As we wind down 2008 we reflect on our successes and failures, and what we will do differently in 2009. We are blessed with a truly outstanding team and excellent customers. Some of our customers are struggling right now and we're working through how best to support them.
The general economy and how it's affecting our current customers is our biggest challenge. Opportunities abound as more companies need to reduce costs to stay viable and competitive. Raw material and oil prices are down dramatically reducing both production and transportation costs. More and more companies are considering outsourcing production processes that are not close to their core competencies.
We are considering new projects that will expand our business model and bring new directions to the company. I look forward to sharing these developments with you.
Merry Christmas to all.
Tuesday, December 23, 2008
Thursday, December 18, 2008
100th OPSA Blog Post
This is the 100th post for the OPSA blog. I started this blog on January 1, 2008 with the first post about my polar bear swim that day and announcing how I intended to post to the blog.
I've mainly stayed true to that plan by posting a combination of manufacturing news from China, OPSA news, and advice on sourcing from China. Since I will end up just over 100 posts for the year I have posted about once every 2.5 working days. I had planned to post 2-3 times per week so I am on the low-end of that scale, but within the range. I plan to increase the pace of postings in 2009.
I need to make the blog more visible now on the recently re-designed OPSA website and plan to do that soon.
Any suggestions for the blog are welcome and appreciated. I look forward to hearing from you.
I'll also state here that I intend to do the polar bear swim again this year. I may try the Jacksonport event in Door County this year. Since the temperature right now is -3F and we are expecting another 6 inches of snow tonight, this is not an insignificant announcement. Watch for the posting on Jan. 1 if your interested.
I've mainly stayed true to that plan by posting a combination of manufacturing news from China, OPSA news, and advice on sourcing from China. Since I will end up just over 100 posts for the year I have posted about once every 2.5 working days. I had planned to post 2-3 times per week so I am on the low-end of that scale, but within the range. I plan to increase the pace of postings in 2009.
I need to make the blog more visible now on the recently re-designed OPSA website and plan to do that soon.
Any suggestions for the blog are welcome and appreciated. I look forward to hearing from you.
I'll also state here that I intend to do the polar bear swim again this year. I may try the Jacksonport event in Door County this year. Since the temperature right now is -3F and we are expecting another 6 inches of snow tonight, this is not an insignificant announcement. Watch for the posting on Jan. 1 if your interested.
Tuesday, December 16, 2008
10+2 Import Security Filing Requirements Take Effect on Jan. 26
The long awaited 10+2 requirements are now in the US Federal Register to take effect on Jan. 26, 2009. 10+2/ISF is an additional electronic document that will be required to be presented to U.S. Customs 24 hours prior to Laden on Board of the Vessel for ocean import. The new filing requires bonding. Importers with current Continuous Bonds will not need to purchase a new bond. Importers without a Continuous Bond should contact their forwarder for information on how to proceed.
Here's the "why do I care"...the penalty for a bad ISF filing will be $5000 per filing. These penalties will not be accessed in the first year (whew...).
The ten data elements for the new filing are:
• Manufacturer (or supplier) name & address
• Seller name & address
• Buyer name & address
• Ship to name & address
• Container stuffing location
• Consolidator name & address
• Importer of record identification number (IRS, EIN, SSN, or CBP assigned number)
• Consignee number (IRS, EIN, SSN, or CBP assigned number)
• Country of origin
• Commodity HTSUS number – will accept 6 instead of 10 digits
Complete and accurate data is important in this regard. Importers - you are required to know your supplier!!!
Know what you are purchasing, from whom and at what time. Know where it is coming from and who is involved in your transaction. This is your responsibility.
You should have a signed purchase order contract where you hold them responsible for correct information, on time documents, and itemized invoices. Importers are responsible for all ISF information.
Contact me at janderson@opsamerica.com if you have questions about 10+2. It's going to be even more important now to know whom you are buying from and that you have representation in Asia to confirm supplier information.
Here's the "why do I care"...the penalty for a bad ISF filing will be $5000 per filing. These penalties will not be accessed in the first year (whew...).
The ten data elements for the new filing are:
• Manufacturer (or supplier) name & address
• Seller name & address
• Buyer name & address
• Ship to name & address
• Container stuffing location
• Consolidator name & address
• Importer of record identification number (IRS, EIN, SSN, or CBP assigned number)
• Consignee number (IRS, EIN, SSN, or CBP assigned number)
• Country of origin
• Commodity HTSUS number – will accept 6 instead of 10 digits
Complete and accurate data is important in this regard. Importers - you are required to know your supplier!!!
Know what you are purchasing, from whom and at what time. Know where it is coming from and who is involved in your transaction. This is your responsibility.
You should have a signed purchase order contract where you hold them responsible for correct information, on time documents, and itemized invoices. Importers are responsible for all ISF information.
Contact me at janderson@opsamerica.com if you have questions about 10+2. It's going to be even more important now to know whom you are buying from and that you have representation in Asia to confirm supplier information.
Friday, December 12, 2008
Comment on The Other Side of the Wall
Einar Tangen is a former Milwaukee business executive who now lives in Beijing, China, where he advises the Heilongjiang Province on its technology valuations and acquisitions. Tangen previously served as the chairman of Wisconsin’s International Trade Council and is a former advisor to KOTRA (the Korean Government’s Direct Foreign Investment Recruitment Agency). I've never met him, but I enjoy reading his columns in the BizTimes.com - the web site of a very good business periodical covering Milwaukee and Southeastern Wisconsin.
His advice below is very valuable, although a bit overly negative I think. Maybe it's my optimism, but I don't sense as much distrust of other business people and disdain for rules as he describes. However, he has much more experience in this regard. Overall it's a very good article and highlights why it's important to have someone on your side that has experience in China.
A view from the other side of the Wall
By Einar Tangen , for SBT
Published December 12, 2008
Dispatch from China
The Chinese domestic market is brutal. Your average Chinese SME is locked in a hand-to-hand, day-by-day battle for survival. Any successes they create risk being copied by their competitors within months, and from there, the number of competitors will grow exponentially until a once lucrative innovation is nothing more than a commodity.
The local competition will do anything and everything to get ahead, reverse engineer products, bribe and/or steal employees, interfere with your credit and government relations.
They will go after their competitors’ IP, suppliers, customers and distribution systems. Or, in other words, it’s just like everywhere else in the world but, due to the number of competitors, a little more so.
The irony is that many Westerners like to point to Chinese business attitudes as flawed, immature and immoral without recognizing the impact that the West has had on Chinese attitudes toward business.
In the West, as our markets matured we created systems which were designed for efficiency. They required more transparency and cooperation between businesses, which were part of the same supply stream, predicated on the idea that “I take care of you and you take care of me.” That philosophy went out the window as companies pursued cheaper sources overseas as a way of adding to the bottom line.
However, what was once a competitive advantage becomes a competitive necessity when a critical mass of your competitors starts using the same sourcing strategy. This process has touched off an ongoing race to develop cheaper sourcing which has jumpstarted economies like China and India.
Still, the consequences for companies who were part of this process in China and India have not been universally beneficial. Initial profit lines for Chinese companies were eroded by stiff competition from other local companies, and those who were not able to see the sourcing tide moving away became casualties.
These companies have learned the hard way that the magical, long-term, mutually beneficial relationship is often a myth. In Shenzhen, more than 10,000 businesses have gone bankrupt this year as lower labor costs and lax environmental enforcement has drawn business elsewhere. Even when these firms were running full tilt, they were pitted against each other in merciless cost wars instigated by foreign corporations. So, while the United States has preached a “win/win” ideology, both at home and abroad, the truth has been that it was always all about the Benjamins.
In addition, in China, due to the rapid political, social and economic changes of the last 60 years, the individual’s sense of stability and faith in the system is still developing, and the future is not certain. At this point, in the midst of an economic meltdown, the only thing that is clear is that the ideological practices of capitalist and socialist systems have blurred and that a clearly defined ideological path has not emerged.
Here is some gratuitous advice if you choose to do business in China:
Trust
When Chinese SMEs deals with other Chinese SMEs, it can be like a cobra approaching a porcupine. Each side endeavors to learn as much about the other’s strengths and weakness without disclosing their own. In the initial conversation between the companies the bosses will hint/brag about powerful connections and performance capabilities. If things progress, the employees take the field and shape the deal points as directed. Like playing Mahjong, each player is out for themselves, even if everyone is smiling while they play. Do not expect to be treated any differently just because you are a foreigner. In fact, you should be aware that they have even less reason to trust you. So do not be surprised that most Chinese businesses and people are highly secretive and distrustful. It’s not you, it’s just standard operating procedure.
Values
In China, to be caught and disgraced is unlucky, stupid or both. Under our Judaea Christian values, right and wrong are based on collective ideals which are enforced though the individual’s sense of guilt and (if religious) ultimate punishment. In China, 5,000 years of culture and philosophy has resulted in a more pragmatic view of human nature which, while it emphasizes family values and obligation, views war and business as competitions with no rules.
Truth
For the Chinese, truth is knowledge, knowledge is power and you do not give power to a stranger who could be a potential enemy nor do you expect them to give it to you. It is an outlook on life right out of Sun Tzu’s the Art of War. Rather than trying to figure out the “truth,” plan on verifying everything every time. You may never know the truth, but you will at least have a good chance of getting what you bargained for.
The law
China’s legal system has been developed over the last 30 years. Marrying capitalist mechanics to socialist controls has been difficult. There are many grey areas, and the legal infrastructure is immature. In addition, Chinese companies lack experience using legal means to solve disputes. In the past, the outcomes of a legal dispute were more about connections than right and wrong, but as judges are faced with stiff penalties for misconduct and the dockets fill up, a judicial economic model is evolving that puts more emphasis on the contracts and documents and a little less on who is involved.
Cooperation
Given the history and the current circumstances, Chinese businesses will probably only embrace those practices that create competitive advantages for them.
Ideology
Western companies should keep in mind that a missionary sense of ideological zeal is less useful than a hard look at the local conditions and norms when developing opportunities.
Conclusion
The difference is less about how we compete than the cultural outlook we espouse and the systems we have developed. The truth is that human nature – good, bad and indifferent – is fairly universal. The difference is how it plays out in different sociopolitical economic situations.
His advice below is very valuable, although a bit overly negative I think. Maybe it's my optimism, but I don't sense as much distrust of other business people and disdain for rules as he describes. However, he has much more experience in this regard. Overall it's a very good article and highlights why it's important to have someone on your side that has experience in China.
A view from the other side of the Wall
By Einar Tangen , for SBT
Published December 12, 2008
Dispatch from China
The Chinese domestic market is brutal. Your average Chinese SME is locked in a hand-to-hand, day-by-day battle for survival. Any successes they create risk being copied by their competitors within months, and from there, the number of competitors will grow exponentially until a once lucrative innovation is nothing more than a commodity.
The local competition will do anything and everything to get ahead, reverse engineer products, bribe and/or steal employees, interfere with your credit and government relations.
They will go after their competitors’ IP, suppliers, customers and distribution systems. Or, in other words, it’s just like everywhere else in the world but, due to the number of competitors, a little more so.
The irony is that many Westerners like to point to Chinese business attitudes as flawed, immature and immoral without recognizing the impact that the West has had on Chinese attitudes toward business.
In the West, as our markets matured we created systems which were designed for efficiency. They required more transparency and cooperation between businesses, which were part of the same supply stream, predicated on the idea that “I take care of you and you take care of me.” That philosophy went out the window as companies pursued cheaper sources overseas as a way of adding to the bottom line.
However, what was once a competitive advantage becomes a competitive necessity when a critical mass of your competitors starts using the same sourcing strategy. This process has touched off an ongoing race to develop cheaper sourcing which has jumpstarted economies like China and India.
Still, the consequences for companies who were part of this process in China and India have not been universally beneficial. Initial profit lines for Chinese companies were eroded by stiff competition from other local companies, and those who were not able to see the sourcing tide moving away became casualties.
These companies have learned the hard way that the magical, long-term, mutually beneficial relationship is often a myth. In Shenzhen, more than 10,000 businesses have gone bankrupt this year as lower labor costs and lax environmental enforcement has drawn business elsewhere. Even when these firms were running full tilt, they were pitted against each other in merciless cost wars instigated by foreign corporations. So, while the United States has preached a “win/win” ideology, both at home and abroad, the truth has been that it was always all about the Benjamins.
In addition, in China, due to the rapid political, social and economic changes of the last 60 years, the individual’s sense of stability and faith in the system is still developing, and the future is not certain. At this point, in the midst of an economic meltdown, the only thing that is clear is that the ideological practices of capitalist and socialist systems have blurred and that a clearly defined ideological path has not emerged.
Here is some gratuitous advice if you choose to do business in China:
Trust
When Chinese SMEs deals with other Chinese SMEs, it can be like a cobra approaching a porcupine. Each side endeavors to learn as much about the other’s strengths and weakness without disclosing their own. In the initial conversation between the companies the bosses will hint/brag about powerful connections and performance capabilities. If things progress, the employees take the field and shape the deal points as directed. Like playing Mahjong, each player is out for themselves, even if everyone is smiling while they play. Do not expect to be treated any differently just because you are a foreigner. In fact, you should be aware that they have even less reason to trust you. So do not be surprised that most Chinese businesses and people are highly secretive and distrustful. It’s not you, it’s just standard operating procedure.
Values
In China, to be caught and disgraced is unlucky, stupid or both. Under our Judaea Christian values, right and wrong are based on collective ideals which are enforced though the individual’s sense of guilt and (if religious) ultimate punishment. In China, 5,000 years of culture and philosophy has resulted in a more pragmatic view of human nature which, while it emphasizes family values and obligation, views war and business as competitions with no rules.
