring – Global balance strategy

• Total Landed Cost!

Striking a balance

• Supply chain analysis of what makes sense

• No longer a wholesale move to mfg offshore

• Re-Analysis of Total Landed Cost

Labor costscost of labor is rising so sharply in Asia that pay for senior management executives is on par with, or exceeds, that of their American counterparts. manufacturing wages in the United States have in the face of the economic crisis declined 2.2 percent since 2005.

AutomationSophisticated equipment, such as robotics and automated guided vehicles (AGVs), also require a more skilled workforce, which is in greater supply in America.

Intellectual property protectionThe protection of intellectual property is haphazard at best in China and other low-cost manufacturing nations

Onshoring of Manufacturing

Onshoring of Manufacturing

Transparency Revelations of child labor and environmental destruction in China has resulted in negative publicity for some companies and calls for improved transparency of the supply chain.

Risk managementfluctuating price of oil, labor disputes, freight costs, safety issues -- to name a few -- have added a layer of costs and bureaucracy that some companies concluded they could do without.

Closer to customersProximity also creates a better environment for innovation, keeping manufacturers and designers together.

Onshoring of Manufacturing

Quality controlOffshoring often means giving up some aspects of control and as many companies have discovered, quality may suffer as a result. 

Ease of doing businessLanguage barriers and different business cultures aside, keeping the suppliers close makes financial sense as transit times are reduced and quality issues can be addressed more quickly.

Reduce supply chain disruptions Civil unrest, port closures, and natural disasters add uncertainty and unanticipated costs to doing business overseas.

Future & Trends

• Companies that procure goods from China must keep up with country's evolving challenges to take full advantage of the opportunities.

• Pursue China as both a growth market (Top line) and a market for lower cost labor and sources (Bottom line); Integration into long-term model & strategy

• China’s rising labor costs and currency structure have shifted, forcing companies to rethink how they structure their Chinese operations and how they perceive China in their overall global strategy.

Factory Asia: Other Low Cost Countries?

Bangladesh

Thailand

Singapore

Vietnam

Myanmar

PhilippinesIndonesia

Malaysia

Is Sourcing in China Still Competitive?

Manufacturing has traditionally taken place within coastal provinces

As wages on rise on the east coast manufacturing is moving into central and

western provinces

Is Sourcing In China Still Competitive?

Infrastructure

Stable Gov’t High Population

Factory Conditions

Stable Industrial Chain

Natural Deep Sea Ports

Low Cost Labor

Although an important factor, wages are only one brick in the wall

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Questions ???

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