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Newsletter
July 2005 |
SourceGlobal® with presence
in US, China, & India, offers global
sourcing services to the Heavy-Equipment OEMs in North-America. |
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| Global |
Is China trying to Buy America, like Japan? |
When China's largely state-owned oil company put in a bid to buy the California-based UNOCAL, averting its friendly takeover by Chevron, it stirred up full-blown protectionist fury of US against China, similar to the one against Japan, two decades ago.
Critics are already anxious about China's global strength in low-end manufacturing, its allegedly manipulative currency policy and its piracy of U.S. intellectual property. Now they can also worry about China's acquisition of U.S. companies. Last year, Lenova, a Chinese firm took over IBM's personal computer business, and now Haier, China’s leading home appliance maker is bidding for Maytag. It's worth noting that any revaluation of the Chinese currency against the dollar would make U.S. target companies even less costly for Chinese acquirers.
Does it matter if China owns U.S. companies? Japan went on a corporate spending spree in the 1980s, and the chief victims were not Americans as the protectionists predicted, but the Japanese themselves. In this case the Chinese are attempting to purchase brands, technology and distribution channels which would otherwise take years and enormous sums to develop. Despite some restrictions, US companies are purchasing significant assets in China so should it be surprising the Chinese are doing the same?
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Trade Surplus for Japan (in 80's) and China (now)
Source: UNSTATS data on global exports and imports |
For additional detail:
China and Currency Valuation
China seeks known brands to go global
Haier (China) bids for Maytag (USA) |
Need Updated Asian Strategy
Average pay (including benefits) of production workers in China and India at US$0.80 per hour; given the same equipment, American counterparts would have to be 25 times more productive to earn their average hourly US$21.86.
But the road to lower resource costs by sourcing from China or India is also paved with potential pitfalls. Among them, longer start-up times, lengthy and more complex supply chains, downtime caused by energy shortages, negative publicity from laying off workers in home country, and poor record on enforcing intellectual property laws.
Despite all these concerns, every manufacturer needs to develop a global supply strategy, using China and India, by answering the following four (4) questions:
1: What opportunities and challenges does China/India pose to your company?
- Sell to them? Buy from them? Compete with them?
- Outsource business processes or manufacturing and distribution?
2: How to best capitalize on opportunities in China/India?
- Through purchasing, sales or product engineering?
- Use Local Partnership (JV)? Direct investment? Who are the right players?
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3: What are the risks and costs in managing an extended supply chain?
- Cost of transport? Excess or buffer inventory? Increased time to market?
- Best practices for managing logistics? Use of 3rd-party logistics?
4: How can you manage information in a supply chain that spans the globe?
- Key performance indicators (dashboard)? Use of Information Technology?
- Role for trusted 3rd-parties? Intellectual Property protection?
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For additional detail:
Cost information about China
Cost information for India
Cost information for the US |
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Quick Facts
As of June 2005, China has $691 Billion in cash reserves, up $32 B in May05 |
Source: China Min. of Finance |
All data for 2003
Foreign-Owned Investment in the USA $1,38 Trillion |
UK |
$230 B |
Japan |
$160 B |
Germany |
$150 B |
Canada |
$106 B |
US-Owned Investment in other countries $1,79 Trillion |
Source: Economist Intel Unit |
All data for 2003
Exports as % of GDP |
China |
31% |
Germany |
31% |
India |
30% |
Japan |
10% |
USA |
7% |
Source: WTO estimate
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Comparison of Cost of doing Business in China, India & US |
Office
Rentals
($/sqft/yr) |
China: $2
India: $5
USA: $20 |
Annual
Utilities
($000/yr.) |
China: $25K
India: $20K
USA: $35 K |
Labor
Rates ($/hr) |
China:$0.70-$1.5
India: $0.6 - $4.0
USA: $20 - 40 |
Employee
Benefits (% Salary) |
China: 40%
India: 30%
USA: 25% |
Logistics Transport $/ton-mile |
China: $0.10
India: $0.15
USA: $0.30 |
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China
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| Wanxiang - Supplying Machine Parts to the World from China |
While most of the large Chinese companies in the $50-70-billion machine parts business today are either state-owned or foreign-owned enterprises, there are a few “diamonds in the rough”. There are more than 200 parts suppliers in the Shandong province; a manufacturing hub that supplies the bulk of the country's domestic needs as well as serving export markets.
