Is China still competitive for Global Manufacturers? - Wharton study

Is China Still Competitive for Global Manufacturers?


Having served the world as a manufacturing base for decades, is China still competitive for manufacturers? A number of factors indicate that its competitive lead will be chipped away, not least if the renminbi is allowed to appreciate against the U.S. dollar and costs rise. Some experts predict that low-value-added exporters may be driven elsewhere while manufacturers of high-value-added, complex products for domestic consumption will face even stiffer competition to thrive. Against this backdrop, as a new survey suggests, manufacturers in China are learning quickly about staying competitive in this ever-shifting landscape.

It certainly doesn't help matters much that there's uncertainty and tensions brewing on a number of fronts. Among the foreign IT industry, for example, the ugly exchange between Google and China, and a new rule that stipulates sellers of high-tech goods must contain Chinese intellectual property as part of an "indigenous innovation" campaign, have rattled nerves.

Yet despite all this, experts say there's much that's working in China's favor. Costs are still low and the skills level is high. Meanwhile, the pent-up demand of a potentially huge domestic market combined with improving IT, infrastructure and regulatory regimes all put China well ahead of other low-cost countries.

While the recent announcement of China’s first trade deficit since 2004 makes it unlikely that the renminbi will be allowed to appreciate against the U.S. dollar much soon, March's $7.24 billion deficit is also a sign of the fast expansion of China’s domestic market. The auto sector, for example, was up 170% in March from the previous month.

China's burgeoning domestic market is indeed a very important allure for many firms, according to the latest China Manufacturing Competitiveness Study published by the American Chamber of Commerce (AmCham) and management consultants at Booz & Company. More than 80% of 202 manufacturers surveyed said their primary motive for being in China is to provide products for the Chinese marketplace, up from 71% two years ago.

While booming local markets are key, there are other reasons for China's appeal, including political stability. A couple of years ago, companies were hedging their bets and adopted a "China plus one" strategy, so that they set up operations in China and in one other nearby country. Many chose Thailand as the second country and the current strife is bad news for businesses there.
The stable currency has also been helpful, adding an element of predictability to budgeting and keeping costs down. Two years ago, the AmCham study found that the rising RMB was the most serious worry for the companies surveyed, but since then government policy has calmed those fears. The AmCham study also notes that “although factories in China are generally still in the early stages of implementing innovative manufacturing practices, these lean techniques and processes are even less prevalent in surrounding low-cost countries.”

Lian Hoon Lim, partner and manufacturing expert at AT Kearney consultants, says companies are benefitting from what he calls "the cluster effect,” The big three clusters in China are the Yangtze River Delta region around Shanghai, the Pearl River Delta region running from Hong Kong to Guangzhou, and the region around Beijing and its neighbor Tianjin. In these areas companies have access to a “skilled labor, an experienced local managerial workforce, material and component supply, and good infrastructure,” says Lim. “If you took those four factors and looked at the countries in Asia, including in the subcontinent, you would find that quite a lot of them lack one or more of these four points.”

People Power

Yet China continues to grapple with one of its trickiest growth challenges: Attracting and retaining top employees. The drop in global demand for exports from China during the economic crisis meant layoffs and a softened labor market. But by the end of 2009, as China’s economy re-accelerated, labor was again in short supply. In the fourth quarter of 2009, labor demand growth in major cities outpaced supply for the first time since the second quarter of 2008, according to JP Morgan Global Watch Data. As a result, manufacturers have had to hike wages to attract workers.

“The increasing costs and tightened labor market are driving companies to consider other options for their lower cost, export-driven operations,” observes Stephen Li, a principal at Booz.

The AmCham study found that in 2009, the costs of labor and logistics as well as labor availability were viewed as less competitive in China than they were than two years ago. Yet 28% of the companies surveyed last year said they plan to move or expand within China in the next five years, compared to 17% in 2008. Cities in southwest and central China, such as Chongqing, Chengdu, Wuhan and Zhengzhou, are among the new destinations cited. For companies considering moving outside China, more than half said they wanted to stay in Asia, identifying India and Vietnam as their top choices. Latin America and Eastern Europe ranked a distant second and third.