Truth
For the Chinese, truth is knowledge, knowledge is power and you do not give power to a stranger who could be a potential enemy nor do you expect them to give it to you. It is an outlook on life right out of Sun Tzu’s the Art of War. Rather than trying to figure out the “truth,” plan on verifying everything every time. You may never know the truth, but you will at least have a good chance of getting what you bargained for.
The law
China’s legal system has been developed over the last 30 years. Marrying capitalist mechanics to socialist controls has been difficult. There are many grey areas, and the legal infrastructure is immature. In addition, Chinese companies lack experience using legal means to solve disputes. In the past, the outcomes of a legal dispute were more about connections than right and wrong, but as judges are faced with stiff penalties for misconduct and the dockets fill up, a judicial economic model is evolving that puts more emphasis on the contracts and documents and a little less on who is involved.
Cooperation
Given the history and the current circumstances, Chinese businesses will probably only embrace those practices that create competitive advantages for them.
Ideology
Western companies should keep in mind that a missionary sense of ideological zeal is less useful than a hard look at the local conditions and norms when developing opportunities.
Conclusion
The difference is less about how we compete than the cultural outlook we espouse and the systems we have developed. The truth is that human nature – good, bad and indifferent – is fairly universal. The difference is how it plays out in different sociopolitical economic situations.
Thursday, December 11, 2008
China Reports 2.2% Decline in November Exports
This is the first decrease in seven years and followed a 19% increase in October. This report shows a very abrupt slowdown in exports. Imports also declined 17.9% which may mean factories imported less raw material because future orders are weak. It also is partially caused by consumer demand in China decreasing as consumers there tighten their belts in the shaky economy.
This is not good news at all, but not surprising either. There certainly is a correction/recession going on in which US consumers are cutting back their consumption and Chinese factories will have to cut production. I believe most Americans bought too much (too much house, too much car, too many toys, etc.) in the past which is one of the causes of this correction. If Americans settle on a consumption rate that boosts their savings rate, long-term this correction will have been helpful. Having the Chinese increase their consumption in a rational way that matches their GDP growth will also help.
In China now it appears the marginal and low-quality factories are closing. This can also be a silver-lining of the correction.
At some point the recession needs to turn the other way or the global economy will sink into something worse. Hopefully the actions of global governments will help along with a reduction in factory closings and layoff notices so the nervousness of consumers subsides.
This is not good news at all, but not surprising either. There certainly is a correction/recession going on in which US consumers are cutting back their consumption and Chinese factories will have to cut production. I believe most Americans bought too much (too much house, too much car, too many toys, etc.) in the past which is one of the causes of this correction. If Americans settle on a consumption rate that boosts their savings rate, long-term this correction will have been helpful. Having the Chinese increase their consumption in a rational way that matches their GDP growth will also help.
In China now it appears the marginal and low-quality factories are closing. This can also be a silver-lining of the correction.
At some point the recession needs to turn the other way or the global economy will sink into something worse. Hopefully the actions of global governments will help along with a reduction in factory closings and layoff notices so the nervousness of consumers subsides.
Tuesday, December 9, 2008
RMB Weakening Causes Tension with US
An article in the December 5th USA Today describes the impact the weakening RMB is having on relations between Beijing and Washington. The RMB has fallen against the USD since my last posting on exchange rates. The article implies this change in direction from the fast rise earlier this year to the stabilization in the fall and now a slight downward trend against the dollar is due to intentional manipulation by the Chinese government. The reporter presents no evidence in this regard. It seems to me the change in direction could be caused by the market within the trading range set by Beijing, but I haven't investigated. The dollar has strengthened against most currencies since the fall I believe.
The exchange rate stabilization is good news for US consumers and OPSA customers. The strengthening dollar is bad news for all exporters in the US, but this is not unique to the situation with China.
Lots of snow here in Green Bay today. Here is the link to the article.
http://www.usatoday.com/money/world/2008-12-04-china-urges-washington-to-protect-investments_N.htm
The exchange rate stabilization is good news for US consumers and OPSA customers. The strengthening dollar is bad news for all exporters in the US, but this is not unique to the situation with China.
Lots of snow here in Green Bay today. Here is the link to the article.
http://www.usatoday.com/money/world/2008-12-04-china-urges-washington-to-protect-investments_N.htm
Tuesday, December 2, 2008
A Problem Solving Attitude
I understand we are in the problem solving business and that if manufacturing in Chines were easy, companies would not need our help. However, there are times when it seems every issue becomes complex and things don't move forward quickly enough. This business, like many small businesses, is quite a roller coaster ride. Many days are big highs. A few days are really tough. Despite a wonderful holiday weekend with my family, I'm in the middle of a tough stretch right now.
I even had a difficult school board meeting last night.
Now, I'm not talking "tough" like we're not doing a good job. I mean tough in the sense that everything seems to be complicated. Nothing is easy. I know that, "if it were easy anyone could do it", but it would be nice to have something sail right through sometime soon to offset all the tough projects.
I hope you'll indulge this bit of therapy blogging for me. I expect readers are OK knowing everything isn't wine and roses all the time. I feel like it's OK to express that I realize a small business is a roller coaster and I'm looking forward to the next big, fast and fun ride downhill. I'm off to solve some more problems now.
I even had a difficult school board meeting last night.
Now, I'm not talking "tough" like we're not doing a good job. I mean tough in the sense that everything seems to be complicated. Nothing is easy. I know that, "if it were easy anyone could do it", but it would be nice to have something sail right through sometime soon to offset all the tough projects.
I hope you'll indulge this bit of therapy blogging for me. I expect readers are OK knowing everything isn't wine and roses all the time. I feel like it's OK to express that I realize a small business is a roller coaster and I'm looking forward to the next big, fast and fun ride downhill. I'm off to solve some more problems now.
Wednesday, November 26, 2008
Chinese Government Takes More Action on Economy
The Chinese government aggressively lowered interest rates yesterday by more than one percentage point to stimulate the economy. The story below from the AP is a good summary of the action.
China slashes interest rate to spur growth
By JOE McDONALD
BEIJING (AP) — China announced its biggest interest rate cut in 11 years on Wednesday to spur private borrowing and support a multibillion-dollar stimulus package to boost slowing economic growth.
The 1.08 percentage-point rate cut — the fourth cut in three months — reflects the government's urgency about raising private consumption and investment to supplement state spending on the stimulus package.
"This is the most aggressive monetary easing in recent years and should bode well for China's market performance," said Jing Ulrich, chairwoman of China equities for JP Morgan & Co., in a report to clients.
The 4 trillion yuan ($586 billion) stimulus aims to insulate China from a global slowdown by injecting money into the economy through spending on new highways and other public facilities. But its ultimate goal is to increase consumer spending, which a rate cut is meant to encourage.
Beijing is trying to shore up consumer and investor confidence and reverse a sharp downturn in growth. China's economy is expected to expand by at least 9 percent this year, down from 11.9 percent last year. But communist leaders worry about rising job losses — especially in export industries hit by weak global demand — and possible unrest.
China has avoided a big hit so far from the global financial crisis because its banks are healthy and exports strong. But conditions are expected to worsen in coming months as export demand weakens and growth in real estate and other domestic industries slows.
Just this week, the World Bank cut its forecast for China's growth next year from 9.2 percent to 7.5 percent, the lowest level since 1990.
Beijing had been rumored to be considering a rate cut and Chinese stock markets fell Monday after one failed to materialize over the weekend. The cut Wednesday was announced after markets closed. The Shanghai Composite index, down two-thirds from its peak in October 2007, edged up 0.5 percent to 1,897.88.
Also Wednesday, the central bank cut the amount of money commercial banks must set aside as reserves, expanding the pool available for lending.
The moves are meant to "promote stable credit growth," the People's Bank of China said on its Web site.
Interest on a one-year loan will fall to 5.58 percent, effective Thursday, while interest paid on deposits will fall to 2.52 percent.
The rate cut was several times the size of other recent cuts on Sept. 15, Oct. 8 and Oct. 29, which were only 0.27 percentage points.
It was China's biggest rate cut since 1997, according to Standard Chartered economist Stephen Green. But he cautioned that rate cuts alone might not be enough to trigger a wave of house purchases and corporate investment.
"To be honest, rate policy in this environment is a marginal factor — businesses think about possible returns on investments, and households will look at house price prospects," he said in a report.
"We have almost exhausted traditional monetary tools now," Green said. "What happens next is mostly fiscal policy and encouraging the banks to lend."
The amount that China's biggest banks must hold in reserve will fall by 1 percentage point to 15.5 percent, effective Dec. 5, the bank said. The minimum reserve for smaller banks would fall by 2 percentage points to 14.5 percent.
The change frees up 360 billion yuan ($53 billion) in additional money for lending, according to Green.
The rate cut will lower borrowing costs for state companies, which are expected to provide a big share of the promised investment in the government stimulus.
A key issue will be whether banks are willing to lend more. They have tried to shield themselves from global turmoil and the slowing real estate industry by cutting back on lending to exporters, developers and small companies.
"The degree of benefit realized from China's monetary stimulus will hinge on whether banks increase their lending to the most troubled sectors of the economy," Ulrich said.
-----------------------------------------------
This new rate reduction combined with the stimulus program are welcome measures for Chinese businesses. The world economy will also benefit as any instability in China would be bad all around. I'm looking forward to my next trip to China to hear for myself what people there have to say about the economy. Happy Thanksgiving!!
China slashes interest rate to spur growth
By JOE McDONALD
BEIJING (AP) — China announced its biggest interest rate cut in 11 years on Wednesday to spur private borrowing and support a multibillion-dollar stimulus package to boost slowing economic growth.
The 1.08 percentage-point rate cut — the fourth cut in three months — reflects the government's urgency about raising private consumption and investment to supplement state spending on the stimulus package.
"This is the most aggressive monetary easing in recent years and should bode well for China's market performance," said Jing Ulrich, chairwoman of China equities for JP Morgan & Co., in a report to clients.
The 4 trillion yuan ($586 billion) stimulus aims to insulate China from a global slowdown by injecting money into the economy through spending on new highways and other public facilities. But its ultimate goal is to increase consumer spending, which a rate cut is meant to encourage.
Beijing is trying to shore up consumer and investor confidence and reverse a sharp downturn in growth. China's economy is expected to expand by at least 9 percent this year, down from 11.9 percent last year. But communist leaders worry about rising job losses — especially in export industries hit by weak global demand — and possible unrest.
China has avoided a big hit so far from the global financial crisis because its banks are healthy and exports strong. But conditions are expected to worsen in coming months as export demand weakens and growth in real estate and other domestic industries slows.
Just this week, the World Bank cut its forecast for China's growth next year from 9.2 percent to 7.5 percent, the lowest level since 1990.
Beijing had been rumored to be considering a rate cut and Chinese stock markets fell Monday after one failed to materialize over the weekend. The cut Wednesday was announced after markets closed. The Shanghai Composite index, down two-thirds from its peak in October 2007, edged up 0.5 percent to 1,897.88.
Also Wednesday, the central bank cut the amount of money commercial banks must set aside as reserves, expanding the pool available for lending.
The moves are meant to "promote stable credit growth," the People's Bank of China said on its Web site.
Interest on a one-year loan will fall to 5.58 percent, effective Thursday, while interest paid on deposits will fall to 2.52 percent.
The rate cut was several times the size of other recent cuts on Sept. 15, Oct. 8 and Oct. 29, which were only 0.27 percentage points.
It was China's biggest rate cut since 1997, according to Standard Chartered economist Stephen Green. But he cautioned that rate cuts alone might not be enough to trigger a wave of house purchases and corporate investment.
"To be honest, rate policy in this environment is a marginal factor — businesses think about possible returns on investments, and households will look at house price prospects," he said in a report.
"We have almost exhausted traditional monetary tools now," Green said. "What happens next is mostly fiscal policy and encouraging the banks to lend."
The amount that China's biggest banks must hold in reserve will fall by 1 percentage point to 15.5 percent, effective Dec. 5, the bank said. The minimum reserve for smaller banks would fall by 2 percentage points to 14.5 percent.
The change frees up 360 billion yuan ($53 billion) in additional money for lending, according to Green.
The rate cut will lower borrowing costs for state companies, which are expected to provide a big share of the promised investment in the government stimulus.
A key issue will be whether banks are willing to lend more. They have tried to shield themselves from global turmoil and the slowing real estate industry by cutting back on lending to exporters, developers and small companies.
"The degree of benefit realized from China's monetary stimulus will hinge on whether banks increase their lending to the most troubled sectors of the economy," Ulrich said.
-----------------------------------------------
This new rate reduction combined with the stimulus program are welcome measures for Chinese businesses. The world economy will also benefit as any instability in China would be bad all around. I'm looking forward to my next trip to China to hear for myself what people there have to say about the economy. Happy Thanksgiving!!
Tuesday, November 25, 2008
Cost Reduction Time is Here
I realize the economy is not good and possibly really bad. It's clear that this is making people stop all decision making until "things improve". So, does that mean now is a good or bad time to consider cost reductions from global sourcing. Here are the reasons now is a great time:
1. When things are bad is exactly when cost reduction is important. Our efforts are focused on selling the benefit of cost reduction to potential customers.
2. Commodity prices have fallen rapidly. As prices on oil, steel, and other commodities have fallen we are starting to see manufacturing prices fall now as well.