One such is the Wanxiang Group (pronounced “Waan-shiang”), with 2004 sales of US $3.2-billion, is China’s second largest privately held company. Wanxiang Group supplies machine components to clients like General Motors, Caterpillar, Volkswagen and has strategic alliances with auto parts companies like Bosch and Visteon. In 2000, Wanxiang merged with, US-based, Universal Automotive Industries, becoming the first private Chinese enterprise to merge with an overseas company.
When Wanxiang tried to export auto parts from China to the U.S., it found itself under priced by Polish and Romanian imports. So it adopted a private equity role in building a U.S. business: it joint ventures or acquires stakes in struggling U.S. manufacturers, then restructures their management and operations based on what Wanxiang learned in China. The Group now has equity positions in 30 auto-parts companies world-wide, and its U.S. sales of nearly $400 million are more profitable than its business back home.
Their major customers include 8 of largest 15 Tier-1 Auto Parts which includes most of vehicle groups in China. It has 60 subsidiaries worldwide with about 30,000 employees, and specialize in castings, forgings, stampings, heat-treatment, machining and grinding for:
- Drive-train Parts
- Drive-shafts, Universal Joints, Steering Columns, Tie Rods, Ball Joints, Shock Absorbers
- Auto/Industrial Bearings
- Taper Roller Bearings, Hub Units and Ball Bearings
- Auto Components
- Mini-Motors, Wiper Motors, Wheel Rims, Mufflers, Water Pumps, Brake components
- Other Businesses
- Agricultural Engineering, Bridge & Road Building, Power Plant Construction, International Trading
- Leasing & Financial Services
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Preferred Locations |
About 90% of the export-oriented Chinese companies are located in China's East coastal areas
- Guangdong (30%)
- Shanghai (20%) |
Top Exporters |
Top-200 exported 30%
Top 500 exported 42% of China's total foreign trade
50% of top exporters are foreign backed
35% exporters are state-owned
Top-3 exporters are Taiwan backed |
Preferred Industries |
Electronics and machine companies make 50% of total exports
High-tech companies make up 20% of exports |
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India
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TATA - India's Industrial Ambassadors |
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As India grows so will Tata Sons (pronounced Tah-Tah), a private Indian company with some 91 businesses and annual revenues of $14 billion. A developing country needs all the things Tata companies provide: cars, trucks, buses, steel, construction equipment, engineering, computer services, electric power, telecommunications both domestic and international, tourism, retail stores, food stores and food processing.
Tata Motors (NYSE: TTM), is by far the biggest of Tata companies, it makes trucks, buses and construction equipment, and has a 60% share of India's commercial-vehicle market. |
In 1997, they introduced their first India-designed car, Indica, capturing about quarter of the small-sized car segment, and about 17% share of the total Indian car market.
Tata AutoComp Systems (TACO) was established in 1995 with the aim of modernizing Indian automotive components industry using its many joint ventures with global auto component suppliers. It has 13 manufacturing plants, and three engineering centers and three export-oriented units. Its current OE customers include DaimlerChrysler, Fiat, Ford, General Motors, Honda, Hyundai, Mahindra & Mahindra, Tata Motors, Toyota, and Volvo.
For additional detail:
Tata Motors Eyes South Korea
Tata Motors Listed on NYSE |
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Quick Facts
About Tata Motors' Network
JV Partner |
Commodity |
Ownens-Corning
Menzolit-Fibron |
Sheet molded composites |
Sungwoo Hitech
(South Korea) |
Stampings assemblies |
Knorr Bremse (Germany) |
Braking systems |
Faurecia (France) |
interiors & exteriors |
MobiApps (Singapore) |
Vehicle tracking sys |
Ficosa (Spain) |
Rear-view mirrors |
Johnson Controls (USA) |
Seating systems |
Nifco (Japan) |
Plastic fasteners |
Toyo Radiator (Japan) |
Intercoolers, heater core, condensers |
Yazaki Corp (Japan) |
Wiring harnesses |
Yutaka-Giken (Japan) |
Exhausts, catalytic converters |
Chuo Hatsuo Kabushiki (Japan) |
Coil springs, torsion bars, stabilizers |
Source: www.TACOgroup.com |
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