But for companies staying in China, the study shows that they are readjusting their arsenal of tools to attract and retain staff, offering higher pay and training. Most respondents -- 79% -- said they are providing training and career development rather than relying on compensation to attract and retain workers. “Leading companies are recognizing that attracting and retaining talent in the post-downturn [environment] will mean refreshed value propositions incorporating growth and development opportunities,” says Li.

Case by Case

But despite all of China's appeal, foreign companies are right to exercise caution, weighing up the advantages and disadvantages of being based in the country accordingly. AT Kearney's Lim says that of the six clients he has worked with over the past three years, only two gave the country a vote of confidence.

Lim reckons that the business case for investing in China has changed for many companies in recent years. “If a firm wanted to expand in 2007, it was a 'no brainer' to go to China.” Along with the rising costs, he notes the “viability of long-distance supply chains” as having “prompted a rethink” in how firms view China as a potential manufacturing location.

One of the six -- an industrial-goods firm -- wanted to set up a joint venture but couldn’t agree on the terms with the potential partner so did not go ahead. Another -- an aerospace components manufacturer -- set up shop elsewhere due to intellectual property concerns in China. A third client, who was in the medical industry, decided the return on investment in China would not be worth the effort, while a fourth didn't go ahead with an investment in China, for undisclosed reasons. However, a plastics manufacturer did because of the high demand for its goods in China, as did a maker of industrial equipment because it expects China to be a hub for its sector in the future.

China is competitive for textiles, says Lim, but less so where the value-added and complexity is low, such as bed linen. Men’s shirts, on the other hand, are "quite complex; you need to cut many different pieces, the stitching and sewing is complex, and you have cuffs, buttons and collars, and many different sizes.”

Then there are white goods and consumer electronics. According to Lim, the competitiveness is a function of the combination of labor costs that are relatively low but at skills level that is relatively high. “A company could set up elsewhere -- say, Cambodia -- where the cost of labor is very low," says Lim. "But the productivity and familiarity with the industry is not there, and most of the raw materials would have to be imported."

Made in China

The catalyst causing many companies to re-thing their China strategies started when oil went from $40 to $150 a barrel. Suddenly, transportation costs for goods from China to Europe and America became markedly more significant. Despite the fact that the price of oil has stabilized, “people are more sensitive to the risk of it spiking again” says Lim.

To address the challenges, companies are devising “long-term strategies, which focus on product competitiveness and their supply chain,” says Li.

But whatever the sector or supply chain, another on-going challenge, meanwhile, will be to please China's consumers, who are unpredictable and have varied tastes. As Edward Tse, chairman of Greater China at Booz, writes in the analysis of the study, “Although China’s markets are open to global products, they are also extraordinarily local, rooted in traditional customs and tastes, with extreme variations from one region to the next…. With markets and tastes continuing to change, it is difficult to predict what kind of path China’s consumers will follow.”

The result, he says, means that “companies seeking to take advantage of the Chinese market cannot be complacent but must upgrade processes, retain talent, keep a tight reign on costs and get to know their customer.”


Best,

Niraj/Petron

Steel prices going up and no sign to slow down until 4th quarter of 2010

It’s a scary time. When constantly price of steel is going up, freight is going up. This is not only with Petron; it’s overall with other traders too. Import prices are climbing up for many reasons:
* Raw material price
* Currency rate going up
* shipping cost has gone up tremendously and still on rise

We are seeing the same trend in the US too somewhat. Like we saw in conduits the domestic increased their price recently by 25% from Feb to March 2010. Effect in domestic could be delayed by 60 days simply if the demand is still low than people who has inventory is dumping their product or manufacturers still hungry and doing whatever it takes to run their mill. But soon or later, they all need to level out. More and more distributors will respond to market change in price more quickly because we are seeing companies in last 12 month has significantly reduced their Inventory level. So no one is carrying excessive inventory and has the holding power to keep the price low.

