1. The Supply Chain Leadership Forum 2011: Walt Disney World® Resort, Lake Buena Vista, FL
Getting to Know China: It’s Not an Option
Steve Ganster, SVP Asia, Tompkins Associates
& Michael Zakkour, Principal, Tompkins Associates

2. Session Scope
This Session Will Focus On:
• China today
• How U.S. companies are faring
• China at end of decade
• Supply chain challenges: discussion
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3. China Today
-
+ • Uneven economic development
• GDP growth will remain robust • Ability to manage a diverse,
• Becoming true “market complex and regional market
economy” • Significant environmental
• Moving up the value chain challenges
• Vibrant group of young, new • Strained infrastructure
consumers • Too few key resources (energy,
• Rapidly expanding urban base water, oil)
• Strengthening technology • Constant need to create jobs
capability • Responsibility to be a global
• Emerging new global citizen
companies
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4. How U.S. Companies are Faring
2010 was a strong year for U.S. companies in China, achieving
record results…
100%
87%
79% 77%
80%
70%
65%
61%
60% 52%
47%
40%
40%
20% 2008
2009
0% 2010
Profitable Revenue Up from Gained Market
Previous Year Share
Source: Amcham-Shanghai 2010 China Business Report; Technomic Asia
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5. How U.S. Companies are Faring
China operating profit did relatively well against global
performance and U.S. firms are optimistic about the future.
100%
90%
80%
71%
60%
41%
40%
20%
0%
Forecast 2011 Forecast 2011 Optimistic Five-Year
Revenue Investment Business Outlook
(increase>10% ) (increase>15% )
Source: Amcham-Shanghai 2010 China Business Report; Technomic Asia
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6. Top 10 Challenges Remain Unchanged
Top 10 Challenges
HR Constraints: Finding qualified
HR Constraints: Finding qualified
1. HR constraints
staff the greatest challenge.
staff the greatest challenge.
2. Inconsistent regulatory
interpretation
Unclear regulations: Regulatory
Unclear regulations: Regulatory
3. Unclear regulations environment perceived to be not
environment perceived to be not
4. Bureaucracy improving.
improving.
5. Lack of transparency
IPR Infringements: Disappointing
IPR Infringements: Disappointing
6. Intellectual Property (IPR) progress in IPR protection.
progress in IPR protection.
infringements
7. Tax administration
8. Domestic protectionism Domestic Protectionism: Growing
Domestic Protectionism: Growing
concern over indigenous innovation
concern over indigenous innovation
9. Difficulty enforcing contract policies.
policies.
terms
10. Corruption
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7. “In China for China” is Growing
• A majority of US companies:
– Say they produce or source goods and services in China for
the China market as a primary strategy
– Have or are designing unique products or services to sell in
China
– Import finished goods or parts from the U.S.
• 87% of confident companies are in China for China*
• 80% of successful companies are in China for China**
*those with long-term market growth target >15%, increasing China investment
and are optimistic or very optimistic about China
**those who are very profitable in China with positive cash flows
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8. China Trade Linked to U.S. Economy
• A majority of Amcham member • >75% of congressional districts had
companies are importing from the higher export growth to China than
U.S, mostly to sell in China for the any other country.
China market. • 94% of districts witnessed triple-digit
• U.S. China operations clearly growth to China over the last 10
maintain links with their U.S. supply years.
chain and continue to add value to • Since 2000, total US exports to
the U.S. economy. China grew 468% versus 55% to
• The vast majority (86%) of U.S. other markets.
companies that import from the • U.S. import share to China dropped
U.S. say that their China operations to 7% from 10%.
contribute to the growth of U.S. • China is U.S.’ 3rd largest export
production. market.
*Based on survey of Amcham- *Based on recent survey of US-China
Shanghai members end 2010 Business Council members
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9. Where is China headed?
Annual Growth…
1985-1991 = 8.8%
1991-2001 = 10.0%
2001-2009 = 9.9%
2009-2020F = 7.3%
Real GDP at 2009 Prices (US$Bn)
12000.0 Doubling by 2020
- $5-6 trillion pa
more than 2009
10000.0 Today
8000.0
6000.0
Take-off!
-----The “Gold Rush”---
4000.0
2000.0
0.0
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10. 12th 5 Year Plan
Chinese Central Government Major Investments for 12th 5
Year Plan…
• Green tech and alternative energy
• Healthcare
• Environmental cleanup
• Transition from dirty to clean manufacturing
• Transition from commodity manufacturing to service
economy
• Western china development
• Raising standard of living for low-wage workers
China’s 12th 5 year plan makes clear that profound changes are
needed for sustainability and continued prosperity.
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11. Results
• Another 50 cities reaching >1 million population
• ~150 million new urban consumers will be in the market
• High-speed rail system (recent troubles) – old rail shifts
to freight
• 100 new (modern) airports built
• Thousands of additional kilometers of highway
• Another quarter-billion cars on the road
• Rising labor rates
• Even greater environmental challenges
• Even less resources
• Constant strain on infrastructure
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12. Geographical Landscape
Anhui
Chongqing
Guangxi
Beijing
Hainan
Fujian
Hebei
Guangdong
Heilongjiang
Jiangsu
Henan
Shandong
Hubei
Shanghai
Hunan
Tianjin
Jilin Developed
Developing Zhejiang
Liaoning
Shanxi
Sichuan
Inner Mongolia Gansu
Jiangxi Guizhou
Shaanxi Ningxia
Xinjiang Qinghai
Yunnan Tibet
Emerging Undeveloped
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13. Discussion
Trend Supply Chain Impact
Slowing growth rate Higher competitive intensity – greater need for
efficient supply chains
Movement “west,” growth in Significant expansion in your supply chain’s
tier 2, 3 and 4 cities geographic reach – regionally centric with
myriad of cross-province trade challenges
Another 150 million urban Reaching these consumers effectively will be a
consumers to enter market critical component of your growth strategy and
by the end of decade will require a competitive supply chain
Shift to higher value added May need to revamp supplier portfolio and
production LCC sourcing strategy
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14. Discussion
Trend Supply Chain Impact
Despite investment, Need to modernize and streamline supply
infrastructure will remain chain structure and processes
strained, inefficient and costly
In China for China trend will Must have more visibility and control over
cause increasing need to supply chain to optimize competitiveness
localize operations
Rising costs (labor, land, etc.) Modernize operations, more technology and
automation
China’s retail landscape will Will change go-to-market strategies for many
morph - e-commerce sales firms and require change in supply chain
exploding strategy
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