3. Chinese factories are clamoring for more business. Demand is down so new projects will get all kinds of attention.
4. Chinese New Year is almost upon us. Starting new projects coming out of CNY is excellent timing.
5. Any stigma of global outsourcing is quickly receding. The global economic problems are making it clear that this really is a global economy so protectionist measures just don't make sense on the import or export sides.
It appears from recent OPSA lead generation efforts that there are lots of companies thinking the same way.
1. When things are bad is exactly when cost reduction is important. Our efforts are focused on selling the benefit of cost reduction to potential customers.
2. Commodity prices have fallen rapidly. As prices on oil, steel, and other commodities have fallen we are starting to see manufacturing prices fall now as well.
3. Chinese factories are clamoring for more business. Demand is down so new projects will get all kinds of attention.
4. Chinese New Year is almost upon us. Starting new projects coming out of CNY is excellent timing.
5. Any stigma of global outsourcing is quickly receding. The global economic problems are making it clear that this really is a global economy so protectionist measures just don't make sense on the import or export sides.
It appears from recent OPSA lead generation efforts that there are lots of companies thinking the same way.
Wednesday, November 19, 2008
FDA Opens First Overseas Offices in China
The US Food and Drug Administration is opening an office in Beijing this month. This is the first FDA office in a foreign country and will be followed by two more in China before year-end and another to follow in India.
Here is a link to an article on this development from USA Today:
http://www.usatoday.com/money/world/2008-11-18-china-products_N.htm
The FDA has realized that OPSA has the right model - do the inspections and build relationships in China to avoid problems when containers are opened here in the US. Also, being "on the ground" in China helps to optimize operations there for better efficiency and effectiveness.
This development is a positive one for US consumers and for the US and Chinese governments. It shows continued development of the relationship between our two countries. As long as the Obama administration does not take a protectionist tact as it takes power, things are looking up.
Here is a link to an article on this development from USA Today:
http://www.usatoday.com/money/world/2008-11-18-china-products_N.htm
The FDA has realized that OPSA has the right model - do the inspections and build relationships in China to avoid problems when containers are opened here in the US. Also, being "on the ground" in China helps to optimize operations there for better efficiency and effectiveness.
This development is a positive one for US consumers and for the US and Chinese governments. It shows continued development of the relationship between our two countries. As long as the Obama administration does not take a protectionist tact as it takes power, things are looking up.
Tuesday, November 18, 2008
Chinese Stimulus to Change Relationship with US
The Chinese government is addressing the worldwide economic crisis by investing more than $600 billion in infrastructure and other public works. This seems to indicate that China is moving even faster to spend it's huge surpluses on internal development rather than US debt. Over time this will be a good thing, but in the short-term it may mean more expensive debt for American consumers and the government.
It seems the impact on our business in the short-term will be minimal. Much of the Chinese economy will be export-based for quite some time, although the trend is certainly toward domestic consumption. As I've mentioned before, OPS America will need to adjust to the changing landscape by looking in new regions (for us) of China and by focusing more on complex projects that fit us well. We also will begin to help our partner factories improve their productivity. This will be the best option for continued viability of factories in Guangdong Province.
It seems the impact on our business in the short-term will be minimal. Much of the Chinese economy will be export-based for quite some time, although the trend is certainly toward domestic consumption. As I've mentioned before, OPS America will need to adjust to the changing landscape by looking in new regions (for us) of China and by focusing more on complex projects that fit us well. We also will begin to help our partner factories improve their productivity. This will be the best option for continued viability of factories in Guangdong Province.
Thursday, November 6, 2008
Prices Still Frustrate
Even though commodities prices have come way down over the last quarter, we are not seeing representative pricing reductions from our Chinese partners. For example, copper is down more than 50% from it's peak earlier this year. However, we are having trouble getting cost reductions on items made principally from copper.
Factories are pointing to labor costs and the exchange rate as major problems. The new labor law is being noted as having a large impact on labor costs.
Even freight hasn't come down with the decline in oil prices. When we quoted freight just yesterday the forwarders were still including the same fuel surcharges they were a few months ago when oil was well over $100 per barrel.
It appears it will take some more time for commodity prices to flow through to manufacturing and service prices. The economic slowdown should also encourage prices to come down a bit.
Factories are pointing to labor costs and the exchange rate as major problems. The new labor law is being noted as having a large impact on labor costs.
Even freight hasn't come down with the decline in oil prices. When we quoted freight just yesterday the forwarders were still including the same fuel surcharges they were a few months ago when oil was well over $100 per barrel.
It appears it will take some more time for commodity prices to flow through to manufacturing and service prices. The economic slowdown should also encourage prices to come down a bit.
Tuesday, November 4, 2008
Taiwan Issue Risk Reduced
One key risk we advise our clients to consider is political risk. The main risk in this realm is the risk of war between China and Taiwan with the USA getting involved. The chance of this risk becoming reality is declining recently as relations across the Taiwan Straight warm.
Tuesday China and Taiwan signed a trade agreement that will increase the number of direct flights and shipments between the two neighbors. Much of the current improvement in relations started in March when the new Taiwanese President took office with promises of better relations with China. President Ma's Nationalist Party also supports eventual reunification with China, although that does not appear to be on the agenda in the near-term.
Many factories we work with are owned by Taiwanese. The warming in relations is a good thing for them as well.
Just another piece of good news for our business. Happy Election Day!
Tuesday China and Taiwan signed a trade agreement that will increase the number of direct flights and shipments between the two neighbors. Much of the current improvement in relations started in March when the new Taiwanese President took office with promises of better relations with China. President Ma's Nationalist Party also supports eventual reunification with China, although that does not appear to be on the agenda in the near-term.
Many factories we work with are owned by Taiwanese. The warming in relations is a good thing for them as well.
Just another piece of good news for our business. Happy Election Day!
Thursday, October 30, 2008
OPS Partner Factories Slowing
We have heard recently from our partner factories in China that their demand from export customers is down. It seems there is truth in some of the negative press lately. The downturn is resulting in excess inventories and plans for extended Chinese New Year shutdowns.
What does this mean for importers? First, it means prices will be more negotiable than early this year. Commodity price declines are also contributing to this. Labor costs are still up, but the exchange rate has stabilized.
Second, it means production schedules in early 2009 will be harder to manage. Also, low-end factories will likely get pushed out of the market as the slower economy helps cull the weak. Finally, it means US companies will need to be more diligent about checking quality from their Chinese factories as some will be tempted to cut corners to survive. It's more important than ever to have a strong relationship with your partner factories and work with them through these difficult times.
What does this mean for importers? First, it means prices will be more negotiable than early this year. Commodity price declines are also contributing to this. Labor costs are still up, but the exchange rate has stabilized.
Second, it means production schedules in early 2009 will be harder to manage. Also, low-end factories will likely get pushed out of the market as the slower economy helps cull the weak. Finally, it means US companies will need to be more diligent about checking quality from their Chinese factories as some will be tempted to cut corners to survive. It's more important than ever to have a strong relationship with your partner factories and work with them through these difficult times.
Tuesday, October 28, 2008
The Politics of Outsourcing
We are one week from the Presidential election in the US. I've posted a bit before about the politics of outsourcing and trade. I firmly believe that international trade can be good for all parties in a macro sense. I accept that trade also has downsides for individuals. Those people should be helped to find other employment or be re-trained for other jobs.
The macro economics behind trade being a good thing can be summarized by saying that buyers and sellers benefit when the most efficient producers of a certain good are selected. Buyers benefit from getting a lower price. Sellers benefit by getting the business and economies of scale. When countries start to specialize in certain industries or processes (like China specializing in high labor content manufacturing) and become low-cost producers then both they and the buyer country benefit. In that case, the buyer country should focus on other industries or processes where it can be the most efficient producer.
The graphic analogy for this is a ladder. The US economy grows best when we continually move up the ladder of technology and innovation. As we do that other countries with lower labor costs begin to take on those processes and industries at the lower rungs of the ladder. Our focus should not be on saving the lower rungs, but on finding the next higher rung. Personal computing was an example in the 70's and 80's. The internet was the next rung in the 90's until now. I believe the next rung will be in environmental technology, energy, or water. Our country should support research and development of the next rungs.
Many politicians focus on the populist message of, "We need to save our manufacturing jobs". I agree that we should work hard to compete and keep the manufacturing jobs that are best for America. We should make sure our tax policies and other laws do not put US companies at a disadvantage. We should also work with other countries to improve their environmental and labor safety laws. However, we should not try to save companies or industries that are not competitive just so we can save the jobs at that company/industry. That is not in the best interest of the country. Instead government should promote personal responsibility while offering help and retraining support.
I won't spend much energy at all on politics in this blog. This time of year I think about it more often as I see ads and read about politicians trying to get elected by promoting policies that are popular with some, although short-sighted and bad for the country.
The macro economics behind trade being a good thing can be summarized by saying that buyers and sellers benefit when the most efficient producers of a certain good are selected. Buyers benefit from getting a lower price. Sellers benefit by getting the business and economies of scale. When countries start to specialize in certain industries or processes (like China specializing in high labor content manufacturing) and become low-cost producers then both they and the buyer country benefit. In that case, the buyer country should focus on other industries or processes where it can be the most efficient producer.
The graphic analogy for this is a ladder. The US economy grows best when we continually move up the ladder of technology and innovation. As we do that other countries with lower labor costs begin to take on those processes and industries at the lower rungs of the ladder. Our focus should not be on saving the lower rungs, but on finding the next higher rung. Personal computing was an example in the 70's and 80's. The internet was the next rung in the 90's until now. I believe the next rung will be in environmental technology, energy, or water. Our country should support research and development of the next rungs.
Many politicians focus on the populist message of, "We need to save our manufacturing jobs". I agree that we should work hard to compete and keep the manufacturing jobs that are best for America. We should make sure our tax policies and other laws do not put US companies at a disadvantage. We should also work with other countries to improve their environmental and labor safety laws. However, we should not try to save companies or industries that are not competitive just so we can save the jobs at that company/industry. That is not in the best interest of the country. Instead government should promote personal responsibility while offering help and retraining support.
I won't spend much energy at all on politics in this blog. This time of year I think about it more often as I see ads and read about politicians trying to get elected by promoting policies that are popular with some, although short-sighted and bad for the country.
Wednesday, October 22, 2008
According to USA Today - Economy Rocks China Factories
A story in today's USA Today tries to describe the economic slowdown's effects on Chinese factories. The article highlights the plight of a textile factory in Shaoxing that went from successful to completely shutdown and owing creditors $290 million USD in three months.
The article does point out that because of the slowdown, rising raw material prices, and the Chinese governments actions to slow economic growth and eliminate low-end factories, the situation with River Dragon is happening throughout southern China. Here is the address for the article:
http://www.usatoday.com/money/world/2008-10-21-red-dragon-china-factories-economy_N.htm
I find it very hard to believe the factors cited by USA Today were really the main factors in River Dragon's closure. More likely there was some bad and/or illegal things going on at this company that finally caught-up with the owners. Economic slowdowns do not close factories with 4,000 workers in three months.
It is clearly true that the global economic slowdown is affecting Chinese manufacturers. As I mentioned yesterday however, it is helping the Chinese government slow growth, control inflation, and better balance trade. It certainly is not gloom and doom. The economy is still growing 9% for goodness sakes! Some factories must be doing well and others must be starting-up.
The article is an interesting look at how the slowdown is affecting China, but it presents an overly negative view. There is lots of good news in China right now.
Tuesday, October 21, 2008
Chinese Growth and Inflation Slowing
As expected, the Q3 numbers from China show GDP growth slowed to 9% and the CPI (Consumer Price Index) for September grew 4.6% which continues the downward trend started in June. The PPI slowed to 9.1% in September. This is still a large number though.
The global economic slowdown combined with the Chinese government's interventions and some natural disasters have combined to slow growth and tame inflation. My view is these numbers are right where the government wants to be, but that further slowing of the economy will be seen as a problem. It seems a widely held view that the government needs 9% growth maintained in order to keep unemployment down.
For OPSA, we are working with our Chinese partners to reduce costs and prices now that raw material costs have come down and the exchange rate has stabilized. I'll let you know how that works throughout 4Q.
The global economic slowdown combined with the Chinese government's interventions and some natural disasters have combined to slow growth and tame inflation. My view is these numbers are right where the government wants to be, but that further slowing of the economy will be seen as a problem. It seems a widely held view that the government needs 9% growth maintained in order to keep unemployment down.
For OPSA, we are working with our Chinese partners to reduce costs and prices now that raw material costs have come down and the exchange rate has stabilized. I'll let you know how that works throughout 4Q.
Thursday, October 16, 2008
Milwaukee Bucks in China
I grew up in Milwaukee and get back there often. As a kid I was a fan of the Milwaukee Bucks NBA team. I still am a little, although I really don't like how the NBA has evolved.
Anyway, the Bucks are in China right now playing exhibition games. The blog at the following link is about their travels and is very interesting. They are amazed by the excellent service in China as are most first-time visitors.
http://www.nba.com/bucks/features/Paschketball.html
Their first-round draft pick, Joe Alexander, was born in Taiwan and speaks Mandarin. He is quite a hit over there I guess.
Milwaukee has established a sister-city relationship with Ningbo that seems pretty strong. There is a delegation from the Milwaukee Chamber of Commerce also on the trip. I'm hoping to spend more time with this organization in the near future.
Monday, October 13, 2008
Protectionism Not the Answer
I certainly don't have the answers for how to solve the current economic situation (although much of it is clearly psychological), but I do know moving to protectionism is not one of the answers. Without going into all the reasons international trade is a great thing, suffice it to say I think the case is made that regions have specialties and trade amongst regions in which they share what each does best is a very good thing.
