mlp china tour05

China: Beyond low cost: 

China: Beyond low cost Tuesday 22nd March 2005 Wolfson College Cohort 8, International Study Tour

China: Beyond low cost: 

China: Beyond low cost Agenda Introduction Roger Connor China Overview Steve Wilson Findings Michael Ploner & Andrea Johannes Conclusions Phil McClennon Personal learnings Tony Fitton Q&A Roger Connor

Slide3: 

Background

Companies on the MLP : 

Companies on the MLP Wide range of industries and disciplines represented.

Why China ? : 

Is there more to China than just low cost labour? Why China ?

What we expected : 

What we expected Expecting to see only low cost and nothing else

Slide7: 

Process

The companies and organisations we visited : 

The companies and organisations we visited 19 visits: Contrasting companies and industries

Slide10: 

Our Process Structured process to capture our learnings

Slide11: 

Findings The areas we looked at: Infrastructure Culture Leadership Teamwork / Quality / HSE Technology Supply Chain Some limitations: Limited number of visits A developed area of China very different to the rest Fact based analysis based on the 19 visits

China Overview: 

China Overview Steve Wilson Inca Digital

Overview of the “Middle Kingdom” : 

Overview of the “Middle Kingdom” The fastest growing economy in the world 1.3Bn people - 160M working in manufacturing Average direct labour cost $1.50/hr 8% GDP growth - will overtake UK in 2006 3rd largest global trader behind US and Germany £60Bn foreign investment (2004) - 3 x Eastern Europe GDP/Capita: $400 in West to >$4000 in Yangtze Delta A vast country with most development along the coastal strip

Yangtze River Delta: 

Yangtze River Delta Shanghai & Pudong Yangtze River Suzhou Area Hangzhou Area One third of foreign investment in China is <100km from Shanghai The fastest growing region of China: 20% of GDP, 6% of population >10% growth for 20 years

Findings: 

Findings Infrastructure Experience of Culture Leadership and Strategy Corporate Governance Michael Ploner GKN

Slide16: 

Infrastructure What transport, communication & utilities infrastructure is in place or planned? Transport just coping IT/Communications as per West Other utilities not coping e.g. power cuts How active is the government in controlling business? Directly active in SOEs, JVs and industry parks Bureaucracy a hindrance for WOFEs outside parks Incentives for foreign investment – private property protected Is the education system producing people with skills needed to maintain growth? Recognised shortage of middle management professionals 4M graduates/year, lacking industrial experience Onus on industry to bridge gap Infrastructure struggling to keep up with rate of growth. Education single biggest issue for business.

Slide17: 

Infrastructure In progress Government cooling growth in the economy Grand canal for transport & water supply for North China 3 gorges hydro electric dam and further 13 dams Challenges Internal Chinese & external (world) political stability Rich/ poor & urban/rural divides 200-300M unemployed US, Japan, Taiwan Ageing population Health/welfare system (was provided by companies) Limited land for agriculture (e.g, Industrial parks) Environmental issues Challenges: political stability and capital/credit for infrastructure development

Experience of Culture: 

Experience of Culture China opening up – “Blossoming” China is competing in a marathon not in a sprint Government looks after Society. Individuals look after themselves Good manners Face Relationships Manners - Face - Relationships

Leadership and Strategy: 

Leadership and Strategy Is Leadership a core competence in China? Government / Party level it is e.g. 5 year plan Not a core competence in organisations Did we see Vision, Communication and alignment? Yes, vision and long term thinking Communication restricted “Can Do” attitude – high aspirations Focus on the long term. Leadership weakness evident.

Corporate Governance: 

Is there a Corporate Governance risk to locating in China? Yes, in many areas ‘Relationships’ Legislation / Tax risk Bureaucracy Intellectual Property Significant risks needing careful management Corporate Governance

Findings: 

Findings Team-working in China Compliance (QEHS) Technology Supply Chain & Logistics Andrea Johannes GlaxoSmithKline

Team-working in China: 

Team-working in China Management teams coordinated and strong Relationships and strategic team-working very evident, government ‘friendships’ National pride creates a ‘can do’ focussed ‘Chinese’ team. Good clear but only one-way communication Little evidence of teamwork on shop floor level Historical culture is to take direction Empowerment resistant people Only evidence of team work understanding was in <35’s Black&Decker: team building session offered as an incentive Lack of team-working at operator level has no adverse impact on the business YET

Compliance (QEHS): 

Compliance (QEHS) Importance of ISO 9001 / ISO14001 etc. and raising quality standards clearly recognised Clear evidence of procedures for 5S / PDCA / Six Sigma. Implementation variable Industrial park turns away businesses if environmental standards are not met Dangerous Practices observed Steel Pressing tools No guards No ear defence Variable H&S controls, procedures in place, not universally applied. All businesses ISO 9001 at least EH&S a mixed bag

Technology: 

Technology Currently learning from foreign partners Foreign transplants mainly duplicate proven products Ex-state owned companies struggle to innovate and buy-in IPR Engineering/R&D facilities still very young and focused on production/applications Technical education does not fulfil companies’ needs Innovative mindset requires development Incremental rather than innovative product development

Technology: 

Technology China will eventually have huge potential for R&D Chinese from Taiwan, Singapore and Hong Kong are leading the way Chinese government led by 9 engineers – innovation will now be strongly encouraged Government is investing more in higher-quality education and R&D – the 11th 5-year plan will reveal more Foreign investors are opening R&D centres which will inevitably spread technology and demonstrate a more innovative culture The question is when, not if, China will catch up

Supply Chain & Logistics: 

Supply Chain & Logistics Is there a robust parts/raw material supply chain in China ? Most businesses have a concern about the quality of supplied components. There is a recognised need to have engineers working with suppliers on quality improvement. It is seen as an advantage to have the whole manufacturing supply chain in China. How effective are the manufacturer’s internal processes? There is more reliance on quality control than on quality assurance. Material flow and layout could be improved (high diversity) The quality of supplied parts is a concern to business.

Supply Chain & Logistics: 

Supply Chain & Logistics How robust is the logistics system? Development zones offering inland export facilities Transport time, legislation & export controls with inventory impact Can the supply chain & logistics system cope with China’s future growth? Extension of transport infrastructure important Inflationary and demand pressures upon raw material Careful consideration of the right supply chain network is key

Conclusions: 

Conclusions Phil McClennon Nothelfer

Conclusions: 

China: beyond low cost ……… it’s a land of opportunity Conclusions Beyond low cost Market Aspirations, Alignment and Activity Risk management Opportunity

Slide30: 

Tony Fitton Cadbury Schweppes Our Personal Learnings

Our Personal Learnings: 

Our Personal Learnings

Q&A: 

Q&A Roger Connor GlaxoSmithKline

Thank You: 

Thank You