Not Green: Black problems…

26 August 2007

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China´s overwhelming environmental problems have made the country one of the world´s leading contributors to global environmental problems, surpassing the USA as the world´s largest contributor of carbon dioxide.

There is a very high price to pay.

Lack of access to clean water and air is only one of the problems the People´s Republic of China is facing. According to Elizabeth Economy, in her latest review in Foreign Affairs, (read it here: http://www.foreignaffairs.org/20070901faessay86503/elizabeth-c-economy/the-great-leap-backward.html) more than 75% of the river water in China is undrinkable and unfit for fishing, whereas 30% is unsuitable for agriculture and industrial use. 700 million people drink contaminated water with animal and human waste. A study by the World Bank has reported that the leading cause of death among children under the age of five and 11% of the cases of gastrointestinal cancer in China is the lack of piped water. There are also increasing rates of diarrhea diseases, cancer, tumors, leukemia and stunt growth.

Another report by Elizabeh Economy, (read it here: http://www.cfr.org/publication/5573/chinas_environmental_challenge.html), mentions that the air quality in more than 300 Chinese cities failed to pass the acceptable levels of total suspended particles set by the World Health Organization, causing an increase in the number of cancer disease across the country. Other organizations and institutes are also blaming the air pollution to an increase of premature deaths related to respiratory diseases.

The Chinese government is encountering social unrest within the country and increased international political pressure from abroad, not to mention the economic burden that needs to be invested in order control the situation.

Some Chinese report that international buyers and multinational corporations also contribute to China´s environmental degradation. Buyers keep pushing for lower prices and fast lead times, which in turn, don´t allow for factories to comply with the minimum environmental standards required by the law.
The world keeps pushing China to lower their carbon emissions, to cut down on coal consumption, to invest money in environmental projects… but people seem to forget about environmental concerns when it comes to buying from the Chinese factories. Few companies ask for factories to comply with green standards, let alone pay a higher price for a product from those few companies that do comply.

Is the world willing to invest in making the changes that it needs to counteract the environmental degradation it faces today?
Are companies ready to pay a higher price for an environmentally safe produced product?
If you were buying from China, would you sacrifice your profit margin to buy from environmentally friendly factories?

Problems in finding good employees in China?

26 August 2007

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A briefing in this week’s Economist (read it here) look into the troubles companies are having in finding talents in China.: “IT SEEMS odd. In the world's most populous region the biggest problem facing employers is a shortage of people. Asia has more than half the planet's inhabitants and is home to many of the world's fastest-growing economies. But some businesses are being forced to reconsider just how quickly they will be able to grow, because they cannot find enough people with the skills they need.

A study by the McKinsey Global Institute predicts that 75,000 business leaders will be needed in China in the next ten years. It estimates the current stock at just 3,000 to 5,000. And that assessment could prove optimistic. The study, which covered a broad spectrum of businesses and surveyed more than 80 human-resources managers, found that less than “10% of Chinese job candidates, on average, were suitable for work in a foreign company.”

This talent shortage is predicted to get worse in the year to come with the growth of Chinese companies and increase in foreign investment: ” With such a mismatch between supply and demand in Asia's labour markets, companies will have to become better at hiring good staff and keeping them. But as some companies will always be better at this than others, the job-hopping and poaching are set to continue for many years, until education and training catch up. The consequences of that are stark. “It will limit the growth. It has to,” says Korn/Ferry's Mr Bekins. Which means that without talented recruiting policies, some firms may end up scaling back their bold Asian growth-plans.“

Keep buying from China, but beware.

16 August 2007

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The hard lesson from the latest recall of products made in China is that Businesses have to manage the risks and liabilities of Chinese products.

“'That's the price of doing business" is the too-often-heard excuse from American companies that choose to overlook China's loose business ethics and tight (verging on strangling) political controls.“ accuses The editorial in today’s IHT (full article here). “The high cost of such enabling was on display, once again, Tuesday when Mattel announced that it is recalling millions of Chinese-made toys contaminated with lead paint or containing dangerously easy to swallow magnets. And that follows discoveries of Chinese toothpaste laced with industrial solvents and drug-contaminated seafood.”