An article in today's USA Today reports on US Secretary of the Treasury Henry Paulson's comments recently about protectionism and how it will make current problems worse. I completely agree. Here's the link:
http://www.usatoday.com/money/economy/2008-10-12-financial-crisis-washington_N.htm#open-share-help
In this election season one also hears much about "US jobs going overseas". This is another example of fear mongering by politicians. Our local US representative is one of the worst in this regard. In a recent TV add he actually made this quote, "I think it's time we started shipping our values overseas, not our jobs".
First of all, I don't hear many countries asking for our values to be shipped overseas. I believe the values embodied in the US Constitution and Declaration of Independence are the basis for our success as a country. However, there is no reason to believe they are right for all other countries. The world is a big place and people are different in many ways around the world.
The protectionist statements of this uninformed representative are not helping the situation at all. Blaming an overseas bogey man for some of our problems takes away from the sense of personal responsibility and self-efficacy needed to fix them.
Protectionism - NO. Innovative problem solving and personal responsibility - YES
An article in today's USA Today reports on US Secretary of the Treasury Henry Paulson's comments recently about protectionism and how it will make current problems worse. I completely agree. Here's the link:
http://www.usatoday.com/money/economy/2008-10-12-financial-crisis-washington_N.htm#open-share-help
In this election season one also hears much about "US jobs going overseas". This is another example of fear mongering by politicians. Our local US representative is one of the worst in this regard. In a recent TV add he actually made this quote, "I think it's time we started shipping our values overseas, not our jobs".
First of all, I don't hear many countries asking for our values to be shipped overseas. I believe the values embodied in the US Constitution and Declaration of Independence are the basis for our success as a country. However, there is no reason to believe they are right for all other countries. The world is a big place and people are different in many ways around the world.
The protectionist statements of this uninformed representative are not helping the situation at all. Blaming an overseas bogey man for some of our problems takes away from the sense of personal responsibility and self-efficacy needed to fix them.
Protectionism - NO. Innovative problem solving and personal responsibility - YES
Thursday, October 9, 2008
Exchange Rate Out of the News
You haven't heard much about it lately, but since August the USD has been holding steady versus the RMB. I did post about this back on September 2 and the trend has continued. With all the news about credit and world financial markets, the exchange rate has completely fallen out of the news. We are watching it carefully however and it is helping our customers and contributing to the decline in US inflation over the last two months.
Wednesday, October 8, 2008
Economic Rumbles
There certainly is a lot of uncertainty in the global economy these days. Here are some interesting bright spots related to our industry:
1. China's central bank coordinated with those around the world in reducing interest rates last night. China is becoming a world player and this stability will help its economy in the long run.
2. Commodity prices are in a free fall. All our recent quotes are looking better.
3. Oil prices are also in a free fall which makes transportation less expensive.
4. Doom and gloom is everywhere, which makes for lots of opportunity for those of us optimists. While we are watching expenses even more closely, we are focused on growth and improving our business model.
We are keeping our heads up and maintain perspective. All the bad news and panic in the news can help create a self-fulfilling prophecy if you let it. We know that to grow we need to add value and be better than our competitors and substitutes while continuing to add projects and customers. That's what we are focusing on.
1. China's central bank coordinated with those around the world in reducing interest rates last night. China is becoming a world player and this stability will help its economy in the long run.
2. Commodity prices are in a free fall. All our recent quotes are looking better.
3. Oil prices are also in a free fall which makes transportation less expensive.
4. Doom and gloom is everywhere, which makes for lots of opportunity for those of us optimists. While we are watching expenses even more closely, we are focused on growth and improving our business model.
We are keeping our heads up and maintain perspective. All the bad news and panic in the news can help create a self-fulfilling prophecy if you let it. We know that to grow we need to add value and be better than our competitors and substitutes while continuing to add projects and customers. That's what we are focusing on.
Monday, October 6, 2008
The Perils of New Product Development in China
I am currently working with a customer on a product development project. The customer decided this product had to be made in China to be viable right from the start so we've been working through the product development process for the last 18 months. We are almost done and the first full container will ship this month.
It's been a very stressful process. Change after change and adjustment after adjustment we have struggled through the issues. Our staff in China has done a very good job and the customer has been patient for the most part. Here are a few of the lessons that have been reinforced for me during this process:
1. If possible don't do new product development in China. Develop the product here and make the first few runs here. Then transition to China after the bugs are worked out.
2. Have very detailed specifications and inspection criteria.
3. Evaluate and test all samples comprehensively.
4. Have realistic time lines that allow for complications.
5. Take the customer to the factory during at least one key approval stage.
6. Be patient, and positive, and keep your eye on the big picture.
Those are kind of broad strokes, but they contain key components of a successful product development project if you really break them down. I am going to have a big celebration when this project is complete.
It's been a very stressful process. Change after change and adjustment after adjustment we have struggled through the issues. Our staff in China has done a very good job and the customer has been patient for the most part. Here are a few of the lessons that have been reinforced for me during this process:
1. If possible don't do new product development in China. Develop the product here and make the first few runs here. Then transition to China after the bugs are worked out.
2. Have very detailed specifications and inspection criteria.
3. Evaluate and test all samples comprehensively.
4. Have realistic time lines that allow for complications.
5. Take the customer to the factory during at least one key approval stage.
6. Be patient, and positive, and keep your eye on the big picture.
Those are kind of broad strokes, but they contain key components of a successful product development project if you really break them down. I am going to have a big celebration when this project is complete.
Friday, October 3, 2008
China Targets Cleaner-Coal Power Plants: Scientific American
China Targets Cleaner-Coal Power Plants: Scientific American
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As I've said before, the only thing I don't like about China when I visit is the pollution. The brief article above is from this month's Scientific American. It describes China's new effort to capture emissions from coal power plants. I am excited and heartened by China's recent efforts to reduce pollution and carbon emissions. The Olympics had a big impact on this effort I believe.
Last night's vice presidential debate included comments about clean-coal technology and the potential to share it with China. The attention to this issue is great to hear. I look forward to hearing more and to supporting efforts to reduce pollution in China in any way I can.
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As I've said before, the only thing I don't like about China when I visit is the pollution. The brief article above is from this month's Scientific American. It describes China's new effort to capture emissions from coal power plants. I am excited and heartened by China's recent efforts to reduce pollution and carbon emissions. The Olympics had a big impact on this effort I believe.
Last night's vice presidential debate included comments about clean-coal technology and the potential to share it with China. The attention to this issue is great to hear. I look forward to hearing more and to supporting efforts to reduce pollution in China in any way I can.
Thursday, October 2, 2008
Cultural Stereotyping II
I may have been a little strong in my comments on my last entry. Balancing ones expectations and tactics is probably better than nearly ignoring cultural differences. I do believe most bloggers and advice givers focus too much on cultural stereotypes when suggesting how to work with or negotiate with Chinese people. However, there are some differences to keep in mind.
For example, it is true that decisions happen slowly in China and are more often made by groups. Also, social interaction to build relationships is more important to Chinese business people than to Americans.
There are differences in the perception of some ethical issues (intellectual property piracy is one example), but generally there are good and bad actors in China just like there were in the US at a similar stage of development.
People are people, but cultural background does have an impact on how different people respond to situations. Balancing your understanding and perception is what I suggest.
For example, it is true that decisions happen slowly in China and are more often made by groups. Also, social interaction to build relationships is more important to Chinese business people than to Americans.
There are differences in the perception of some ethical issues (intellectual property piracy is one example), but generally there are good and bad actors in China just like there were in the US at a similar stage of development.
People are people, but cultural background does have an impact on how different people respond to situations. Balancing your understanding and perception is what I suggest.
Monday, September 29, 2008
Cultural Stereotyping
It seems several China-related blogs have recently written about negotiating tactics, interest in quality, or other business-related cultural stereotypes of Chinese people. Maybe the new milk quality issues are triggering this new wave of generaliztions.
Although there are cultural differences between Americans and Chinese people, the stereotypes are almost useless in individual interactions. Chinese people don't act one way in a negotiation or related to product quality any more than Americans. While it may be somewhat helpful to be aware of cultural differences while negotiating, my experience has been that the principles of establishing trust and understanding the other person's position far outweigh any perceived cultural tendancies.
I do sometimes catch myself referring to Chinese factories like they are one entity. Afterwards I usually reflect on how inaccurate my comments were. There are the same range of quality options in China that there are in the USA. There are high quality factories there just like there are here. It is a developing country, so the range of factories may tend to have more low-end factories than we have here, but there is no "Chinese quality" or "Chinese negotiating tactic".
Beware of Americans that claim to know how Chinese people "are" and how you should deal with them. These people likely have a pretty narrow view of the world and business. I advise keeping an open mind and judging people (Americans and Chinese alike) on their actions, not what you have heard about their culture.
Although there are cultural differences between Americans and Chinese people, the stereotypes are almost useless in individual interactions. Chinese people don't act one way in a negotiation or related to product quality any more than Americans. While it may be somewhat helpful to be aware of cultural differences while negotiating, my experience has been that the principles of establishing trust and understanding the other person's position far outweigh any perceived cultural tendancies.
I do sometimes catch myself referring to Chinese factories like they are one entity. Afterwards I usually reflect on how inaccurate my comments were. There are the same range of quality options in China that there are in the USA. There are high quality factories there just like there are here. It is a developing country, so the range of factories may tend to have more low-end factories than we have here, but there is no "Chinese quality" or "Chinese negotiating tactic".
Beware of Americans that claim to know how Chinese people "are" and how you should deal with them. These people likely have a pretty narrow view of the world and business. I advise keeping an open mind and judging people (Americans and Chinese alike) on their actions, not what you have heard about their culture.
Tuesday, September 23, 2008
Tainted Milk Crisis and What You Can Learn
The pictures and stories about kids with painful kidney stones from tainted milk are extremely difficult to see and read. I can hardly imagine how mad I would be if my children were in such pain caused by a (seemingly) intentional act. Of course, those responsible should be prosecuted to the full extent of the law.
What can companies outsourcing to China learn from this latest crisis? Here again are my suggestions for avoiding quality problems in China:
1. Build a relationship with the supplier. All the detailed specifications in the world cannot protect your company from an intentionally bad action. Getting to know your suppliers and allowing them to know you and your company builds trust and shared values. OPSA has always encouraged our customers to get to know the factories we use for them and to visit as often as they want.
2. Have detailed specifications. They are still important. Supply contracts are an extension of your documented expectations and can also be helpful.
3. Get third-party inspections. Catching quality problems when you open the container is better than having your customers find them, but finding them in China before they leave the factory is much better. Because of the distance and cultural differences involved in dealing with Chinese suppliers it is very important to have additional inspections.
4. Communicate early and often. In addition to your specifications you need to be in consistent communication with your suppliers (or the link to your suppliers) to make sure all is well.
5. Finally, be a good partner. People cut corners when they are desperate. Listen to your suppliers. Be open to investigating when they say cost pressures are impacting their ability to service you well. "Bully" purchasing may get results in the short-term, but in the long-term is a losing philosophy.
Let me know if you have specific questions about quality assurance in China and I'll do my best to help.
Thursday, September 18, 2008
Pollution Contols In Beijing End, But the Benefit Stays
The pollution controls that the Chinese government put in place around Beijing for the Olympics end this Sunday. The most publicized control implemented was the limitation on driving only every other day depending on your license plate number. Some polls show a strong majority of Beijing residents favor continuing enforcement of the controls.
I've written before that the main think I don't like about traveling to China is the pollution. I know it's no worse that what the US was like during the stage of development China was in, but it still bothers me. I am optimistic for rapid improvement in coming years. I also believe US companies will have a large role in the improvement.
What's interesting about the Beijing controls is the response to them. Beijing residents have clearly enjoyed the improved air quality. Those that drive probably have not liked the limitation on when they can drive their cars. All tolled I expect this situation to expedite the Chinese public's call for cleaner air and water. The government will have to listen and improvement will accelerate. Watch for developments.
I've written before that the main think I don't like about traveling to China is the pollution. I know it's no worse that what the US was like during the stage of development China was in, but it still bothers me. I am optimistic for rapid improvement in coming years. I also believe US companies will have a large role in the improvement.
What's interesting about the Beijing controls is the response to them. Beijing residents have clearly enjoyed the improved air quality. Those that drive probably have not liked the limitation on when they can drive their cars. All tolled I expect this situation to expedite the Chinese public's call for cleaner air and water. The government will have to listen and improvement will accelerate. Watch for developments.
OPSA Just Right in the Middle
While reading about some of our competitors this week I realized how much I like our model compared to theirs. We have many small "one-man or two-man show" competitors. These are mainly people who have made contacts in China and travel there a few times a year to work with factories. They have no consistent presence in China, or they have one partner there that makes contacts for them. These small competitors do not offer inspection services or engineering support in China. They essentially are trading companies and work well on commodity items. For custom components and assemblies they do not offer enough services to significantly reduce risk.
On the other side of the spectrum are our large competitors. These companies have lavish offices in premier locations of Shanghai, Hong Kong, and/or Beijing. They are sophisticated and offer special services like online order tracking. These companies have very high overhead and charge more than OPSA. They also work on very large volume projects. They are appropriate for large companies here in the US only.
OPSA fits nicely in the middle. Our offices in the US and China are utilitarian. Overall our overhead is very low, but our service is intense. We offer all the key risk reduction services in China and are improving them every month. We do not offer special services like online order tracking that our large competitors offer. We also don't work on any commodities. Our customers are SME's (small and mid-size enterprises) rather than very large companies.
