Manufacturing in Asia:  Current Reality &  Emerging Trends   International Housewares Association Board of Directors Forum...
“ We can’t compete from the U.S.”   © 2008 M.L. Hetzel
Who says?   © 2008 M.L. Hetzel
Don’t Trust Your Business to Media <ul><li>Very little accurate, objective and complete information coming from media – ev...
Do Your Own Research <ul><li>Don’t believe me - or anyone else </li></ul><ul><li>All competitive and market information mu...
Common Myths vs. Reality <ul><li>China’s Growth and Size: </li></ul><ul><li>Media trumpets “10% Growth” but not China’s ac...
Common Myths vs. Reality <ul><li>Myth:  U.S. manufacturing output is dropping </li></ul><ul><li>Reality:  U.S. industrial ...
Other Myths vs. Reality <ul><li>Myth:  China is the cause of our Current Account Deficit (the “Trade Deficit”) </li></ul><...
So What? <ul><li>Not knowing GDP data creates a false representation of the competitive challenges and supply chain risks ...
Amplified Costs & Risks  of International Procurement <ul><li>Supply chain length & costs; logistics, inventories, queues ...
Marketing Implications of  Supply Chain Structures <ul><li>Marketing into the source country </li></ul><ul><li>Marketing i...
Strategic Overshoot © <ul><li>The tendency to decide to operate in another country, often China these days, before careful...
China is Changing Fast Costs are Increasing <ul><li>Raw material cost inflation and shortages – in China and also elsewher...
Chinese Factory Shakeout <ul><li>More than 6,000 factories have closed in Guangdong province in the last year alone </li><...
Other Concerns with China <ul><li>Port congestion – inbound and outbound both in China and the U.S. </li></ul><ul><li>Inla...
Quality Drift and Related Risks  are  Increasing <ul><li>Quality Drift is the reduction in product quality along with the ...
Supply Chain Options:  Culture & Language <ul><li>China </li></ul><ul><li>Greater Asia – Vietnam, India, Thailand, Malaysi...
Supply Chain Options:  Time Zones <ul><li>Communications </li></ul><ul><li>Travel </li></ul><ul><li>Dateline Effect </li><...
Four Fundamental Changes Needed Going Forward <ul><li>Attitude </li></ul><ul><li>Marketing </li></ul><ul><li>Collaboration...
The U.S. Doesn’t Import Too Much… <ul><li>… We Export Too Little </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
Manufacturing in Asia:  Current Reality &  Emerging Trends   International Housewares Association Board of Directors Forum...
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Manufacturing in Asia: Current Reality & Emerging Trends

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PRESENTED BY THE INTERNATIONAL HOUSEWARES ASSOCIATION
Manufacturing in Asia: Current Reality & Emerging Trends

Listen to a recent and relevant presentation made to IHA’s Board of Directors on the topic of manufacturing in Asia.

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Manufacturing in Asia: Current Reality & Emerging Trends