The editorial stresses that “Right now it is the clear responsibility of companies that import Chinese products to guarantee their safety, and U.S. regulators have to ensure they do it adequately”.

Fulfilling this responsibility is proven difficult for foreign companies: their capability of controlling what they buy is undermined by a lack of visibility of what really happens inside the factories in China (Mattel, which is a best practice on implementing safety standards, was not able detect what was happening albeit it has been doing business with that supplier for 15 years) and by a buying culture where all it counts is “best price”; it means razor thin margin for Chinese supplier and a push to cut corners to remain competitive.

The Economist (read its editorial on this matter here) is pessimistic that the Chinese Government will be able to effect change albeit willingness to do so, and that onus to manage the product safety risk rest on foreign buyers: “In practice, however, effecting change will be difficult. Unhealthy links between government and business, combined with patchy implementation of rules and regulations, mean that China has a political culture that will be hard to transform quickly. There is anecdotal evidence, for example, of "product fade", whereby some Chinese companies ensure that the first few batches of products delivered meet the required standard, before quality gradually tails off as quality inputs are replaced with cheaper equivalents. Regardless of the Chinese government's efforts, the onus is therefore likely to fall on Western importers and retailers to conduct more product checks on goods made in China, in order to forestall the negative publicity caused by the discovery of substandard products.

Don’t hold your breath for the Yuan revaluation to slow Chinese export: EU and US consumers will pay for it

August 7, 2007

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“Those who closely follow the mainland economy, the last few years have provided another interesting spectacle. Remember that the yuan has been strengthening gradually against the dollar, by 2% in 2005, another 4% in 2006 and at a 6% year-on-year pace so far this year. At the same time, Chinese rural migrant wages, which were rising leisurely at 3% to 4% per year at the beginning of the decade, are now shooting up by 10% or even 15% annually as factories come to terms with a dwindling supply of young, single farm workers.
This double-edged sword of an appreciating currency and rising labor costs should have imposed palpable damage on China’s traditional export sectors: toys, clothing, furniture, appliances and electronics processing. However, according to industrial earnings and profit statistics, overall light manufacturing margins have been as steady as a rock, with no signs of pressure so far.
Why? Because exporters simply passed on the costs to overseas buyers.”

In an essay for the Far Eastern Economic review (read the article here) “Jonathan Anderson, chief Asian economist at UBS, dispels common myths about the Chinese exchange rate and explains why yuan revaluation is the only remedy for China’s economic “whiplash.”

Connecting productivity to corporate social responsibility

July 25, 2007

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Amy Wong, in an article for China Business Review (www.chinabusinessreview.com), suggests western buyers to rethink their auditing approach to support corporate social responsibility amongst their Chinese supply chain. Her articles advocates for those efforts focused “on tracing the root cause of [labor standards] violations to core business processes and management systems that may be absent or weak, rather than on simply identifying checklist of violations. For example, if a factory has poor quality control, it will likely have a high rate of defective products, requiring workers to spend extra time to remanufacture or repair the defective units. Moreover, if the factory must ship the order on a tight deadline, its employees may need to work overtime beyond what is legally permitted. But those workers may not receive overtime pay because the only way for the factory owner to make a profit is to withhold the extra compensation. This example shows that excessive overtime and wage arrears, two common violations reported by auditors, can result from poor quality control, a core business process”.

Amongst the initiatives that have pioneered this approach in China is Impactt’s Overtime Project (www.impacttlimited.com), the Factory Improvement Training 5 program of TUV Rheinland Group (www.tuv.com), BSR’s China Training Initiative (www.bsr.org) and the Global Suppliers Institute Program of the Kenan Institue (www.kenan-flagler.unc.edu).

Summer Sourcing Show for Gifts, Houseware & Toys

July 6, 2007

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This week Hong Kong hosts the Summer Sourcing Show for Gifts, Houseware & Toys. Over 800 exhibitors are showing their latest products to international buyers. The shows is divided into the following category: gift ideas, dining & cooking, style & décor, home living, fun & play, ladies’ world and costume jewellery.

