Emerging Market of China

Dr Ping Wang

Deputy Director, Public Procurement Research GroupUniversity of Nottingham

World Population today

350m peopleEU

300 m peopleNorth America 2.9Bn people

Asia1.3b China1.1b India

24 m peopleAustralia and New Zealand

Over 1 million Engineering Graduates per year

Globalisation across Emerging economies

0

10

20

30

40

50

60

70

80

90

Sales Sourcing Mfg R&D

China

Central andEastern Europe India

Latin America

Source Boston Consulting Group

The top 10 most attractive FDI destination

•China is by far most attractive

•India is very close to “edging” out United States…and probably will in near future

•China and India’s attractiveness to investors will remain high for the next 10+ years

Where are people investing?

KPMG survey (Jan 2007)KPMG survey (Jan 2007)

Four in Ten foreign companies with operations in the China mainland suffered losses due to fraud

Only 50% investigated them

Only 25% of companies have a supply chain review programme

Only 31% conduct due diligence on their suppliers and business partners

When dealing with a 3rd party, either as customer, supplier or JV partner, you are essentially importing their ethics and integrity into your control frameworks

PMMS research into Defect Free deliveryPMMS research into Defect Free delivery

Direct measurement of over 100 China based suppliers across 2 industry sectors showed that……..

less than 5% of suppliers delivered on time and to agreed quality standards every time over a two year period

Some comments European/NA organisations Some comments European/NA organisations with sourcing operations in Chinawith sourcing operations in China

  

  

Our China based suppliers are often late

Our suppliers don’t seem to understand our requirements

Our local China office is not able to influence the supplier

Quality is fine one shipment but not the next

It was ok when we were here but slips when we are back home

The supplier does not manage his sub suppliers well

We cannot get any attention to our problem at the supplier

The supplier cannot meet our volume demands

Local IPO Offic

e

Some comments from on-the-ground Some comments from on-the-ground

Sourcing teams in ChinaSourcing teams in China

  

  

Communications with home office not clear

Your English is not English as I was taught in China

We cannot get up-to-date drawings

Black-Hole syndrome

Need more resources in China if we are to assure quality

Forecasts are wrong, Suppliers become vary of estimates

Supplier defers to westerner in meetings and we lose face

Everything urgent, unrealistic time-frames

Local IPO Offic

e

Sourcing in China: obstacles

• Suppliers in some industry sectors in China are very busy with

domestic business (eg Utilities). Not interested in business outside

of China.

• Even less interested in audits or questionnaires from potential

customers who are “just checking the market” or who promise but

do not deliver.

• Quality requirements greater outside of China. Sometimes viewed as

a hassle

• Cultural differences

• Lack of reliability

• Lack of continuous effort from Western utilities

• Subsidiary operations of major overseas suppliers which the utilities

will already know

Sourcing in China: Advantages

– Cost reduction– Chinese government willing to foster

internationalisation of Chinese suppliers– Chinese suppliers general interest in

gaining business with utilities outside China.

– Some suppliers will be keen to pay to participate, seeing this as a marketing opportunity

Changing Legal Environment

• Foreign Investment Laws

• Enterprise Income Tax Law

• Labour Contract Law

• Anti-Monopoly Law

• Tendering Law

• Government Procurement Law

China’s GPA Accession

• Background

• Progress

• Issues

• Solutions