Factiva - News Page
Beijing Opens a Window of Opportunity
By Victor Fung
1,061 words
7 July 2005
The Asian Wall Street Journal
A11
English
(c) 2005 Dow Jones & Company, Inc. To see the edition in which this article appeared, click here http://awsj.com.hk/factiva-ns
Right now all the talk, from shoe exporters in northern Italy to textile manufacturers in the U.S. South, is of how China will hollow out one industry after another throughout the industrialized world. This "conversation" is echoed in Asia. And, yes, China's emergence will affect companies around the world -- of that there's no doubt. But some of this impact will be positive, too.
What do global companies need today in order to compete and benefit from the opportunities presented by China? The answer lies in the state of play of manufacturing today. China's rise has coincided with, and reinforced, a revolution in production.
In the recent past, when we talked about manufacturing a product we all shared the notion that everything should be done "in-house" -- in one factory, under one roof and in one country -- before it was exported and consumed in another country. Times have changed. Production is becoming increasingly spread across different countries.
Today, if we get an order for 10,000 shirts, what do we do? We must first consider the best place to source the yarn. If we decide that, say, Korea is best for this particular type of yarn, we then identify a factory to produce it. Next, where do we do the weaving and dyeing? It depends on the client's need, the timing, the capacity and the technology requirements. Let us say we decide that Taiwan is the best place. We ship the yarn to, say, two factories in Taiwan.
The next thing is to identify the best place to do the CMT, the cut, make and trim -- the final stage of putting the shirt together. For quota, labor capacity and skill reasons, we may want to do it in Thailand. To save time, we may use three different factories in Thailand.
In the end, the final product that arrives on the retailer's shelf should look as if it has been made in one single factory, but in fact we have done it in six factories in three different countries. What makes that all possible is of course the development of information technology and what can be called modern logistics, which allows us to dissect the entire manufacturing process into different components at different stages. At each stage we consider the best place to produce a component. The end-product is the result of a truly globalized manufacturing process.
Now, the freedom that companies have to source and network everywhere has contributed to making China a manufacturing juggernaut. Those countries whose companies compete in the same industries as those in China fear they will not be able to keep up with China's growing production capability.
However, China does not have a monopoly on all raw materials and intermediate components, and so it may not be cost-efficient to finish every stage of this new manufacturing process in China. Instead, there will be a lot of comparative advantages in countries that produce or have access to the raw materials. Many countries can originate supply chains and undertake the first two or three stages of production before moving the final stages to China, whose abundant labor resources and cost efficient production capabilities make it a formidable competitor upstream.
In Asia, many supply chains can originate, say, in South East Asia, moving through China to the United States or West Europe. Competition in the global market today should not be a zero sum game. Nor should we focus on direct competition. In reality, it should be understood as a cooperative process involving the division of roles among different countries, or better yet, among different factories. The key issue is that somebody has to put these supply chains in place, manage them and synchronize them effectively and efficiently.
As China emerges, the so-called "crowding out" kind of competition under the old concept of production is no longer valid. Competition today is no longer between companies located in a single country. In the future competition will see groups of companies organizing into a supply chain network that competes with other networks. Such supply chains will span the whole world and everybody in the business will participate in managing these global supply chains.
This new basis of trading will need to be addressed by the World Trade Organization. Concepts like substantive transformation and country of origin need to be re-examined and redefined with the prevalence of dispersed manufacturing replacing the old model.
There's another dimension in which China presents an opportunity. Perhaps the best way of thinking of production in China today is to think of two worlds that coexist. One world consists of export processing companies mainly in the economic zones that manufacture purely for export. There is another world in China that manufactures for domestic consumption. There is very little overlapping between the two. What will happen if the two can be merged and what sort of economies of scale will result?
We all know that great trading powers in the world like Japan and Germany started with a very large domestic market and leveraged that onto the international arena. China did it the other way around by developing an export processing economy that is largely divorced from the domestic economy. It is now ready to integrate the two.
For people who are already doing export processing in China, there is now an opportunity to sell in the local market. That also has important implications for Chinese consumers in terms of the development of a domestic consumption market, etc.
For multinationals and overseas companies looking at China, they can use China as an export platform and penetrate the Chinese market at the same time. It is possible for a facility established in China to serve the dual purpose of domestic sales and export with the economy of scale desired.
So, yes, China's emergence will no doubt bring some major consequences to the rest of the region and the world. It is perhaps only natural that some would initially feel somewhat uncomfortable. But on further reflection they will see it as something that opens a large window of opportunity.
---
Mr. Fung is Chairman of the Greater Pearl River Delta Business Council and Group Chairman of Li & Fung Limited, a global-trading group.