TriSource Asia is visiting the show looking for new products and is putting together a presentation of some of the most interesting items. Click here to download a PDF file to see some of the hot products we found and contact us if you are interested in a quotation.

Hong Kong, China: 10 years’ anniversary.

June 25, 2007

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It has been 10 years since the handover, and Hong Kong sparkles. But can it find still greater success in a changing China — and a changing world?

Time magazine dedicates a special report on Hong Kong, looking at the city’s future, assessing the past decades from the views of 5 opinion leaders, narrating the story of one of its family and analyzing its connections with China.

Read the special at www.time.com/hk10th

China cuts tax rebates on export

June 20, 2007

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China’s multi-year ballooning foreign trade surplus has caused the Chinese government on 19 June 2007 to announce major downward adjustments to export VAT refund rates.
This means that profits of exporters in many industries will fall significantly.

The announcement makes clear that the reductions of refund rates, and even the complete elimination of the export VAT refund in some cases, will apply to a broad range of products. These will include not only products that are socially or environmentally harmful (e.g. pollutioninducing, high energy or natural resource-consuming) and products from low value-added industries (e.g. clothing and shoes), but also for some strong export products. The changes come into force on 1 July 2007

For detailed information what categories of goods will be most affected by the new policy and the impact of the adjustments click here

From ‘Made in China’ to ‘Sold in China’: The Rise of the Chinese Urban Consumer

June 12, 2007

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From ‘Made in China’ to ‘Sold in China’: The Rise of the Chinese Urban Consumer , a report by Mc Kinsey, a consultancy, argues that “as China transitions to a more consumption-led economy, Chinese incomes will grow and a massive middle class is expected to emerge. The urban consumer markets, in particular, will develop rapidly, moving from 43 percent of the population today, to 69 percent by 2015, and 76 percent by 2025. Most important, this urban phenomenon will spread beyond China’s large wealthy coastal cities, to smaller cities further inland.

As the incomes of the new middle class rise dramatically, China will become the third-largest consumer market in the world by 2025. A key characteristic of China’s new middle class will be that these households will begin to spend a larger proportion of their income on discretionary items, thus significantly changing the patterns of spending in the economy. It is important to note that the spectacular rise of China’s urban middle class, and its consequent impact on consumption, does not depend on major changes in Chinese savings behavior or on particular government policies (although certain policies could accelerate or slow the process). Even the impact of varying future growth rates tends to alter only the timing of these developments, not whether they happen at all.

To read the report click here

Outsourcing comes of age, especially for supply chain activities

June 5, 2007

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“Outsourcing is growing fast and delivering results. More people than ever are outsourcing with no indication
that growth will slow. Our findings confirm that outsourcing has matured beyond cost reduction to become a way for organisations to better access talent and capabilities, gain more flexibility, reinvent their business model and drive innovation.” says a new report by PrcewaterhouseCoopers (PwC), a consultancy.

Supply chain activities such as production, logistics and distributions are the most outsourced business activities together with IT services. 53% of respondents to PwC survey outsource production or delivery of core products or services. This percentage will grow steadily in the next five year as the majority of the company surveyed intend to expand their current outsourcing over the next five years.

The report goes on in listing the main benefits that outsourcing delivers, the challenges to success and what customers and service providers think works best for them in real life outsourcing. It also provides evidence
that leading outsourcing customers and service providers are shifting from traditional to multisourcing, joint ventures, and open business models concluding that “As buyers increasingly seek to outsource core products and services, and suppliers rise to the challenge to deliver the skills and capabilities required, a new model of outsourcing is required: collaboration. Having an experienced, independent partner to help orchestrate new partnerships can give you the confidence to succeed.”

You can access the full article here

Jim O'Neil, Head of Global Economic Research at Goldman Sachs, explains clearly and concisely in a web video the BRIC - Brazil, Russia, India and China- phenomenon: the role that their economies already have in the world today and how, over the next 50 years, together they could be larger than the G6.

You can access the full article here