I know this post sounds like an ad, but I really like the way we go about our business. Like almost all companies we have processes I'd like to improve, and we are getting there. We're growing fast and expect to be a much larger company in a few years. However, we'll still keep our overhead low and will keep the focus on what benefits our customers most.
On the other side of the spectrum are our large competitors. These companies have lavish offices in premier locations of Shanghai, Hong Kong, and/or Beijing. They are sophisticated and offer special services like online order tracking. These companies have very high overhead and charge more than OPSA. They also work on very large volume projects. They are appropriate for large companies here in the US only.
OPSA fits nicely in the middle. Our offices in the US and China are utilitarian. Overall our overhead is very low, but our service is intense. We offer all the key risk reduction services in China and are improving them every month. We do not offer special services like online order tracking that our large competitors offer. We also don't work on any commodities. Our customers are SME's (small and mid-size enterprises) rather than very large companies.
I know this post sounds like an ad, but I really like the way we go about our business. Like almost all companies we have processes I'd like to improve, and we are getting there. We're growing fast and expect to be a much larger company in a few years. However, we'll still keep our overhead low and will keep the focus on what benefits our customers most.
Tuesday, September 16, 2008
How to Ensure Quality in China
With all the recent news about more problems with baby formula in China, I am going to touch again on the number one issue US companies ask about regarding imports from China - quality.
Quality is an issue with suppliers no matter where they are. The same things that help ensure quality from suppliers in the US will greatly help with suppliers from China. First, have excellent specifications and update them as needed. Second, build a relationship with your suppliers so there is a shared value on and understanding of expected and required quality levels.
Because the supply chain is much longer (in miles and in terms of culture) when dealing with Chinese suppliers, there are other actions US companies can take to ensure quality. First, have a consistent physical presence at your suppliers. OPSA fills that role for our customers. Second, perform extra quality inspections during production and before shipment. OSPA does this for our clients and there are several third party quality control firms (3PQ's) that focus only on performing inspections and audits. Larger US companies that source significantly from China maintain there own offices there and have QC staff on payroll.
Supply contracts also can help, but some companies fail to take care of the issues above because their contract gives them a false sense of security. At OPSA we've begun using contracts more extensively. They are becoming more useful in China.
In summary, no action can guarantee quality from any supplier. It's all about reducing the risk of quality problems. I strongly suggest communicating clearly and often, building relationships, and verifying quality. With regard to the last point, Ronald Regan's famous quote comes to mind - "Trust but verify".
Quality is an issue with suppliers no matter where they are. The same things that help ensure quality from suppliers in the US will greatly help with suppliers from China. First, have excellent specifications and update them as needed. Second, build a relationship with your suppliers so there is a shared value on and understanding of expected and required quality levels.
Because the supply chain is much longer (in miles and in terms of culture) when dealing with Chinese suppliers, there are other actions US companies can take to ensure quality. First, have a consistent physical presence at your suppliers. OPSA fills that role for our customers. Second, perform extra quality inspections during production and before shipment. OSPA does this for our clients and there are several third party quality control firms (3PQ's) that focus only on performing inspections and audits. Larger US companies that source significantly from China maintain there own offices there and have QC staff on payroll.
Supply contracts also can help, but some companies fail to take care of the issues above because their contract gives them a false sense of security. At OPSA we've begun using contracts more extensively. They are becoming more useful in China.
In summary, no action can guarantee quality from any supplier. It's all about reducing the risk of quality problems. I strongly suggest communicating clearly and often, building relationships, and verifying quality. With regard to the last point, Ronald Regan's famous quote comes to mind - "Trust but verify".
Thursday, September 11, 2008
Inflation Slows, But So Does Growth
The Chinese CPI (consumer price index) rose just 4.9% in August. Although the PPI (producer price index) is more important for OPSA and our customers, the CPI slowdown is significant. It is down from 6.3% in July and 7.7% back in May.
However, as price increases slow, so has growth. Second quarter GDP growth was only 10.1%, down from 10.5% in Q1. I've often read that China needs about 10% growth to maintain a stable employment level. Some economists are now predicting growth will fall to single digits in Q3.
Several economists in China are now calling for economic stimulus to businesses to jump-start growth. The stabilization of the RMB to the USD may be part of this stimulus.
It sure didn't take long to go from talking about an overheated economy, to a slowing one in need of stimulus. I will be watching to see what all the macro developments mean for our business and our customers.
However, as price increases slow, so has growth. Second quarter GDP growth was only 10.1%, down from 10.5% in Q1. I've often read that China needs about 10% growth to maintain a stable employment level. Some economists are now predicting growth will fall to single digits in Q3.
Several economists in China are now calling for economic stimulus to businesses to jump-start growth. The stabilization of the RMB to the USD may be part of this stimulus.
It sure didn't take long to go from talking about an overheated economy, to a slowing one in need of stimulus. I will be watching to see what all the macro developments mean for our business and our customers.
Monday, September 8, 2008
Opportunities Lost and the Roller Coaster
I've written before about how being in a small and growing business can be like a roller coaster ride. At OPSA we experienced the downside of the roller coaster in August. Because of shipments timing, we shipped fewer orders and volume than we planned in August. Although we are having another year of very good growth, a bad month still hurts.
We also had a potentially large new opportunity go away in August when an OPSA customer lost a large new contract they were working on. We had supported this effort and had quite a bit of time and effort into the project.
Luckily we have several other opportunities we are working on, and a handful are very high potential. It still hurts to lose one.
The answer to both issues is to buckle down and close the opportunities we have before us and generate new ones. If our history is a guide, tomorrow or very soon the direction of our roller coaster ride likely will look much better.
We also had a potentially large new opportunity go away in August when an OPSA customer lost a large new contract they were working on. We had supported this effort and had quite a bit of time and effort into the project.
Luckily we have several other opportunities we are working on, and a handful are very high potential. It still hurts to lose one.
The answer to both issues is to buckle down and close the opportunities we have before us and generate new ones. If our history is a guide, tomorrow or very soon the direction of our roller coaster ride likely will look much better.
Tuesday, September 2, 2008
RMB to USD Rate to Stabilize
I'm reading more and more from China that the exchange rate will stabilize longer-term. In the short term the RMB actually lost ground to the USD in August. It was a small depreciation, but a significant one given the history of the exchange rate since the July 2005 un-pegging.
In a Financial Times interview, Cheng Siwei, vice-chairman of the standing committee of the National People's Congress, notes that the RMB does not need to appreciate any more versus the dollar. He notes the RMB will likely strengthen against other currencies, but as the dollar gains strength around the world it will stabilize versus the RMB.
Some stability in the rate would be very good news for US consumers fearing continued inflation and for OPSA. The fall of oil prices over the last several weeks is also good news for OPSA customers and the US economy. I'm betting and hoping oil falls to about $95 a barrel for a while. At the same time I look forward to new breakthroughs in energy that will reduce reliance on oil and be better for the environment.
Optimism reigns on this first day back to school for kids here in the US!
In a Financial Times interview, Cheng Siwei, vice-chairman of the standing committee of the National People's Congress, notes that the RMB does not need to appreciate any more versus the dollar. He notes the RMB will likely strengthen against other currencies, but as the dollar gains strength around the world it will stabilize versus the RMB.
Some stability in the rate would be very good news for US consumers fearing continued inflation and for OPSA. The fall of oil prices over the last several weeks is also good news for OPSA customers and the US economy. I'm betting and hoping oil falls to about $95 a barrel for a while. At the same time I look forward to new breakthroughs in energy that will reduce reliance on oil and be better for the environment.
Optimism reigns on this first day back to school for kids here in the US!
Friday, August 29, 2008
Home Office Balance
I hope readers of this blog enjoy some of the more personal input about our growing company and my place in it.
Our US Headquarters is in Loretto, MN just outside of Minneapolis. I work out of my home office in Green Bay, WI. At first I really disliked working from home. I was used to working in a large office where I could interact with many people. Over time I've gotten used to working alone. I reach out by phone to contacts often and have joined several business and community groups to stay connected to others. It's a challenge though.
We have three children. When they are home in the summer they sometimes can impact my productivity. That is balanced by the times I work at night and early in the AM.
At times I've thought about getting a small office nearby. However, I'm not sure it would be any more productive as I'd have more trouble working at night with all my files and information in another location. Also, it wouldn't help the isolation issue and involves significant cost that doesn't help us serve our customer.
The kids head back to school Tuesday and I'm looking forward to the quiet. In looking back over the last three years I've gotten very good and working from home and rarely think about making a change anymore. There are still times I need to work hard to focus on tasks at hand when distractions are prevalent, but I've improved my organization over the years and am pretty well set now.
Have a great holiday weekend!
Our US Headquarters is in Loretto, MN just outside of Minneapolis. I work out of my home office in Green Bay, WI. At first I really disliked working from home. I was used to working in a large office where I could interact with many people. Over time I've gotten used to working alone. I reach out by phone to contacts often and have joined several business and community groups to stay connected to others. It's a challenge though.
We have three children. When they are home in the summer they sometimes can impact my productivity. That is balanced by the times I work at night and early in the AM.
At times I've thought about getting a small office nearby. However, I'm not sure it would be any more productive as I'd have more trouble working at night with all my files and information in another location. Also, it wouldn't help the isolation issue and involves significant cost that doesn't help us serve our customer.
The kids head back to school Tuesday and I'm looking forward to the quiet. In looking back over the last three years I've gotten very good and working from home and rarely think about making a change anymore. There are still times I need to work hard to focus on tasks at hand when distractions are prevalent, but I've improved my organization over the years and am pretty well set now.
Have a great holiday weekend!
Wednesday, August 27, 2008
Education News for Migrant Workers
An article in today's China Daily has big implications. As I think I've mentioned before, I am the school board president for our local school district. It's a great way to give back to the community in an area, education, that I am passionate about. I also love to learn more about the Chinese education system.
The Chinese government announced that the children of migrant workers can now receive free education where their parents work. Previously the children had to be in their registered home town to take advantage of free elementary education. This kept many families apart most of the year. With this new rule it may make life for migrant families much easier and better. Here's the article:
Free schooling for migrant kids
(China Daily)
Updated: 2008-08-27 08:06
Children of migrant workers will have the same education opportunities as their urban counterparts before the end of this year, the Ministry of Education (MOE) said Tuesday.
"The central government will allocate funds to local education departments sufficient to cover extra education expenses in accordance with the number of migrant children they accept," the ministry said on its website.
The ministry is now drafting policies that provide special bonuses to local education departments that accept non-local children.
"The ministry intends to extend the free education umbrella to cover children from migrant worker families," the ministry spokesperson Xu Mei said. As from the new semester in next month, urban residents nationwide will be exempted from incidental expenses, making compulsory education totally free in these areas, according to a policy launched earlier this month by the MOE.
Shijiazhuang was the first in the country to provide in 2004 equal education opportunities to children of both local residents and migrant workers through introduction of a unified system of education charges. Consequently, almost all classes are seriously overcrowded, as 50 or 60 children are generally crammed into classrooms designed for 40 students, Zang Dajian, an education bureau official of Qiaodong district, Shijiazhuang, Hebei province, said.
China provides a nine-year compulsory education system for children aged 6-15, comprising six-year free pfrimary education and three-year secondary education. The system has long subsisted on government funds and been the privilege of children with local residential certification or hukou, and excluded children living with parents working in cities away from their registered home.
Peng Shengzuo, 40, a construction worker in Beijing, is one example. His 11-year old daughter had to return to his hometown in Shangrao, Jiangxi province because schools in the capital do not accept pupils without a hukou. As Peng's wife also works in Beijing the family can only be together once a year during the Spring Festival.
In 2007 a total 7.66 million children of migrant workers reached the age at which to start compulsory education, according to statistics. Most were concentrated in developed areas such as Beijing, Shanghai, Zhejiang and Guangdong provinces.
Monday, August 25, 2008
"Made In China" Brand Bolstered by Olympics
An article in China Daily today joined several others I've read in the last few days on how the excellent organization and world class facilities of the Beijing Olympics will bolster the perception "Made In China". I totally agree with this conclusion. From the hoards of volunteers projecting a friendly and welcoming posture to the flawless organization and the extravagant ceremonies, it all was awesome and will pay long-term dividends for China.
This is all good news for OPSA and for proponents of free trade. Here is the article:
--------------------------
'Made in China' brand reaps Olympic dividend
The Olympics had a negligible direct impact on China's economy, but analysts say the near flawless organisation of the Games was a priceless 17-day advertisement for the "Made in China" brand.
Fireworks explode at the opening ceremony of the Beijing 2008 Olympic Games at the National Stadium, August 8, 2008. [Agencies]
Billions of television viewers saw athletes performing in gleaming high-tech stadiums in a city rebuilt by some of the world's most renowned architects, projecting the image of a modern and cutting edge economy.
For a country traditionally seen as a low-cost manufacturing hub, the Olympics was a timely re-branding exercise.
"If you go back 12 months, 'brand China' was in tremendous difficulties with toxic toys and a number of other issues," said Beijing-based Greg Paull, who runs market research firm R3.
"They've come a long way in a year," he said.
A virtually glitch-free Games in terms of organisation could bring profound changes in the way China is seen by the rest of the world.
"China's amazing haul of gold medals has mirrored its spectacular economic growth to signal to the world that China has truly arrived," said Seth Grossman, a Shanghai executive with media communications agency Carat China.
"From the grandeur of the opening ceremony to the self-assured way Chinese athletes expected to win in so many events, China exceeded every expectation."
