Getting Ready to Run - On being a contender in the global supply chain
The April 7, 2008, issue of BusinessWeek carried a five-page article on how thousands of manufacturers in China are being pushed to the edge of bankruptcy, the cumulative effect of plummeting U.S. demand for home-related goods linked to the housing-market crisis, a new Chinese labor law that has significantly raised operating costs — in some industries by as much as 40 percent — spiraling wages, soaring commodity and energy prices, Beijing’s cancellation of preferential policies for exporters and the appreciation of the Chinese currency. The Federation of Hong Kong Industries predicts that 10 percent of an estimated 60,000 to 70,000 Hong Kong-run factories in the Pearl River Delta region of southern China will close this year. And the Asia Footwear Association as saying that in the past 12 months, 150 factories making shoes or supplying shoemakers have closed in Dongguan, one of the fastest-growing cities in Guangdong Province in South China.
For local manufacturers and those that flocked to China to take advantage of low-cost production for export markets, the thrill is going. For some, it may have already gone. In the study “China Manufacturing Competitiveness 2007-2008,” conducted by management consultants Booz Allen Hamilton for the American Chamber of Commerce in Shanghai, 54 percent of the companies surveyed believe that China is losing its competitiveness to other low-cost countries. Seventeen percent say they have concrete plans to relocate at least some of their China-based operations to other countries. Cheaper labor and tax benefits have made alternative locations, notably Vietnam and India, more attractive, they say.
Africa does not figure among low-cost manufacturing alternatives to China in the survey. But in view of China’s factory blues, many are eyeing its prospects as a contender in the global supply chain. Both China and India are investing heavily in the continent’s trade-enabling infrastructure, partly, no doubt, to score Brownie points for their own manufacturers who will be looking for alternative sites as costs escalate at home. At the first Africa-India Forum Summit, held in New Delhi in April, Indian officials declared that infrastructure development, information technology, telecommunications and power generation top their country’s agenda for Africa.
Stephen Lande, president of Man-chester Trade Ltd., global business and trade advisers in Washington, D.C., says his firm has long argued that the United States is very close to ceding infrastructure development in Africa to China and India if it does not begin to focus on those areas. “The U.S. has been active on aid for trade, but really has not put up the big bucks necessary for infrastructure development,” he says. The idea is for Washington to invest “meaningfully” in “development corridors,” a reference not only to physical roads and railway lines, but also to the commerce-enhancing services, information technology and communications systems along those routes, he says. “We don’t expect the U.S. to get out and build roads, but to get involved in all the investment that could make the development corridor works and which could lead to manufacturing,” Lande says.
Delivery costs in Africa attributed to challenges in such areas as port operations, surface transportation networks, power supply, information and communication technology, storage, and cargo clearance and handling remain high. That’s an important deterrent to companies wishing to enhance the competitiveness of their global supply chains by sourcing products from the continent or by manufacturing there.
Being a contender in the global supply chain clearly was on the minds of African officials at the New Delhi gathering. “We do not want to be horses any longer on which people will continue to ride,” said Alpha Oumare Konare, head of the Africa Union. “Everyone has to get off our backs. We will run the race like everyone else. We have to be ready to run.”
By Rosalind McLymont