We have constantly looked at sources beyond China but there aren’t too many options out there:
• South America and Mexico is not in the game anymore. You can’t buy anything from that market in fact we sell to that market from China.

• Turkey you can only buy raw materials like Rebars, wire rod but that is also going up.

• India was somewhat competitive but Indian economy has been on uprise plus pressure on currency. From April 2009 to now the currency has appreciated from $50 to $44.20 appreciation of 12% or more.

• We explore Malaysia, Vietnam, Philippines and other Asian sources but they are not workable to either they don’t have infrastructure or they have to depend on China for their raw material source.


So for now, we have to deal with what we have going on and hopefully sometime soon price will stabilize.

Best,

Niraj Balasaria
Petron Pacifc, Inc.

Steel buyers see shipping rates rising : source AMM.com

By Corinna PetryPublished: Mar 31 2010 5:58PM

Three-quarters of steel buyers said shipping levels in March were above those of three months earlier, a sharp increase from the previous month, according to the Institute for Supply Management's Steel Buyers Forum.
The March survey showed a strong improvement from the 57.1 percent who reported higher shipping levels in February vs. three months earlier and more than triple the 23.5 percent who saw higher shipments in March 2009.
In addition, 83.3 percent of buyers said their March shipments were above those of 12 months ago compared with 57.1 percent in February and only 5.9 percent in March 2009. Only 8.3 percent of steel buyers in March said their current shipments were lower compared with three months earlier and 12 months ago.
"Our first-quarter shipments were up 25 percent compared to the same quarter last year," a Midwest distributor told AMM. However, "they aren't near what they were in 2007 and 2008, so while we see a comeback in the market it's certainly not back to pre-recession levels."

Petron Website Update

Recently, Petron Pacific Inc has updated its website to enhance the user experience and to help our customers go through our website with ease. We have also provided various new features including metal prices, Facebook fan pages, youtube videos, twitter pages, and this new blog. Please check all the new resources.

-Petron Team

Ocean Freight Keeps Rising!!

BAD NEWS!! Again the ocean freight is experiencing another increase taking place on the 1st of May. In attached articles from The Journal of Commerce we can see the notice from TSA lines on rate increase during the new contracts negotiations.

Cosco and Hanjin being among the 15 lines in TSA have already agreed to the increase with full confidence of return profit to 2010.

As you are already aware that as of March the increase per container has being close to almost 2,000.00 per container after the increases that took place in Dec., Jan. and Feb.

Some of the increases that TSA has announced that will affect us are as follows:

To East Coast:
20' 800.00   Dry
40' 1000.00 Dry

To West Coast:
20' 640.00 Dry
40' 800.00 Dry

Within this articles also an explanation of why our shipments are taking longer to reach our destinations.  This is due to the continuing of “Slow Steaming” which is another of the strategies that the steam ship lines are using in order to increase fuel efficiency and lower emissions.

This is also limiting capacity on board and causing delays to our shipments. The real bed part is that right now we are paying more because of the increases and because of the availability of space but our shipments are taking longer time to arrive. AWFUL!!

Sources URL: 
www.joc.com/maritime/more-ocean-carriers-fall-behind-schedule
www.joc.com/maritime/cosco-full-confidence-rate-increase
www.joc.com/maritime/hanjin-expects-return-profit-2010
http://www.apl.com/

by Marina
Logistics Manager

Concrete - Range of Construction Hardware and Accessories.

