Category Archives: China

Was it Nearshoring? Or Bullwhip Effect?

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

China’s exports in February were up 45% from last February. (LA Times)

My opinion: the rapid decline and unsustainable increase in Chinese exports were from the bullwhip effect of a long supply chain. A small change in final demand can cause huge swings in upstream supply.

This mainly applies to those using ships to transport from China. If you can use air, China isn’t much further (in hours) than Mexico.

Dick Locke, Global Procurement Group and Global Supply Training.

The Tiger is Beginning to Roar … but the Eagle is beginning to Snore!

I was appalled to see this recent headline on the SSON site asking “2010: The Year For Outsourced Thinking?” (membership required) as well as the statement that organizations are increasing willing to outsource complex, higher value-added pieces of the “end-to-end” process.

Why? Because we’ve outsourced everything else. Raw material collection? Check. Processing? Check. Product Manufacturing? Check. Distribution? Check. Value-added services? Check. If we outsource thinking, and innovation, what’s left? Nothing of value! So while we should take advantage of reverse innovation at every opportunity, and partner with talent where we can find it, we should never, ever, outsource thinking. Because then all we have left is sales and marketing, which are totally useless if you don’t have a consumer base to market and sell to … which we won’t have if there are no jobs left — and there won’t be any jobs if we outsource the last few jobs we have! So unless you want to see an economy where the majority of us are unemployed while the remaining few are selling and marketing junk no one wants to each other, I’d make it a point to keep using our brain cells to their full potential. Otherwise, I predict that the 22nd century will see North America become the new third world.

The short story is that it doesn’t take long for a civilization to fall. The Egyptians, Greeks, Romans, Teoithuacans, Mayans, Incans, Aztecs, Vikings, Byzantine, and early Chinese Dynasties [Sui, Yuan, Qing] all fell in less than a century, and some in half a century or less. If we stop thinking, I can’t see us lasting very long at all.

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The Tiger is Only Beginning to Roar

Earlier this year I told that that this is the year of the tiger … and China is going to roar as it is on track to overtake Japan as the 2nd largest global producer of GDP. But this is just the beginning. China is expected to become the global leader in scientific research in a mere 10 years (Financial Times [FT]) and the global leader in GDP within 25 years (The Economics Journal).

According to the FT article, Thomson Reuters, which indexes scientific papers from over 10.5K journals, analyzed the performance of the BRIC over the past 30 years and found that China outperformed every other nation with a 64-fold increase in peer-reviewed scientific papers, with a particular strength in chemistry and materials science. And although quality varies, China has also become more collaborative, with almost 10% of papers originating in China having at least one US-based co-author.

And the research pace isn’t expected to slow down. When you combine the government’s enormous investment in research (with funding increases consistently far above the inflation rate), an organized flow of knowledge from basic science to commercial applications, and the efficient, but flexible, way in which China taps the expertise of its extensive scientific diaspora in North America and Europe, drawing mid-career scientists back home with deals that allow them to spend part of the year working in the West, the productivity should only increase. And this, in turn, is going to continue to drive their economy upward and onward.

Now if only we’d take a lesson from China and investment the same amount of money into research and infrastructure. Maybe we could hold on just a little bit longer …

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Are You Ready For The Next China?

A recent article over on the Harvard Business Review on “China Myths, China Facts” reminded me how China is starting to change and how my advice in my recent post on overcoming cultural differences in international trade with China to take time to get to know the people you will be dealing with because their behaviour may be nothing like the usual behaviour of the country in which they reside is becoming truer and truer by the day in some parts of China (that deal regularly with the west).

According to the article, which isn’t entirely accurate (just ask our resident Global Trade expert) the following are myths:

  1. Collectivism
    According the article, Individualism is the reality. While this is becoming true of the emerging “New China”, especially in the urban middle class, the “Old China”, which still makes up the majority of China, is still collectively oriented and, as the article points out, decisions, particularly in the business world, are still made in groups.
  2. Long-term Deliberation
    According to the article, real-time reaction is the reality. While the “New China” that has been dealing with the west for the last two decades (or so) has learned to “react” at western speeds, there is still a lot of deliberation that goes on behind the scenes, and quick decisions are often the result of policies that were decided as the result of long-term deliberations.
  3. Risk Aversion
    According to the article, risk tolerance is the norm. Well, this one is half true. The reality is that the Chinese are neither risk-averse or risk-tolerance. They are what I’d call “risk-comfortable”. You have to remember that China is one of the oldest civilizations on the planet. They can trace their history back millennia, while we struggle to trace ours back a few centuries. They are more aware of risk and used to dealing with it than we could ever imagine. It’s just another part of everyday life to them … that sometimes comes and goes in waves. They know that some risks can never be completely mitigated and that others can never be predicted. As a result, they don’t feel the need to needlessly analyze something to the nth degree when they know nothing will be gained from the exercise. So they make a decision, execute, and accept what comes. We could learn a thing or two from them.

What’s happening is that, just like Japan transformed itself from the “Old Japan” to the “New Japan” over the last few decades, China is in the process of transforming itself from the “Current China” to the “Next China”. This will happen over the next few decades as it claws its way back to global supremacy. So, are you ready?

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Winning the Talent War in China

The McKinsey Quarterly recently published an interview with Emmanuel Hemmerle, a principal with Heidrick & Struggles, on “Winning the Talent War in China”. It had some great information for those multi-nationals who are looking to expand into China or who are having problems finding the top level talent they need.

It had a number of good points that you should not miss. These include:

  • Top Talent is NOT Cheaper in China
    Packages for top talent — with experience, skill sets and responsibility equal to their counterparts in Europe and the US — are often higher.
  • Strong and Weak Performers Have to be Differentiated
    Failure to do so will seem unfair and may lead to resentment.
  • You Will Need to Invest In China
    In some areas, the market economy is quite new, like luxury goods which really started ten years ago. Senior talent just isn’t available. You have to instead look for rising talent and take them the rest of the way yourself.
  • Talent in China Looks for Careers
    They are very sophisticated and, like their American and European counterparts, are looking at the long term impact of any offer on their career.
  • You Need to Localize
    A majority of the management team of the China operation should be mainland Chinese as this supports localization by showing that you see them as your equals, which they are if you have sought out and hired their top talent. (With a population that is more than four times that of the US, they have four times as many geniuses. Remember that.)
  • You Need to Seek Out the Best
    You should not only know who your top competitors are, but who their top people are and try to recruit them. Even if you don’t get your first choices, it shows your commitment to identifying and hiring the best talent.
  • You Need to Embrace the Culture
    You need to provide them with an environment that is attractive to them. This will include the fostering of a relatively non-hierarchical environment with growth opportunities for each individual, opportunities for each individual to get promoted to the top, and socially responsible activities.

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