  1. 1. Manufacturing in Asia: Current Reality & Emerging Trends International Housewares Association Board of Directors Forum May 22, 2008 Michael L. Hetzel, Vice President/Americas Pro QC International www.proqc.com [email_address] © 2008 M.L. Hetzel
  2. 2. “ We can’t compete from the U.S.” © 2008 M.L. Hetzel
  3. 3. Who says? © 2008 M.L. Hetzel
  4. 4. Don’t Trust Your Business to Media <ul><li>Very little accurate, objective and complete information coming from media – even trade media </li></ul><ul><li>Lack of context is nearly universal </li></ul><ul><li>Manufacturing head counts trumpeted, actual output ignored </li></ul><ul><li>Plant closings highlighted, plant openings ignored – “If it bleeds it leads” </li></ul><ul><li>Politicization of global trade issues resulting from political polarization and the breakdown of political integrity </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  5. 5. Do Your Own Research <ul><li>Don’t believe me - or anyone else </li></ul><ul><li>All competitive and market information must be customized and dynamic – there’s no canned solution </li></ul><ul><li>Go direct to data sources – statistics can distort – refer to the handout for examples of data sources </li></ul><ul><li>Always account for the context of information and data </li></ul><ul><li>Research global conditions even if your market is domestic only – don’t miss opportunities or threats </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  6. 6. Common Myths vs. Reality <ul><li>China’s Growth and Size: </li></ul><ul><li>Media trumpets “10% Growth” but not China’s actual GDP…. </li></ul><ul><li>… .which in 2006 was US$2.518T - the 2007 estimate is $3.249T (or is it $2.8T @ 11.3% growth?) Source: CIA World Factbook </li></ul><ul><li>U.S. GDP for 2006 was US$13.21T - the 2007 estimate is $13.79T (or is it $13.5T @ 2.2% growth?) Source: CIA World Factbook </li></ul><ul><li>The estimates don’t add up, and China’s reported growth rate has also been challenged ( Lester Thurow, NYT, 8/19/07 ) </li></ul><ul><li>PPP not valid for international comparisons other than quality of life, marketing and foreign aid evaluations </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  7. 7. Common Myths vs. Reality <ul><li>Myth: U.S. manufacturing output is dropping </li></ul><ul><li>Reality: U.S. industrial output for 2006 was US$2.69T ($2.84T estimate for 2007) Source: CIA World Factbook and producing record levels of sales, profits and ROI in 2006 Source: Federal Reserve Bank </li></ul><ul><li>Myth: China is the “Factory Floor to the World” </li></ul><ul><li>Reality: China’s industrial output for 2006 was US$1.21T ($1.60T estimate for 2007), well below U.S. output Source: CIA World Factbook </li></ul><ul><li>India’s GDP – 2007 estimate = $1.09T </li></ul><ul><li>Vietnam’s GDP – 2007 estimate = $66.4B </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  8. 8. Other Myths vs. Reality <ul><li>Myth: China is the cause of our Current Account Deficit (the “Trade Deficit”) </li></ul><ul><li>Reality: We have a deficit with 13 of our top 15 trading partners Source: U.S. Census Bureau </li></ul><ul><li>Myth: Declining U.S. manufacturing employment equates to reduced output </li></ul><ul><li>Reality: U.S. output is at (2006) or near (2007) the all time high Source: Federal Reserve Bank </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  9. 9. So What? <ul><li>Not knowing GDP data creates a false representation of the competitive challenges and supply chain risks and opportunities – the “Current Reality” </li></ul><ul><li>Accepting overstated growth data also creates a false representation of the situation for both market and supply chain planning </li></ul><ul><li>A flawed vision of the current reality leads to flawed policies and strategies for governments and companies, and causes fatalism among individuals </li></ul><ul><li>Fatalism in business is usually fatal to the company </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  10. 10. Amplified Costs & Risks of International Procurement <ul><li>Supply chain length & costs; logistics, inventories, queues - Total Cost of Procurement </li></ul><ul><li>Quality related risks and replacement product delivery delays </li></ul><ul><li>Logistical risks and market tolerance for delays </li></ul><ul><li>Carbon footprint increased by logistics </li></ul><ul><li>Political risks </li></ul><ul><li>Currency risks </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  11. 11. Marketing Implications of Supply Chain Structures <ul><li>Marketing into the source country </li></ul><ul><li>Marketing into other countries near the source country – Third Market Strategies </li></ul><ul><li>Advantages of FTAs between market and source countries - The FTA Matrix </li></ul><ul><li>Benefits of distributed supply chains to meet content requirements across several source and market countries – i.e. NAFTA </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  12. 12. Strategic Overshoot © <ul><li>The tendency to decide to operate in another country, often China these days, before careful analysis of the actual business and market conditions rationalizes the decision </li></ul><ul><li>The real solution is often much closer to home </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  13. 13. China is Changing Fast Costs are Increasing <ul><li>Raw material cost inflation and shortages – in China and also elsewhere due to global demand </li></ul><ul><li>Energy costs and shortages </li></ul><ul><li>Pressure to improve environmental management </li></ul><ul><li>Currency appreciation </li></ul><ul><li>Labor law changes, labor shortages, strikes and riots, wage inflation </li></ul><ul><li>Changes in VAT rebate rules as government redirects capacity and resource consumption from exports to internal markets in select categories </li></ul><ul><li>Redistribution of cost advantages from the south of China to other areas – intentional and unintentional </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  14. 14. Chinese Factory Shakeout <ul><li>More than 6,000 factories have closed in Guangdong province in the last year alone </li></ul><ul><li>Forced to move up the value chain and outsourcing from other countries </li></ul><ul><li>Surviving factories will be better but more expensive - same conditions that affect U.S. factories </li></ul><ul><li>Factory closings ahead of the Olympics </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  15. 15. Other Concerns with China <ul><li>Port congestion – inbound and outbound both in China and the U.S. </li></ul><ul><li>Inland logistics limitations – inbound and outbound </li></ul><ul><li>Tax law changes </li></ul><ul><li>Tariff regulations and changes </li></ul><ul><li>Intellectual Property protection </li></ul><ul><li>Demographics – workforce, market, per capita GDP </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  16. 16. Quality Drift and Related Risks are Increasing <ul><li>Quality Drift is the reduction in product quality along with the increased risk of materials substitutions (i.e. lead paint and low grade metals) and shipment delays. This is currently driven in large part by the refusal of Western buyers to allow suppliers to pass along cost increases </li></ul><ul><li>Many buyers also fail to consider the complete supply chain matrix – and fail to qualify inputs that are also subject to quality drift before they become imbedded in their products </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  17. 17. Supply Chain Options: Culture & Language <ul><li>China </li></ul><ul><li>Greater Asia – Vietnam, India, Thailand, Malaysia </li></ul><ul><li>Central & Eastern Europe </li></ul><ul><li>Latin America – Mexico, Brazil </li></ul><ul><li>Regions of the U.S. </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  18. 18. Supply Chain Options: Time Zones <ul><li>Communications </li></ul><ul><li>Travel </li></ul><ul><li>Dateline Effect </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  19. 19. Four Fundamental Changes Needed Going Forward <ul><li>Attitude </li></ul><ul><li>Marketing </li></ul><ul><li>Collaboration </li></ul><ul><li>Products & Processes </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  20. 20. The U.S. Doesn’t Import Too Much… <ul><li>… We Export Too Little </li></ul><ul><li>© 2008 M.L. Hetzel </li></ul>
  21. 21. Manufacturing in Asia: Current Reality & Emerging Trends International Housewares Association Board of Directors Forum May 22, 2008 Michael L. Hetzel, Vice President/Americas Pro QC International www.proqc.com [email_address] © 2008 M.L. Hetzel

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