Paull said many Chinese companies would be able to use the Olympic dividend to expand outside their domestic market and make their mark on the global stage.
He cited the example of sportswear maker Li Ning, whose founder lit the flame at the Olympic opening ceremony on August 8 after a spectacular skywalk around the top of the "Bird's Nest" stadium.
"Companies like Li Ning that are looking to expand globally are going to use the Olympics as a chance to do that," said Paull.
China is the world's fourth-biggest economy, and the concrete impact on the economy was always going to be minimal.
"It won't do much to lift growth as the Chinese economy is so huge," said Qiu Qingdong, an economist with Guodu Securities.
Even for the city of Beijing, the economic impact of tourism and other spending has been limited.
Beijing hotels have received fewer visitors than they expected, with the occupancy rates for three-star hotels and lower lingering under 40 percent, according to the Beijing Statistical Bureau.
"Before the Games, people were anticipating a business boom in tourism, benefiting hotels, airlines and local restaurants," said Li Wei, an analyst with Standard Chartered.
"Now it's becoming clear that the impact wasn't all that big. I don't think industries like that are likely to benefit greatly from one month of Olympics and Paralympics," he said.
But to many analysts measuring the impact of the Olympic Games, it was never going to be a simple question of, say, August tourism revenue.
Instead they focused on the big picture, the profound changes taking place in China and their effect on the rest of the world.
"Analysing the one-off macroeconomic impact, or the 'economics of the Games', is not really an issue of such great importance," Daniel Chui, head of investor communications at JF Asset Management said.
Focusing on the little figures might even distract attention from the fact that we are witnessing an epoch-defining event, he argued.
"The Beijing Olympics are another milepost in China's transformation into an efficient, market-oriented and financially sophisticated economy and a more open society," he said.
This is all good news for OPSA and for proponents of free trade. Here is the article:
--------------------------
'Made in China' brand reaps Olympic dividend
The Olympics had a negligible direct impact on China's economy, but analysts say the near flawless organisation of the Games was a priceless 17-day advertisement for the "Made in China" brand.
Fireworks explode at the opening ceremony of the Beijing 2008 Olympic Games at the National Stadium, August 8, 2008. [Agencies]
Billions of television viewers saw athletes performing in gleaming high-tech stadiums in a city rebuilt by some of the world's most renowned architects, projecting the image of a modern and cutting edge economy.
For a country traditionally seen as a low-cost manufacturing hub, the Olympics was a timely re-branding exercise.
"If you go back 12 months, 'brand China' was in tremendous difficulties with toxic toys and a number of other issues," said Beijing-based Greg Paull, who runs market research firm R3.
"They've come a long way in a year," he said.
A virtually glitch-free Games in terms of organisation could bring profound changes in the way China is seen by the rest of the world.
"China's amazing haul of gold medals has mirrored its spectacular economic growth to signal to the world that China has truly arrived," said Seth Grossman, a Shanghai executive with media communications agency Carat China.
"From the grandeur of the opening ceremony to the self-assured way Chinese athletes expected to win in so many events, China exceeded every expectation."
Paull said many Chinese companies would be able to use the Olympic dividend to expand outside their domestic market and make their mark on the global stage.
He cited the example of sportswear maker Li Ning, whose founder lit the flame at the Olympic opening ceremony on August 8 after a spectacular skywalk around the top of the "Bird's Nest" stadium.
"Companies like Li Ning that are looking to expand globally are going to use the Olympics as a chance to do that," said Paull.
China is the world's fourth-biggest economy, and the concrete impact on the economy was always going to be minimal.
"It won't do much to lift growth as the Chinese economy is so huge," said Qiu Qingdong, an economist with Guodu Securities.
Even for the city of Beijing, the economic impact of tourism and other spending has been limited.
Beijing hotels have received fewer visitors than they expected, with the occupancy rates for three-star hotels and lower lingering under 40 percent, according to the Beijing Statistical Bureau.
"Before the Games, people were anticipating a business boom in tourism, benefiting hotels, airlines and local restaurants," said Li Wei, an analyst with Standard Chartered.
"Now it's becoming clear that the impact wasn't all that big. I don't think industries like that are likely to benefit greatly from one month of Olympics and Paralympics," he said.
But to many analysts measuring the impact of the Olympic Games, it was never going to be a simple question of, say, August tourism revenue.
Instead they focused on the big picture, the profound changes taking place in China and their effect on the rest of the world.
"Analysing the one-off macroeconomic impact, or the 'economics of the Games', is not really an issue of such great importance," Daniel Chui, head of investor communications at JF Asset Management said.
Focusing on the little figures might even distract attention from the fact that we are witnessing an epoch-defining event, he argued.
"The Beijing Olympics are another milepost in China's transformation into an efficient, market-oriented and financially sophisticated economy and a more open society," he said.
Friday, August 22, 2008
Growth and Optimism Continue
I continue reading much about how costs in China have made manufacturing there too expensive. A few different blogs that I read this week had posts on the subject. Both concluded that for some things China was not the right place before and really isn't now. Low-end and commodity items are having the most trouble. As I've said before, OPSA hasn't ever done commodities or low-end items. We do have some component-level projects that have lost their advantage. As I've also mentioned in other posts, OPSA is shifting even more strongly to sub-assembly work and finished goods.
I can say that our business is growing nicely and that we are working on new projects every day. We are becoming more selective on what we spend our time on, but that's been a good thing. It's brought some more discipline to our sales efforts.
So, the old saying about not believing everything you read in the media is certainly valid in this situation. China and Asia continue to be a great option for the right projects.
I can say that our business is growing nicely and that we are working on new projects every day. We are becoming more selective on what we spend our time on, but that's been a good thing. It's brought some more discipline to our sales efforts.
So, the old saying about not believing everything you read in the media is certainly valid in this situation. China and Asia continue to be a great option for the right projects.
Thursday, August 21, 2008
Olympic Lessons for OPSA and Me
I love the Olympics. Watching the Beijing Olympics is even better because of how much I respect and like the Chinese people. Here are a few lessons I've been reminded of while watching the games:
1. Family is what it's all about - Most athletes look for their families after they compete. Although competing for god and country are important, it's the people closest to each of us that makes life wonderful. The people of OPSA are what make it fun and interesting for me.
2. Success takes time - When I hear the stories of all the training and work these athletes undertake I am reminded that hard work over time, based on a plan, leads to success. Our business has a very long selling cycle. From the time we meet a potential new customer it typically takes nine months to a year until we realize our first sale. I often get impatient with this. I need to keep a focus on the long-term, while balancing the short-term, but we as a company need to get better at long-term planning.
3. Mistakes are learning opportunities - There are so many stories of athletes who failed in some way and built on that experience to find great success. I read a biography of Lincoln this year and that also reminded me about the value of perseverance and optimism in the face of adversity. Mistakes are problems are part of life, how one deals with them is the important thing.
4. Respect is to be given freely and earned consistently - I noticed the differences between two Olympic stars - Michael Phelps and Usain Bolt. Phelps seems to have genuine respect for his team mates and competitors. Bolt acts arrogantly and disrespectfully. I predict over time Bolt will mature and improve his behavior, but that Phelps will be more admired for this Olympics.
5. Working together is better than working individually - Seeing players that individually aren't that strong compete so well as part of a team reminds me again about the principle of synergy. This is a tough one for me as much of my work in OPSA is individual effort and I'm sometimes a little detached from the team working here in Green Bay. I need to keep looking for opportunities to collaborate with the OPSA team and the OPSHK team.
6. People want to be around and work with others whom are fun and create fun - It's interesting to me that Shawn Johnson seems to get more attention than Nastia Liukin even though Nastia won the individual all-around gold. I believe the main reason is Shawn seems to easily smile and to be truly enjoying her experience while Nastia looks more serious and stressed even after she wins.
Enjoy the rest of the Beijing games!
1. Family is what it's all about - Most athletes look for their families after they compete. Although competing for god and country are important, it's the people closest to each of us that makes life wonderful. The people of OPSA are what make it fun and interesting for me.
2. Success takes time - When I hear the stories of all the training and work these athletes undertake I am reminded that hard work over time, based on a plan, leads to success. Our business has a very long selling cycle. From the time we meet a potential new customer it typically takes nine months to a year until we realize our first sale. I often get impatient with this. I need to keep a focus on the long-term, while balancing the short-term, but we as a company need to get better at long-term planning.
3. Mistakes are learning opportunities - There are so many stories of athletes who failed in some way and built on that experience to find great success. I read a biography of Lincoln this year and that also reminded me about the value of perseverance and optimism in the face of adversity. Mistakes are problems are part of life, how one deals with them is the important thing.
4. Respect is to be given freely and earned consistently - I noticed the differences between two Olympic stars - Michael Phelps and Usain Bolt. Phelps seems to have genuine respect for his team mates and competitors. Bolt acts arrogantly and disrespectfully. I predict over time Bolt will mature and improve his behavior, but that Phelps will be more admired for this Olympics.
5. Working together is better than working individually - Seeing players that individually aren't that strong compete so well as part of a team reminds me again about the principle of synergy. This is a tough one for me as much of my work in OPSA is individual effort and I'm sometimes a little detached from the team working here in Green Bay. I need to keep looking for opportunities to collaborate with the OPSA team and the OPSHK team.
6. People want to be around and work with others whom are fun and create fun - It's interesting to me that Shawn Johnson seems to get more attention than Nastia Liukin even though Nastia won the individual all-around gold. I believe the main reason is Shawn seems to easily smile and to be truly enjoying her experience while Nastia looks more serious and stressed even after she wins.
Enjoy the rest of the Beijing games!
Monday, August 18, 2008
Supplier Audits and Product Inspection Reports
The documentation of these two things is a developing art for OPSA. As with most rapidly growing business we are more focused on doing the work that documenting it afterward. However, as we've gotten larger and more sophisticated I've realized we need more and better documentation in these two areas for our customers.
First in supplier audits we need to focus more attention on environmental and legal compliance issues that just product and process quality. This will be facilitated by having a standard form which our inspectors use at every factory audit. This form needs to be bi-lingual so we can share it directly with our customers. We also need to document audits of factories we work with on a continuing basis. Each should be audited at least annually.
While our internal documentation of product inspections is good, it is not in a format for easy understanding by our customers. We need to revise and refine these forms as well.
These types of administrative needs present a challenge for a growing company like ours. It is necessary, but the time required for implementation is a large investment and it's time that is taken away from customer service and new customer prospecting activities. As with most initiatives in business, balance is required. We are working to find the right balance as we move forward.
First in supplier audits we need to focus more attention on environmental and legal compliance issues that just product and process quality. This will be facilitated by having a standard form which our inspectors use at every factory audit. This form needs to be bi-lingual so we can share it directly with our customers. We also need to document audits of factories we work with on a continuing basis. Each should be audited at least annually.
While our internal documentation of product inspections is good, it is not in a format for easy understanding by our customers. We need to revise and refine these forms as well.
These types of administrative needs present a challenge for a growing company like ours. It is necessary, but the time required for implementation is a large investment and it's time that is taken away from customer service and new customer prospecting activities. As with most initiatives in business, balance is required. We are working to find the right balance as we move forward.
Friday, August 15, 2008
Surprise - Export Growth from China to US Slows in 2008
Ok, it's not a surprise. China Daily is reporting that in the first half of this year, exports from China to the US were up 8.9%, which is 9 percentage points lower than last year's growth. This is significant and caused both by the slow economy in the US and all the cost factors in China I've mentioned before.
At OPSA our growth in new customers has slowed, but our existing customers are rapidly increasing their business with us. The growth in existing customers impacts our ability to add new customers as we haven't added much new capacity in the US or Asia.
Here's the article:
----------------------------------------------------
China's exports to the US in the first six months totaled $116.79 billion, up 8.9 percent from the same period last year. The growth rate was 9 percentage points lower than a year earlier.
China Customs said the slowdown was partly due to economic problems sparked by the US subprime mortgage crisis. A stronger Chinese currency, the renminbi, also contributed to the declining export volume.
The central parity rate of the renminbi was 6.86 yuan to one dollar Thursday. The renminbi had appreciated more than 20 percent against the greenback since its peg to the US dollar was removed in July 2005.
The appreciation raised the cost of the country's goods on the international market and impacted on Chinese products' competitiveness, China Customs said.
China's processing trade industry saw its US exports stand at $70.68 billion in the first half, up 5.7 percent over the same period last year. The growth rate was 3.2 percentage points lower year-on-year.
Exports of mechanical and electrical products, two of the country's major exports to the United States, hit $71.9 billion, up 8.6 percent over the same period last year. The growth rate declined 8.4 percentage points year-on-year.
China's export volume stood at $666.25 billion in the first half of this year, representing an increase of 21.8 percent over the same period last year.
According to government statistics, China has become a major export partner of the US, exceeding Japan and Canada to rank the third in export volume last year. Meanwhile, the US is China's largest export partner. In 2007, the total trade volume between China and the United States reached $300 billion.
The Chinese government is paying great attention to the expanding US subprime mortgage crisis and the falling dollar.
The Report on the Work of the Government, delivered to National People's Congress on March 5, said China must be fully prepared for changes in the international environment and become better able to tackle risks.
At OPSA our growth in new customers has slowed, but our existing customers are rapidly increasing their business with us. The growth in existing customers impacts our ability to add new customers as we haven't added much new capacity in the US or Asia.
Here's the article:
----------------------------------------------------
China's exports to the US in the first six months totaled $116.79 billion, up 8.9 percent from the same period last year. The growth rate was 9 percentage points lower than a year earlier.
