Our say: Australians in emerging markets must admit their ignorance and learn from locals
By Anna Game-Lopata | August 5, 2013
The first thing I notice about Shanghai is the traffic. It is my first visit to Asia, so as a professional associated with supply chain and logistics, I’m sure I’m in the minority. I
therefore request your indulgence! What an experience.
A city of 26 million, which is more than Australia’s total population of 23 million, I thought I would be overwhelmed by the reams of people as I once was in London.
In Shanghai, this is the case only at tourist attractions, but it’s mayhem on the roads that most strikes me as an Australian weaned on rules and fines.
A tangle of cars, bikes and electric scooters, often pushing to overtake each other and frequently carrying more than one passenger including small kids and dogs, or a load of parcels, three wheeled carts piled with produce such as watermelons, and pedestrians squeezing in and out of it all; between, around and in front of countless moving vehicles amid a bellowing din of horns.
Granted the traffic moves much slower, as congestion is endemic.
In Australia, anyone riding their scooter off the pavement against the traffic the way they do in Shanghai would be hit instantly.
If she did survive, she’d also likely be deemed an unfit mother for doing so with her five-year old in tow. No one here expects it. And despite the law in Shanghai, barely anyone wears helmets or stops at zebra crossings.
The other thing I notice is the lack of trucks. Heavy vehicles stick to the freeways on the outskirts of the city, only visiting large customers at night.
The odd one-tonne truck trundles by during the day, but mostly freight and fresh produce is loaded in mini-towers secured to the back of scooters and carts.
This suits the Chinese preference for buying small amounts more often. Local retailers and vendors proliferate but
so many of them are
tiny. One third of the size of the average Australian store, sometimes you can barely move within.
A relatively young metropolis, Shanghai was a fishing village until the late 19th Century. Separated off from the old district of Puxi by the Huangpu River, Shanghai’s ultra-modern technology and business centre of Pudong, which boasts some of the tallest skyscrapers in the world, is just 23 years old.
Many of the Y-generation can’t recall Pudong prior to this, when I’m told, it was “just paddy fields”.
During my stay I get a 360 degrees glimpse of the supply chain, from local manufacturing and procurement to 3PL and 4PL operations and the Port of Shanghai.
Now the world’s busiest in terms of container throughput, the Port of Shanghai, was officially opened to foreign merchants in 1843. It is a rapidly growing force. Twelve years ago, throughput was around 6 million TEU. Today the figure stands at 33 million.
Shanghai International Port Group (SIPG) Strategic Analyst Ding Songbing is quick to tell me
SIPG, a
listed company and the largest terminal operator in China, is extremely keen on terminal and infrastructure investment in Australia.
But strangely, Songbing admits SIPG is uncertain how to achieve this aim. Investment communication channels and opportunities in Australia remain unclear.
Nestled on the south bank of the Huangpu River just across from Pudong, is a now private 1948 soap factory. Barely changed from the Communist era, it was the first to sell packs of powdered detergent in China.
Currently a small operation in Shanghai, it now focuses on the more popular concentrate and liquid detergent products, the latter
amounting to an average of
600 cartons per day as an idea.
Powdered detergent is now manufactured elsewhere with partners and the associated towers have been decommissioned.
In addition,
the government wants relocate the business to utilise
the prime land, which it still owns,
for development. As a result,
investment in the factory
operation has stopped.
Recent aggressive competition has dwindled exports and toppled the brand’s number one spot in the market to “somewhere in the middle”.
Despite these challenges, the Shanghai market can fully support the liquid detergent and concentrate producer; and the General Manager tells me the company also has two outsourced manufacturing operations doing well in other provinces.
He tells me “corruption and kick-backs” are
still a problem in some areas when procuring raw supplies. In terms of transport providers; he tenders annually to ensure they remain competitive with the market.
In addition, it’s a constant battle to ensure providers follow regulations; such as those that govern overloading.
The word “corruption” is not spoken at a Global Procurement Conference, where Chinese procurement professionals tell of the struggle with conflicting demands and regulation across multiple jurisdictions and the lack of sufficient technical and quality assurance support from overseas teams.
Suppliers are “less hungry” than they were, failing to deliver if their raised prices can’t or won’t be met.
Cost is a constant challenge. Yet, despite the promise of cheaper alternatives such as Mexico, or Vietnam, bypassing Chinese expertise in China seems counterintuitive.
Successful organisations are nurturing such expertise, building enduring, exclusive supplier relationships.
Meanwhile, the 3PL says overseas supply chain operators, including Australians, fail to understand how to succeed in a market highly different from their own.
They came in with “beautiful solutions and a higher price” outsourcing the work to local carriers. However shippers soon saw through the ploy.
Confirming the manufacturer’s position, he tells me shippers are not loyal, changing their providers annually. He says providers win business with a low price and lose business if they try to raise the price.
“When brand doesn’t talk, when solutions don’t talk, when service isn’t compatible, so they compare price,” he tells me. “Shippers talk about ‘strategic relationships’ but their relationships with suppliers are not strategic.”
Shanghai is one of the most price competitive markets in the world. While five or so years ago, providers were talking about growth and customers, times are tougher now. The name of the game is survival and maintaining a positive cash flow.
Providers are conservative, refusing to take on any business which might have a negative impact on cash flow, even from existing customers. Overseas companies, some of whom continue trying to win market share the old way are losing business.
“The Shanghai market is so fragmented gaining market share is impossible. Even if you doubled your size overnight, your market share will stay less than one percent.”
Rather local 3PLs focus on their niche strengths.
My 3PL asserts the future for local providers in China is strong. The government is gradually modifying regulations such as
the road maintenance fee
and insurance for companies like his to reduce costs. Despite this, he admits rules must be broken.
For example, it’s not really above board to sell company trucks to employees then lease back their services. But, with a modest fleet of 60 trucks he tells me, he must do so or the drivers will sabotage the business.
“They will steal everything, including petrol, tyres components and tools.”
It’s not a good idea, he says for overseas operators to own their own fleets because, so far they have not managed such hurdles well, to gain the respect of Chinese drivers.
The 4PL, a global operator engineering complex supply chain hubs and solutions for a wide range of multinational corporations is more scathing; suggesting Australian supply chain leadership does not properly understand the Chinese market but will not admit its ignorance.
Australian operators are unlikely to succeed by “outsourcing everything”, if competing with Chinese know-how on the ground.
To
echo
them all, harnessing Chinese expertise respectfully would definitely be a better solution.
Postscript
I am interested to note on my return a
Gartner survey has found global CEOs have identified the problem with many admitting supply chains are not up to the task of meeting growth in emerging markets despite the opportunities.
The worldwide survey of more than 390 CEOs and senior business executives shows 51 percent of executives see globalised supply chains as complex and brittle.
The most-cited supply chain challenges in emerging markets are dealing with changing rules, including regulatory or tax requirements.
This is followed by challenges building local talent or teams, and adapting supply chains to local market needs.
According to Gartner, the ability to understand and manage local culture is a major challenge for most companies, with talent shortages and retention being significant concerns in the emerging markets.