Daily Archives: May 3, 2016

Geopolitical Sustentation 31: China and the New Silk Road

As per our damnation post last year, as part of it’s Grand Strategy, China has recreated the Silk Road, which has been active since November 18, 2015 when the first train left the city of Yiwu in Zhejiang province for a warehouse complex in Madrid, which it reached on December 9th. And it’s not going to stop until it crosses all of China and connects the entirety of Europe and Asia.

And when we say it’s not going to stop, we mean it. As per an article on Forbes on January 21, 2016 on how China is Moving Mountains for the New Silk Road – Literally, they won’t even let mountains get in the way. Four years ago, the entirety of the downtown Lanzhou New Area (LNA) was hundreds of mountaintops, which have been removed to make flat land for development. That’s right, they cut down mountains. In North America, it’s sometimes a massive undertaking just to flatten a few hills for a flat highway. They brought in the equipment and manpower to flatten mountains! If that doesn’t show you how serious they are about trade domination, I don’t know what will.

China is in the midst of implementing its OBOR (One-Belt, One-Road) initiative that will facilitate the creation of a gargantuan network of new highways, rail lines, logistics and industrial zones, pipelines, power plants, sea ports, and even entirely new cities that will stretch from East Asia to Western Europe, span over 60 countries, and impact over half of the world’s GDP, putting an end to US dominance once and for all. (The OBOR initiative also has a sea route, the 21st Century Maritime Silk Road, that goes through the Western Pacific and Indian Ocean, which also connects China to all of Africa (and the Middle East), giving them access to the entirety of 3 of the 6 populated continents and 6/7ths of the world’s population!

China is not only an emerging economy, it is the emerging economy that will soon be powering, directly or indirectly, almost 2/3rds of GDP when the silk road is completed and it has it’s hooks across 3 continents.

And, as we said in our damnation post, China is about to become your upstream as well as your downstream supply chain. You have to abandon your old view of the world, accept this reality, and start preparing for it. It doesn’t have to be the damnation that causes your undoing. It can be your salvation. Your choice.

So how do you prepare for it?

1. Learn Mandarin

Chances are your China partners will speak better English than you will speak Mandarin, but any attempt to seriously learn their language will be seen as a sign of respect and good faith and go a long way in negotiations. And even if you aren’t the negotiator, you will be able to communicate with almost 1 Billion native speakers. (That’s roughly twice as many native English speakers.)

2. Model your source-to-sink Euro-Asiatic supply chain.

Don’t just model the inbound supply chain, model the outbound too – and when you do your network design, strategic sourcing, and logistics models, try to find the best locations for storing inbound and outbound materials and products, for manufacturing to take advantage of a strong network design, and to minimize import/export/FTZ requirements and logistics network length. Long gone are the days when you are sourcing from China to sell in the US. Now you are sourcing from China to sell to the world, China included, so why manufacture in Malaysia to ship back to China. You need to take your supply chain and sourcing optimization to the next level. (Which is something the Six Samurai can help you with from a sourcing perspective.)

3. Treat your Big China Suppliers as Strategic Partners

Even if you are convinced they don’t understand your business model, the American marketplace, and the global consumer and even if you are convinced that their only goal is to rip you off at every turn (because you are paranoid or your golf course buddy found one of the scammers, which there are in every country), they know their local market and their own preferences better than you. And even if China is not a market today, if your company needs growth, chances are it will have to be tomorrow and you will need their guidance, and possibly even their innovation capability. So get ahead of your competition in their books.

Now, more will be required, but this should put you on the right track, er, road. The silk road. Which will again be the centre of global trade.