• "A" Bracket
• Adjustable Form Brace
• Adjustable Screw Jacks
• Anchor Bolts & Wiggle Bolts
• Bar Supports
• Black Annealed Tie wire
• Bolt Down
• "C" Bracket
• Cut Type Shore Holder
• Construction Steel Stake (Nail Stakes)
• Form Panels
• Form Aligner Clamp
• Ground Stakes
• Header Form Bracket
• Liner Clamps
• Loop Ferrule Insert
• Nuts & Washers
• Pin and Chain Assembly
• Plastic Cone for Snap Tie

• Plastic Rebar Saddles
• PVC Shims
• Rod Clamp
• Safety and Barrier Fence
• Scaffold Bracket
• Screed Hook
• Shore Clamps
• Single Waler Bracket
• Snap Ties
• Sod Staple
• Spreader Cleats
• Steel Wedge Clamp
• Sure-Lock Bracket
• Sure-Lock Strongback Clamp
• Tie Wire, Loop Ties & Tie Wire Twister
• Washers
• Wedge Bolt
• Wing Nut Cast (Coil Thread)
• Wire Shore Holder

Petron - Global steel and wire update - March 16, 2010

Import News

Global Trade Increased Broadly in November

January 12, 2010

U.S. trade with other countries increased broadly in November as imports outpaced exports, widening the trade deficit by $3.2 billion.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced Tuesday that total November exports of $138.2 billion and imports of $174.6 billion resulted in a goods and services deficit of $36.4 billion, up from $33.2 billion in October, revised.
November exports were $1.2 billion more than October exports of $137 billion. November imports were $4.4 billion more than October imports of $170.2 billion.
Compared with a year earlier, imports and exports were significantly lower. Exports were down $3.3 billion, or 2.3 percent, and imports were down $10.1 billion, or 5.5 percent. In November, the goods and services deficit decreased $6.8 billion from November 2008.
The October to November increase in exports of goods reflected increases in foods, feeds, and beverages ($1.3 billion); automotive vehicles, parts, and engines ($700 million); and capital goods ($400 million). Decreases occurred in consumer goods ($700 million), industrial supplies and materials ($500 million), and other goods ($400 million).

The October to November increase in imports of goods reflected increases in industrial supplies and materials ($2.1 billion), consumer goods ($1.4 billion), and capital goods ($1.2 billion). Decreases occurred in foods, feeds, and beverages ($200 million) and automotive vehicles, parts, and engines ($100 million). Other goods were virtually unchanged.

Thomas L. Gallagher, The Journal of Commerce Online.



Industry trade shows

National Hardware Show, Las Vegas
http://www.nationalhardwareshow.com/

May 5-7, 2010

Construction Shows:

World of Concrete, Latin America
Mexico, Mexico
June 8 – 10, 2010

Electrical Shows:

IEEE Power and Energy Show
New Orleans, LA
April 19 – 22, 2010

Wire Shows:

Wire Dusseldorf
Dusseldorf, Germany
April 12 -16, 2010
http://www.mdna.com/

Wire Expo
Milwaukee, WI
May 12-13
http://www.wirenet.org/

General/Misc related Shows:
Canton Fair
China
April 15 – 20; 25-30
Oct 15-20, 25-30
CEO Message:

Thank you for all your support to Petron in last 12 years. We strive to excel and provide the most competitive and top quality products from around the globe. Petron’s number asset is our people. We invest in top notch industry experts who in turn provide you our customers the best expertise in the Industry and product they represent. They bring the value in terms of understanding the product, their application and global price and sourcing dynamics. We have people offshore representing Petron and working hard everyday to get you the competitive price and products that exceeds the specs. We don’t believe in COMPETITVE PRICE = BENDING THE SPECS.

Please visit our site http://www.petronpacific.com/ and keep sending us your feedback on how we are doing and what we can do to prove to be a better business partner.

Keep growing,


Best Regards,

Niraj Balasaria
(Founder & CEO)
Petron news:

Petron new website has been launched. Petron has it’s own dedicated quality control and procurement team in Mumbai, Warsaw and Qingdao. We supply steel and wire fabricated products which goes in:

• Construction
• Electrical
• Agriculture, Fencing
• Equine

Visit us at http://www.petronpacific.com/ to learn more about Petron.