Document AWSJ000020050706e1770000g
More Like This
By Victor Fung
1,061 words
7 July 2005
The Asian Wall Street Journal
A11
English
(c) 2005 Dow Jones & Company, Inc. To see the edition in which this article appeared, click here http://awsj.com.hk/factiva-ns
Right now all the talk, from shoe exporters in northern Italy to textile manufacturers in the U.S. South, is of how China will hollow out one industry after another throughout the industrialized world. This "conversation" is echoed in Asia. And, yes, China's emergence will affect companies around the world -- of that there's no doubt. But some of this impact will be positive, too.
What do global companies need today in order to compete and benefit from the opportunities presented by China? The answer lies in the state of play of manufacturing today. China's rise has coincided with, and reinforced, a revolution in production.
In the recent past, when we talked about manufacturing a product we all shared the notion that everything should be done "in-house" -- in one factory, under one roof and in one country -- before it was exported and consumed in another country. Times have changed. Production is becoming increasingly spread across different countries.
Today, if we get an order for 10,000 shirts, what do we do? We must first consider the best place to source the yarn. If we decide that, say, Korea is best for this particular type of yarn, we then identify a factory to produce it. Next, where do we do the weaving and dyeing? It depends on the client's need, the timing, the capacity and the technology requirements. Let us say we decide that Taiwan is the best place. We ship the yarn to, say, two factories in Taiwan.
The next thing is to identify the best place to do the CMT, the cut, make and trim -- the final stage of putting the shirt together. For quota, labor capacity and skill reasons, we may want to do it in Thailand. To save time, we may use three different factories in Thailand.
In the end, the final product that arrives on the retailer's shelf should look as if it has been made in one single factory, but in fact we have done it in six factories in three different countries. What makes that all possible is of course the development of information technology and what can be called modern logistics, which allows us to dissect the entire manufacturing process into different components at different stages. At each stage we consider the best place to produce a component. The end-product is the result of a truly globalized manufacturing process.
Now, the freedom that companies have to source and network everywhere has contributed to making China a manufacturing juggernaut. Those countries whose companies compete in the same industries as those in China fear they will not be able to keep up with China's growing production capability.
However, China does not have a monopoly on all raw materials and intermediate components, and so it may not be cost-efficient to finish every stage of this new manufacturing process in China. Instead, there will be a lot of comparative advantages in countries that produce or have access to the raw materials. Many countries can originate supply chains and undertake the first two or three stages of production before moving the final stages to China, whose abundant labor resources and cost efficient production capabilities make it a formidable competitor upstream.
In Asia, many supply chains can originate, say, in South East Asia, moving through China to the United States or West Europe. Competition in the global market today should not be a zero sum game. Nor should we focus on direct competition. In reality, it should be understood as a cooperative process involving the division of roles among different countries, or better yet, among different factories. The key issue is that somebody has to put these supply chains in place, manage them and synchronize them effectively and efficiently.
As China emerges, the so-called "crowding out" kind of competition under the old concept of production is no longer valid. Competition today is no longer between companies located in a single country. In the future competition will see groups of companies organizing into a supply chain network that competes with other networks. Such supply chains will span the whole world and everybody in the business will participate in managing these global supply chains.
This new basis of trading will need to be addressed by the World Trade Organization. Concepts like substantive transformation and country of origin need to be re-examined and redefined with the prevalence of dispersed manufacturing replacing the old model.
There's another dimension in which China presents an opportunity. Perhaps the best way of thinking of production in China today is to think of two worlds that coexist. One world consists of export processing companies mainly in the economic zones that manufacture purely for export. There is another world in China that manufactures for domestic consumption. There is very little overlapping between the two. What will happen if the two can be merged and what sort of economies of scale will result?
We all know that great trading powers in the world like Japan and Germany started with a very large domestic market and leveraged that onto the international arena. China did it the other way around by developing an export processing economy that is largely divorced from the domestic economy. It is now ready to integrate the two.
For people who are already doing export processing in China, there is now an opportunity to sell in the local market. That also has important implications for Chinese consumers in terms of the development of a domestic consumption market, etc.
For multinationals and overseas companies looking at China, they can use China as an export platform and penetrate the Chinese market at the same time. It is possible for a facility established in China to serve the dual purpose of domestic sales and export with the economy of scale desired.
So, yes, China's emergence will no doubt bring some major consequences to the rest of the region and the world. It is perhaps only natural that some would initially feel somewhat uncomfortable. But on further reflection they will see it as something that opens a large window of opportunity.
---
Mr. Fung is Chairman of the Greater Pearl River Delta Business Council and Group Chairman of Li & Fung Limited, a global-trading group.
Document AWSJ000020050706e1770000g
More Like This
posted by Eastlaw at 9:42 AM
0 Comments:
Post a Comment
<< Home