China Customs said the slowdown was partly due to economic problems sparked by the US subprime mortgage crisis. A stronger Chinese currency, the renminbi, also contributed to the declining export volume.
The central parity rate of the renminbi was 6.86 yuan to one dollar Thursday. The renminbi had appreciated more than 20 percent against the greenback since its peg to the US dollar was removed in July 2005.
The appreciation raised the cost of the country's goods on the international market and impacted on Chinese products' competitiveness, China Customs said.
China's processing trade industry saw its US exports stand at $70.68 billion in the first half, up 5.7 percent over the same period last year. The growth rate was 3.2 percentage points lower year-on-year.
Exports of mechanical and electrical products, two of the country's major exports to the United States, hit $71.9 billion, up 8.6 percent over the same period last year. The growth rate declined 8.4 percentage points year-on-year.
China's export volume stood at $666.25 billion in the first half of this year, representing an increase of 21.8 percent over the same period last year.
According to government statistics, China has become a major export partner of the US, exceeding Japan and Canada to rank the third in export volume last year. Meanwhile, the US is China's largest export partner. In 2007, the total trade volume between China and the United States reached $300 billion.
The Chinese government is paying great attention to the expanding US subprime mortgage crisis and the falling dollar.
The Report on the Work of the Government, delivered to National People's Congress on March 5, said China must be fully prepared for changes in the international environment and become better able to tackle risks.
Thursday, August 14, 2008
A Return To Prospecting
Over the last year I have greatly reduced the amount of good, old prospecting for new clients. Instead I've been busy servicing a large client in the middle of a large new project and gaining some new clients through referrals and networking. This approach coincided with some capacity constraints in our Asian offices. Although we are still somewhat constrained as we continue our strong growth, it's time for me to get back to sales 101.
I've now got the large client in a place where they require less daily interaction. There's still a lot to do for them, but the workload is down from the spring and early summer. Also, I just miss the excitement of pushing to get new clients from scratch. I will also be turning up my networking efforts and work to get new project from existing clients.
Although the exchange rate and other cost factors in Asia that I've previously discussed are working against us, the slow economy is in our favor. Companies need to reduce costs more aggressively when the economy is slower. OPSA needs to focus less on clients who only purchase components and more on companies that will purchase sub-assemblies and finished goods where our services are more valuable. Targeting the right companies will be the challenge this fall as I prospect aggressively. I'm looking forward to it and will keep you updated on my progress.
I've now got the large client in a place where they require less daily interaction. There's still a lot to do for them, but the workload is down from the spring and early summer. Also, I just miss the excitement of pushing to get new clients from scratch. I will also be turning up my networking efforts and work to get new project from existing clients.
Although the exchange rate and other cost factors in Asia that I've previously discussed are working against us, the slow economy is in our favor. Companies need to reduce costs more aggressively when the economy is slower. OPSA needs to focus less on clients who only purchase components and more on companies that will purchase sub-assemblies and finished goods where our services are more valuable. Targeting the right companies will be the challenge this fall as I prospect aggressively. I'm looking forward to it and will keep you updated on my progress.
Friday, August 8, 2008
Let the Games Begin
The Olympics are a huge deal for China with long-term implications. If all goes well they take another step toward being a world super power. If negative perceptions reign for whatever reason, there will likely be political and business implications. Pollution control could become a big new industry in China. A war on terrorism could start if terrorists try to disrupt the games.
I believe the US and China will grow closer or further apart as a result of the games. President Bush did not get things off to a good start with his political comments this week. Face is an important concept in China, but his advisers do not seem to understand it.
I've read that "hot money" or money invested for large, short-term returns may stream out of China after the games causing economic problems. I don't believe this and expect the games to have very little short-term impact. Long-term however, I expect their impact to be important for the future of US and Chinese relations and for China's relations with the rest of the world.
I love the Olympics and can't wait to watch. Enjoy.
I believe the US and China will grow closer or further apart as a result of the games. President Bush did not get things off to a good start with his political comments this week. Face is an important concept in China, but his advisers do not seem to understand it.
I've read that "hot money" or money invested for large, short-term returns may stream out of China after the games causing economic problems. I don't believe this and expect the games to have very little short-term impact. Long-term however, I expect their impact to be important for the future of US and Chinese relations and for China's relations with the rest of the world.
I love the Olympics and can't wait to watch. Enjoy.
Wednesday, August 6, 2008
Change of Yuan Direction?
The Chinese central bank set the mid-point for the Yuan's trading range lower for a fifth consecutive day Tuesday according to China Daily. The Yuan has fallen slightly against the USD since it's peak on July 17, but overall the Yuan is up against the dollar 6.6% so far in 2008. Some analysts believe the Yuan will now trade up and down but not get higher than the 6.6% level.
It appears the Chinese government needs to slow the growth of the RMB versus the dollar to give exporters a break even though this might be harmful to the governments battle against inflation. It's a difficult balance to maintain. Also, the expectation of continued strengthening of the RMB has attracted "hot money" to China. Varying the exchange rate direction will keep speculators from causing problems like they have in the US real estate market.
It will be interesting to see where the RMB goes from here.
It appears the Chinese government needs to slow the growth of the RMB versus the dollar to give exporters a break even though this might be harmful to the governments battle against inflation. It's a difficult balance to maintain. Also, the expectation of continued strengthening of the RMB has attracted "hot money" to China. Varying the exchange rate direction will keep speculators from causing problems like they have in the US real estate market.
It will be interesting to see where the RMB goes from here.
Tuesday, August 5, 2008
Top Ten Pitfalls to Avoid in Chinese Outsourcing - #1 Lack of a Plan / Strategy
#1 - Lack of a Plan / Strategy
This is what I call the "pitfall maker". It is the root of all the previous pitfalls. Starting with a plan for outsourcing is the number one action companies can take to avoid problems and realize the many benefits of Chinese outsourcing.
A plan should include objectives, time lines and evaluation points, progression of projects (which comes first or how will this be determined), contingency planning for key risks, and quality assurance plans.
Although OPSA is not a consulting firm, we do help our customers with their plans. It's in everyone's best interest to have a plan, follow it, and modify it as appropriate.
I hope the "pitfalls" series has been helpful. Feel free to contact me if I can expand on any of the points.
This is what I call the "pitfall maker". It is the root of all the previous pitfalls. Starting with a plan for outsourcing is the number one action companies can take to avoid problems and realize the many benefits of Chinese outsourcing.
A plan should include objectives, time lines and evaluation points, progression of projects (which comes first or how will this be determined), contingency planning for key risks, and quality assurance plans.
Although OPSA is not a consulting firm, we do help our customers with their plans. It's in everyone's best interest to have a plan, follow it, and modify it as appropriate.
I hope the "pitfalls" series has been helpful. Feel free to contact me if I can expand on any of the points.
Friday, August 1, 2008
Buyer Beware (Or at least specific)
On a summer Friday I want to write about being specific about what is important when buying something or having something made overseas.
My mother-in-law is having a condo built near us here in Green Bay. She found a great location and worked out a very good deal. However, the model she looked at had high ceilings. She picked out a different plan and just expected it would have high ceilings as well. Now that the roof is on we can see the ceilings are a standard 8 feet. The builder's specification sheet said "ceiling height per plan". The plan only shows something about stud height being 92 5/8" high. We never asked about ceiling height, but realize now it is very important to my wife's Mom. We should have been specific about the key factors of the purchase.
Similar things happen with our customers. They forget to mention that some attribute of the material is important. After we've purchased some, they do testing and mention a problem. Then we have to work something out. We've gotten much better about asking many, many questions and drafting inspection criteria for all projects that has eliminated almost all of these issues, but we are still surprised sometimes.
So, today's suggestion for buyers (especially those building custom houses or products) is to TALK AS MUCH AS POSSIBLE WITH YOUR SUPPLIERS ABOUT WHAT IS IMPORTANT TO YOU AND TO ASK MANY, MANY QUESTIONS. We are certainly trying to help in that regard as well.
My mother-in-law is having a condo built near us here in Green Bay. She found a great location and worked out a very good deal. However, the model she looked at had high ceilings. She picked out a different plan and just expected it would have high ceilings as well. Now that the roof is on we can see the ceilings are a standard 8 feet. The builder's specification sheet said "ceiling height per plan". The plan only shows something about stud height being 92 5/8" high. We never asked about ceiling height, but realize now it is very important to my wife's Mom. We should have been specific about the key factors of the purchase.
Similar things happen with our customers. They forget to mention that some attribute of the material is important. After we've purchased some, they do testing and mention a problem. Then we have to work something out. We've gotten much better about asking many, many questions and drafting inspection criteria for all projects that has eliminated almost all of these issues, but we are still surprised sometimes.
So, today's suggestion for buyers (especially those building custom houses or products) is to TALK AS MUCH AS POSSIBLE WITH YOUR SUPPLIERS ABOUT WHAT IS IMPORTANT TO YOU AND TO ASK MANY, MANY QUESTIONS. We are certainly trying to help in that regard as well.
Wednesday, July 30, 2008
Top Ten Pitfalls to Avoid in Chinese Outsourcing - #2 Rushing The Process
#2 - Rushing The Process
Unfortunately, at OPSA we keep forgetting this one. Either that or we get so excited about a project we overlook that it will be a time line project with lots of hurdles.
The best projects are:
- From a company we already work with
- From a company with experience outsourcing outside the US
- An established product with few anticipated design changes, predictable demand, and not a key item for a company
The most difficult projects are:
- From a company with no outsourcing experience
- A new product still in development that has a firm launch date in the near future
You can see the problem here - we need to add new customers to continue growing, but new customers present the most risk. Also, new customers usually want to start with a new product to them, or the company is new and all their products are fairly new.
Rushing the process is the most common mistake made with new projects. Customers sometimes go into the process without a plan and don't understand all the steps needed to be successful. Also, they fail to anticipate that there will be delays. We do help customers plan, and working with a company like OPSA helps avoid most delays and problems, but it's still a complex process to begin outsourcing in China (that goodness, or there wouldn't be a need for us).
So, make outsourcing a strategic decision and plan accordingly. Pick an established product you can afford to learn on and gain experience. Once you do, you can begin working on development projects. Most importantly, try not to pick a new product with a firm launch deadline that is coming up soon. Of course, OPSA can help with all of this.
Unfortunately, at OPSA we keep forgetting this one. Either that or we get so excited about a project we overlook that it will be a time line project with lots of hurdles.
The best projects are:
- From a company we already work with
- From a company with experience outsourcing outside the US
- An established product with few anticipated design changes, predictable demand, and not a key item for a company
The most difficult projects are:
- From a company with no outsourcing experience
- A new product still in development that has a firm launch date in the near future
You can see the problem here - we need to add new customers to continue growing, but new customers present the most risk. Also, new customers usually want to start with a new product to them, or the company is new and all their products are fairly new.
Rushing the process is the most common mistake made with new projects. Customers sometimes go into the process without a plan and don't understand all the steps needed to be successful. Also, they fail to anticipate that there will be delays. We do help customers plan, and working with a company like OPSA helps avoid most delays and problems, but it's still a complex process to begin outsourcing in China (that goodness, or there wouldn't be a need for us).
So, make outsourcing a strategic decision and plan accordingly. Pick an established product you can afford to learn on and gain experience. Once you do, you can begin working on development projects. Most importantly, try not to pick a new product with a firm launch deadline that is coming up soon. Of course, OPSA can help with all of this.
Monday, July 28, 2008
MITA Presentation - Recommendations II
I covered the first three recommendations for responding to cost increases from China in an earlier post. Here are the remaining four.
First, you can choose to add more value in China. We have customers that are responding by moving up the value chain from component sourcing to having sub-assemblies made in China. This allows for additional labor savings and improves leverage if current suppliers can also perform some assembly.
The next option is to make design or BOM changes to find cost savings. Customers are now motivated to test whether locally available materials in China can be substituted for their currently specified materials. We are helping by stepping up our efforts to help our factories with global sourcing initiatives. We often can find electrical components less expensively in other countries and export them to our factory partners in China.
Getting input from Chinese suppliers on what design changes can have significant cost impact is a great strategy. Something you think has little impact on cost may be a large driver due to special set-up requirements or other issues. Ask and learn.
Finally, finding ways to save on logistics costs is an opportunity for most importers. As a program grows we often find customers paying much more for freight than they hoped because their planning is not good. Being more intentional with order planning really helps avoid the very costly express shipments and rush orders.
We'll get back to trends in Chinese outsourcing next.
Wednesday, July 23, 2008
Random Thoughts from The OPSA Office
I'm in the OPSA office in Loretto, MN for a few days this week. Doug Peterson from our HK office is in town and we have some meetings set-up for him. Here are some random thoughts impacting me today:
1. It's great to spend time in the office. I get reconnected with everyone's projects and also get a feel for our progress as a company. Even though I do about the same things I do when I'm in my Green Bay office, time here has added benefits. It is a 5.5 hour drive, but worth it every six weeks or so.
2. Isn't summer awesome? The weather the last several weeks has been so great.
3. I'm concerned about further strengthening of the RMB and the impact on us. I read an article this week where an economist feels the RMB should strengthen another 30% to help fix the USA's current account deficit. That would not be good for OPSA or the US economy (more inflation), at least in the short-term.
4. I'm really excited about the new technologies we are specializing in and offering, and the one new product we are developing (the first OPSA product!).
5. Doug tells us the renovation and de-cluttering of the OSPHK office is underway. Can't wait to see the progress. I likely will be there this fall and in December.
Enjoy the summer days!
