|A panel of American lift truck pioneers that planted their stakes in Chinese soil detailed their experience to a gathering of OEMs at the fall meeting of the Industrial Truck Association. The occasion marked a stage in ITA's history in which the association is reaching out to its counterparts in other countries to share best practices and prepare for the day when global standards ease global trade.
If your company is considering a manufacturing or distribution presence in China, consider the lessons learned by pioneers who have braved that Far Eastern frontier. Some are in the lift truck business. Lift trucks are the workhorses of industry, so it seems logical that their manufacturers would be among the first to feel the pull of China.
A panel of American lift truck pioneers that planted their stakes in Chinese soil detailed their experience to a gathering of OEMs at the fall meeting of the Industrial Truck Association. The occasion marked a stage in ITA's history in which the association is reaching out to its counterparts in other countries to share best practices and prepare for the day when global standards ease global trade.
Speakers on the panel included Nicholas R. Lardy, senior fellow at the Institute for International Economics, and former senior fellow in the Foreign Policy Studies Program at the Brookings Institution; Jim Gorzalski, vice president of global procurement, NACCO Materials Handling Group; James Colony, Anderson Power Products; and Su Enyi, managing director of the China Industrial Truck Association.
What makes China so attractive?
Lardy identified long-term benefits and short-term obstacles in China.
"China is likely to be a successful economy over the long term" he predicted. "It is now a market economy with little state allocation of material and products, little state control of prices, an economy with a high savings and investment rate and one that still has enormous additional potential to move people out of agriculture and into services and manufacturing where productivity is higher. It's also an open economy that's deeply integrated into the global economy and subject to the increased competitive pressures that come with that openness. That has driven productivity growth in the economy and that will continue."
In the short term, however, Lardy sees a significant slowdown in the Chinese economy over the next two to four years. Even though growth is rapid, it's also cyclical, and he says the economy is at another of its unsustainable peaks.
A model for success
Gorzalski and his procurement organization have reduced NACCO's supply base by 35 percent, established a supplier quality engineering organization and substantially reduced material cost by leveraging the company's global requirements and procuring from low-cost countries.
NACCO has focused on China to source specific commodities aligned well with local manufacturing expertise.
"These are proven suppliers that serve the likes of Deere and Cat," Gorzalski explained. "We've chosen to set up local warehousing near our plants and we have solid backup plans in place if something were to go wrong."
Those plans are part of a supplier quality manual that tells suppliers what they need to do in terms of processes, change control and getting parts approved. The manual is translated into Chinese and other languages so there's no misinterpretation of these details.
"In an extended supply chain, you need to know at what point you'll own the inventory, what your payment terms will be, that your engineers know which parts are in China and which parts won't change. You also need contingency planning to protect yourself from local politics and acts of God."
Energy shortages, too. As more and more people move into various cities in China, there's higher demand for power. That could be a challenge if you're trying to increase product volumes. Gorzalski says lift truck manufacturers are particularly vulnerable now that demand for their products is on the rise.
"Not only do I have trouble getting raw material," he said, "but volumes have gone through the roof and that's been a real challenge for us in the last six months."
Anderson Power Products, suppliers of battery connectors to lift truck OEMs, decided to establish a regional headquarters and distribution center in Hong Kong, a manufacturing facility in Shenzhen, China, and another DC in Taiwan. Its initial focus in China was brand protection.
"It was getting harder and harder for our OEM customers in Asia to determine if they had a legitimate Anderson connector or not," says Colony. "So we decided to meet this competitive threat by establishing a manufacturing presence in Asia."
Anderson replaced a capital investment in automation with Chinese labor, and established design capabilities there as well.
"Unless we established design and development capabilities in China, we'd lose mindshare among our OEM customers," Colony reasoned.
Keeping up with growth
Su Enyi, managing director of CITA, reported strong growth in China's industrial truck market. He noted that from January through September 2004, 45,793 powered units were sold. Compared with the same period in 2003, this represents a 35.6 percent increase. The forecast for the sale of industrial trucks through the end of this year is for 60,000 units. However, Su indicated that CITA's members will need help finding suppliers to keep up with that growth.
"We introduced Cascade Products to China with the hope of improving product quality," he concluded. "Because many foreign companies entered China and brought with them their modern product knowledge, this helped the industry mature faster. It also allowed customers to have a big variety of products to choose from.
It is the hope of CITA that this meeting [at ITA] will help us learn from each other, exchange experiences and improve component purchasing both domestically and internationally."