Category Archives: China

You Know Your Country is Falling Behind On Sustainability When …

The dirtiest country, energy wise, on the planet will almost equal you in Wind Energy Production per capita within five years. Sustainability is a big part of China’s new five year plan, and the goal is to increase wind energy production to 90 Gigawatts (GW) of power by 2016 from current production level of 40 GW. (Source: “The Next Five Years” SupplyChains.com) Currently, the US, the world leader in wind power production, produces a meare 35 GW of electricity from wind.

But more important is China’s commitment to reduce energy intensity per unit of GDP by 16%, cut carbon intensity per unit of GDP by 17%, and have non fossil fuels increase to 11.4% of primary energy mix by 2015. For a country that currently relies on dirty coal (whch is 70% of the energy mix), this is an aggressive goal. And even more aggressive are its 2020 goals of reducing carbon intensity per unit of GDP by 40% and increasing sustainable energy production to 15%. Considering that China tends to accomplish tasks it puts its minds to, this is an impressive start to a sustainability effort, which it has been in dire need of.

Is Your Emerging Supply Chain Ready for Growth?

According to this recent article over on CNNMoney.com on how “emerging markets are hot” (CNN Money, Feb 1, 2011), total sales are expected to rise an average 10% among S&P 500 companies that derive more than half of their revenues overseas. In comparison, we’re expecting just a 6% uptick in total sales for companies that draw a majority of sales from the US, where GDP grew a paltry 2.9% last year.

Growth is skyrocketing across the BRIC, where Russia saw 4% growth, Brazil 8.4%, and China 10.3% last year. And this growth is expected to continue. But growth in these countries comes with challenges. China has pockets of prosperity among wide expanses of poverty. Russia is also vast and most of the profit to be made is on lower-end consumer goods. Brazil still has large pockets of poverty, serious problems with drugs and weapons struggling, and only easily reachable coastal areas. In other words, in each of these countries logistics outside of a few areas makes North American distribution look like child’s play in comparison, violence can be a constant threat in poorer areas, and relative lack of wealth among the population at large compared to the US (and UK) makes price control a huge issue.

So, is your emerging supply chain ready for growth (and the distribution challenges that lie ahead)?

It’s Good That Asia Is Rising

A lot of people are scared about the rise of China to the 2nd largest producer of GDP and the expected rise of India to be the 3rd largest producer of GDP by mid-century, but I’m not. It’s a good thing. The truth of the matter is that, for the last decade or two, the US share of Global GDP was too high. If a single country controls more than 25% of the GDP, than any significant changes to its economy are going to have drastic ripple effects across the globe.

Look at the recent recession. It’s not only the US that was affected — it was all of North America. Then it rippled across the pond to Europe (as most big multinationals have a big US and European presence). And even New Zealand and Australia felt the tail end of the shockwaves. Only Asia survived relatively unscathed, and only because they had a growing economy that resulted from over a decade of heavy investment by the US (and Europe) before the US recession.

So, needless to say, I was annoyed when I saw a recent article in Atlantic Business that asked if if “the Canadian Economy [is] Weakened by its Southern Neighbor” because only someone with their head in the sand for the last 20 years would think otherwise. Every time the US goes down, it takes us with them. They are both our next-door neighbour and biggest trading partner, with 10 times our population and 10 times our GDP. Canada might be the 10th largest economy in the world, but since 70% of our exports go to the US, if we lose 10% of that because of a major US recession, 7% of our GDP is at risk overnight — as it is for any small economy that is dependent on the economy with the largest GDP in the world — an economy that is roughly 3 times that of the next largest economy.

As Asia rises, not only will it minimize the impact of any one economy on global GDP, but it will start buying from us as well as selling to us, and redistribute the wealth back home. If China was going to control the US share of the economy in the near future, then maybe there’d be cause for concern, but right now, the rise of Asia is a good thing. The balance is going to eventually minimize the risks of a meltdown due to a recession in any one economy, and that is going to provide more stability (and predictability) to our supply chains.

Are You Really a Futurist if You Predict a Future That’s Already Here?

I found a recent article over on SupplyChainBrain on Five Fearless Visions of the Future very entertaining, and not just because I found a few of the predictions to be out of left field, but because some were not really predictions at all … as the predictions were simply describing the current state of affairs.

Consider the following:

  • The cloud is upon us.
    The “cloud” has been hovering over us for a few years now. There’s been a strong movement to SaaS for the last five years. When even companies like Ariba buy SaaS players and start converting all their legacy systems to SaaS, you know its time has come.
  • Companies that blindly outsourced their manufacturing to Asia will start bringing some of that capability back to the U.S.
    Already happening. I’ve been reading articles all year about companies that are pulling manufacturing back to North America, and not just Mexico. Area Development had a good article back in January. Yes, there are still more companies on the outsourcing bandwagon than off it, but it’s already started. Outsourcing will continue, but not for items with high shipment costs or low production costs where it makes more sense to produce them locally. Also, we’ll start to see more service outsourcing. With goods, you have to deal with ever-increasing shipment costs, but with services, it’s just the cost of the pipe that carries the bandwidth.
  • We are in the midst of a transition to electronic software delivery.
    This was my favourite as you’d pretty much have to be Rip Van Winkle to come up with this one. When was the last time you bought software that came in a box? That wasn’t out-dated the minute the CD was burnt? If this were 2000, it would almost be timely. But this is 2010!

When you get right down to it, the only good prediction that wasn’t either already happen or mostly obvious to anyone knee-deep in supply chain was Jim Miller’s (of Google) prediction that Fifteen years from now, the world will realize that China is not the juggernaut that we make [it] out to be. The nation faces a number of systemic problems, including the prospect of the mother of all real estate bubbles. Here, here! They won’t be #1 GDP for another 2 decades, and then they’re going to have to face all the problems the US has faced since WWII. They’ll always be a major player, but they won’t be the only one.

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Time to Stop Worrying About China

Yes they’re the number two economy and yes they will reclaim their spot as the number one economy in thirty (30) to forty (40) years, but they’re not worth all the attention they’re getting. As per this recent article in The Economist on Chinese Acquisitions, China owns a mere 6% of global investment in international business. That’s less than 1/15th. Compare that to Britian’s stake in international business in 1914 or America’s stake in international business in 1967 when they both held about 50%, or 1/2, of global investment in international business, and you see that there’s really nothing to worry about.

Since most developed world markets have rules in place that insure that no global investor can divert business away from the home country or export trade secrets or compete in a monopolistic way, the rules we have in place for foreign investors right now are good enough. There’s no point wasting time and money developing special rules for China, especially when most of our economies need our attention as it is. And as far as our supply chain is concerned, how about we spend the time and effort making sure they are adhering to our regulations and safety protocols instead? After all, even when they become the dominant economy, they’re not likely to be more than 20% of global GDP (especially since the rest of the BRIC countries are expected to increase significantly in GDP as well) or control more than 20% of global investment. And while 20% is significant, it’s far from majority control. Time to stop the much ado about nothing and get back to business.