1. It's great to spend time in the office. I get reconnected with everyone's projects and also get a feel for our progress as a company. Even though I do about the same things I do when I'm in my Green Bay office, time here has added benefits. It is a 5.5 hour drive, but worth it every six weeks or so.
2. Isn't summer awesome? The weather the last several weeks has been so great.
3. I'm concerned about further strengthening of the RMB and the impact on us. I read an article this week where an economist feels the RMB should strengthen another 30% to help fix the USA's current account deficit. That would not be good for OPSA or the US economy (more inflation), at least in the short-term.
4. I'm really excited about the new technologies we are specializing in and offering, and the one new product we are developing (the first OPSA product!).
5. Doug tells us the renovation and de-cluttering of the OSPHK office is underway. Can't wait to see the progress. I likely will be there this fall and in December.
Enjoy the summer days!
Monday, July 21, 2008
MITA Presentation - Recommendations
Whoa, where did the month go. A few business trips, a few days off with the family, and "bang" you haven't blogged in 12 days. I'll be more consistent going forward.
The last section of my MITA presentation was on what companies can do in the face of rising manufacturing costs in China.
In the presentation I went from most extreme option to least. Radical partnering is partnering with a competitor. I used the example of several US airlines now considering sharing planes to reduce costs.
Going to other countries was the second option. If setting up a factory I suggested looking at Vietnam and other options, but for sourcing from established factories I presented several reasons and opinions from others that China is still the best option.
The third option is looking further west in China. I suggested this is difficult today, but will get much easier very quickly as the Chinese government implements its 5-year plan to bring prosperity to the rural west and as rebuilding after the earthquake improves infrastructure and brings new management talent west.
I'll cover the other options in another post soon.
Wednesday, July 9, 2008
MITA Presentation - Trend or Fad
The second part of the MITA presentation mentioned in my July 1 post examined whether each of the main cost increase factors was a trend or fad. That the RMB is up 20% against the USD since July 2005 when it was uncoupled from the USD is not news. What's interesting is what will happen going forward.The two articles in the slide below were in different papers in Hong Kong on the same day. One writer argued that to contain inflation the RMB should be allowed to rise faster. The other author said it should be controlled and the value reduced to protect factory employment.
The conclusions I reached in the section are on the last slide in this post. They were meant to stimulate discussion and give the attendees something to consider and discuss when they returned to their companies. It worked well with these objectives.
As you can see, I am calling transportation costs a fad as I believe we will see energy technology improve quickly and oil prices drop drastically in the next few years. Labor costs is a reversible trend if production moves West in China or to other countries.
Raw materials can be lowered by switching to alternatives, but it's still a trend that they are up. The RMB will continue to strengthen, but at a much slower rate going forward.
Next time I'll go through the things I suggest companies can do to address the rising costs. This was the big finish to the presentation.
Tuesday, July 8, 2008
Top Ten Pitfalls to Avoid in Chinese Outsourcing - #3 Lack of a Relationship
#3 - Lack of a Relationship
Guanxi is the Chinese concept of social capital. I believe it literally means "relationships". Having guanxi can build opportunities, reduce frustration and mitigate risks when doing any kind of business in China. Without it you are just a customer or supplier.
Here's a case study. A tooling shop we worked with in Hangzhou had to close down and did so with very little notice. Because we were close to the situation and had good relationships within the company we found out early about the problems and were able to get tooling out of the plant before the closure. Several customers of this factory that did not work through us or have good relationships were stuck when their in-progress tools were stuck in the plant at the time of closure.
Here's another case study. A company in the US that we never did business with but talked about it, had promotional umbrellas made in China for schools. They kept their supplier relationships at arms length and used intimidation and threats when discussing pricing, delivery, quality, etc. They demonstrated the "I'm the customer and what I say goes" mentality some purchasing people use. Eventually their suppliers stopped answering their e-mail and ignored purchase orders. The company came to us to save the situation, but we declined because it wasn't a good fit for us. I believe they went out of business because they could not secure sources for their custom umbrellas.
Here's a quick list of things to do to build up gaunxi. Most are rather obvious.
- Do the right thing and be honest, dependable and consistent
- Be open with information that can be shared
- Have a long-term perspective
- Communicate often and consistently
- GO THERE - building guanxi requires some in-person time
- Have multi-level relationships with your customers and suppliers
- Be aware of cultural norms and issues in China
It's not hard to build relationships and earn guanxi in China. It does take time and a sincere interest in others and in doing the right thing.
Guanxi is the Chinese concept of social capital. I believe it literally means "relationships". Having guanxi can build opportunities, reduce frustration and mitigate risks when doing any kind of business in China. Without it you are just a customer or supplier.
Here's a case study. A tooling shop we worked with in Hangzhou had to close down and did so with very little notice. Because we were close to the situation and had good relationships within the company we found out early about the problems and were able to get tooling out of the plant before the closure. Several customers of this factory that did not work through us or have good relationships were stuck when their in-progress tools were stuck in the plant at the time of closure.
Here's another case study. A company in the US that we never did business with but talked about it, had promotional umbrellas made in China for schools. They kept their supplier relationships at arms length and used intimidation and threats when discussing pricing, delivery, quality, etc. They demonstrated the "I'm the customer and what I say goes" mentality some purchasing people use. Eventually their suppliers stopped answering their e-mail and ignored purchase orders. The company came to us to save the situation, but we declined because it wasn't a good fit for us. I believe they went out of business because they could not secure sources for their custom umbrellas.
Here's a quick list of things to do to build up gaunxi. Most are rather obvious.
- Do the right thing and be honest, dependable and consistent
- Be open with information that can be shared
- Have a long-term perspective
- Communicate often and consistently
- GO THERE - building guanxi requires some in-person time
- Have multi-level relationships with your customers and suppliers
- Be aware of cultural norms and issues in China
It's not hard to build relationships and earn guanxi in China. It does take time and a sincere interest in others and in doing the right thing.
Tuesday, July 1, 2008
Madison International Trade Association Event
Back in May I was asked to be a speaker at a Madison International Trade Association (MITA) event on rising prices for goods from China. The event was last week and I will be sharing information from it here in our OPSA blog.
I am a MITA member, even though I'm 2.5 hours away in Green Bay, and it is an outstanding group. I met some very interesting people that day and hope to follow-up with several of them.
The first section of my presentation was on whether producer prices in China are rising faster than producer prices in the US, and obviously they are as the chart below indicates.
The chart compares the Producer Price Index in the US (excluding energy and food) to the manufactured goods PPI in China.
Next I summarized the reasons for this situation. I've discussed most or all of the factors in previous posts, but I'll use slides from the presentation to give additional details on them in future posts throughout July. I will also continue on the Top Ten Pitfalls to Avoid in Chinese Outsourcing series.
Tuesday, June 17, 2008
Comments from Dongguan
Here's what the factories we met with this week are talking about when you ask how is business:
- Increasing cost of labor
- RMB appreciation versus the USD
- Shortage of skilled labor
- Government actions to try moving factories out of Guangdong province
- Low-tech factories moving further into China, or to other SE Asian countries
- Rain and flooding
I did not prompt. This was not a scientific study, but one to help with my MITA presentation. No mention of transportation costs, VAT rebates, or other cost issues.
The rain here is crazy. It's rained hard pretty much every day since I arrived last week. While driving you can see all the water. It didn't hinder us, but factories did mention it impacting their transportation and raw materials flow.
Saturday, June 14, 2008
Insights from Hong Kong
Hello from rainy Hong Kong. This is my first trip to China this year and since I started the blog. It's been raining here for several days and landslides are an issue. This morning it is literally pouring rain. I'm hoping it stops later so I can get a run in.
In the news here in HK this week are lots of articles about cost issues in China and their implications for the economy. The stock market here has had its worst few weeks in years. There is lots of uncertainty. It's all good information and background for the presentation I am giving on June 23 for the Madison International Trade Association (MITA) on Cost Increases in China.
I am here working mainly on one key project for one of my customers, but I'm also working on others while I'm here. It's good to get here and re-connect with the staff in person. It's tough sometimes to judge when to travel here. I miss lots of stuff at home (this weekend I'm missing Father's Day), but it's important to build relationships with the staff and to work directly with factories. I probably will be here more in the future than I have over the last 18 months.
That's it for now. I'll post more during my trip.
In the news here in HK this week are lots of articles about cost issues in China and their implications for the economy. The stock market here has had its worst few weeks in years. There is lots of uncertainty. It's all good information and background for the presentation I am giving on June 23 for the Madison International Trade Association (MITA) on Cost Increases in China.
I am here working mainly on one key project for one of my customers, but I'm also working on others while I'm here. It's good to get here and re-connect with the staff in person. It's tough sometimes to judge when to travel here. I miss lots of stuff at home (this weekend I'm missing Father's Day), but it's important to build relationships with the staff and to work directly with factories. I probably will be here more in the future than I have over the last 18 months.
That's it for now. I'll post more during my trip.
Tuesday, June 10, 2008
Top Ten Pitfalls to Avoid in Chinese Outsourcing - #4 Lack of Control
#4 Lack of Control
If you know that China is pretty much on the opposite side of the earth from the US, you can begin to understand that it's difficult to have control over what happens there. Add in the significant cultural, political and language differences and it's clear control is difficult to achieve.
The things you normally want to control - product quality, intellectual property, production time lines, cost changes, and maybe compliance with non-production policies (child labor, etc.) are still controllable with some help and a different outlook.
Here are my suggestions for gaining and maintaining control of your suppliers in China:
1. Have a champion in your organization responsible for your Chinese outsourcing efforts. We often see companies that treat their Asian suppliers the same way they treat US suppliers and it results in less than superior results. Put someone clearly in charge and make them responsible for making the project work. Then give them support to get educated and put in place the right processes and procedures.
2. Negotiate and agree on processes and procedures with your suppliers up front. You can't think of everything that may happen, but you can agree on quality criteria and other things up front. The more of this you do, the greater your chances of not having problems.
3. In order to do #2 well you need to build a relationship with the supplier. This necessitates either going to China to meet in person or having someone be your stand-in presences in China. In person audits are important.
4. Start small and gain experience. I've mentioned this one before.
5. Have contingency plans. If you have other options it won't seem like the sky is falling when things need to be brought back into control.
6. Communicate often and clearly. An obvious one, but one that still gets missed and is a main cause of misunderstandings.
If you know that China is pretty much on the opposite side of the earth from the US, you can begin to understand that it's difficult to have control over what happens there. Add in the significant cultural, political and language differences and it's clear control is difficult to achieve.
The things you normally want to control - product quality, intellectual property, production time lines, cost changes, and maybe compliance with non-production policies (child labor, etc.) are still controllable with some help and a different outlook.
Here are my suggestions for gaining and maintaining control of your suppliers in China:
1. Have a champion in your organization responsible for your Chinese outsourcing efforts. We often see companies that treat their Asian suppliers the same way they treat US suppliers and it results in less than superior results. Put someone clearly in charge and make them responsible for making the project work. Then give them support to get educated and put in place the right processes and procedures.
2. Negotiate and agree on processes and procedures with your suppliers up front. You can't think of everything that may happen, but you can agree on quality criteria and other things up front. The more of this you do, the greater your chances of not having problems.
3. In order to do #2 well you need to build a relationship with the supplier. This necessitates either going to China to meet in person or having someone be your stand-in presences in China. In person audits are important.
4. Start small and gain experience. I've mentioned this one before.
5. Have contingency plans. If you have other options it won't seem like the sky is falling when things need to be brought back into control.
6. Communicate often and clearly. An obvious one, but one that still gets missed and is a main cause of misunderstandings.
Monday, June 9, 2008
New Challenges - First Triathlon
I've mixed business and personal news and information in this blog as I believe it keeps things more interesting and because I write about what I'm thinking about. Yesterday, I completed another first, similar to the first day of this blog when I did the Polar Bear swim on 1/1/08. I entered and finished the Green Bay Triathlon, sprint division, in a steady rain.
1. Finish - This was my first "tri" and I wasn't sure I could do it. It actually was never a thought to not finish, and I never stopped to walk during the 5K.
2. Finish under 2 hours - I did much better, finishing in 1:33. I'm sure I can do better now that I have experienced the swim and the two transitions.
3. Don't finish last in my age group - Again, I did fine on this one. I haven't seen the results online, but when I left the event there were at least two guys with slower times than me in the 40-44 age group. I was 20th. I just don't know how many total competitors there were in my group.
I don't have any pictures of me because it rained too hard for my family to come watch and take pictures. The picture above is from last year's event.
So, as OPSA embarks on more change and transition, I am ready for it as I've tackled these new challenges personally.
I am not a strong swimmer, so a few weeks ago I took some private lessons at our local YMCA. It helped enough that I got through the swim. Luckily, much of the swim course was very shallow.
The "sprint" (meaning shorter than an Olympic or iron man) course was a 400 yard swim, then a 16 mile bike, and finish with a 5K run. Here were my goals, in order of importance, and how I did on each:
1. Finish - This was my first "tri" and I wasn't sure I could do it. It actually was never a thought to not finish, and I never stopped to walk during the 5K.
2. Finish under 2 hours - I did much better, finishing in 1:33. I'm sure I can do better now that I have experienced the swim and the two transitions.
3. Don't finish last in my age group - Again, I did fine on this one. I haven't seen the results online, but when I left the event there were at least two guys with slower times than me in the 40-44 age group. I was 20th. I just don't know how many total competitors there were in my group.
I don't have any pictures of me because it rained too hard for my family to come watch and take pictures. The picture above is from last year's event.
So, as OPSA embarks on more change and transition, I am ready for it as I've tackled these new challenges personally.
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