China offers lavish incentives to lure foreign investors to its lessdeveloped hinterland. But as some of the takers have discovered, life on the frontier has its perils.
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
"One world, one dream." That's the slogan for the 2008 Summer Olympics in Beijing, an occasion meant to herald China's arrival as a world economic power. But U.S. businesses need no reminder of China's roaring growth or its raging ambition. In the quarter century since the nation opened its economy to the forces of market competition, they've watched China emerge as a powerful force itself, one likely to play a dominant role in the global marketplace for years to come.
In fact, it'salready well on its way. Fueled largely by exports, China's red hot economy has been growing at nearly double-digit rates for the past few years. China's economy is now the fourth largest in the world. And some predict China will surpass Germany, Japan and the United States in the next two to three decades.
At least that looks to be the plan. "China is single-mindedly focused on the future," says author Ted Fishman, a frequent visitor to China. "This is China's golden moment when the future can be seized. As much as the U.S. has capacity constraints at its ports, China is building access, so there is a big mismatch and an expectation that China will continue to crank out an ever increasing amount of goods in the future."
There's no question China has the workforce needed to crank out those goods. With a population of more than 1.3 billion, it boasts a nearly limitless supply of labor, most of it cheap. Over the last 10 years, approximately 150 million residents have migrated from the countryside to China's cities, drawn largely by factory jobs that pay about 75 cents an hour. That mass exodus from the farm shows no sign of slowing, says Fishman. Another 150 million will flood into China's urban areas over the next 10 years, he predicts. That's the equivalent of building a city the size of Philadelphia every month.
But China's allure for foreigners isn't just its cheap labor. Another attraction is its burgeoning consumer market. In the past several years, China has emerged as the world's fastest wealth creator. It's seeing the highest growth in the number of millionaire households in the world. At the same time, the migration from the country to urban areas with higher-paying jobs has resulted in a rapidly rising middle class. Small wonder that U.S. enterprises are scrambling to build manufacturing plants and distribution centers in China.
Go west
One of those enterprises is software giant Oracle. During 2007, it plans to increase its subsidiaries in China from the current five to 26. But Oracle's plan to target China's fastgrowing second- and third-tier cities makes it somewhat unusual among foreign investors. In the past, foreign investment has been largely concentrated in China's coastal provinces, particularly around Shanghai, Shenzhen, Guangzhou, Hong Kong and Beijing.
That has the government worried. To keep the inland provinces from falling too far behind their richer coastal counterparts, China's leaders are moving aggressively to narrow the gap. In 2000, the government launched its trumpeted "Go West" campaign, aimed at enticing foreign enterprises to invest in interior locations like Chengdu and Zhengzhou. To help things along, it's offering rich incentives, like preferential taxes and infrastructure assistance. It's also building high-tech industrial parks and setting up export processing and free trade zones.
It's a strategy that has worked in the past. In 1990, the Chinese government began offering incentives to draw foreign investors to the Pudong region, which it hoped to transform into a financial, economic and trade center. Within a few years, it had lured chipmaker Intel to the area, which is across the Huangpu River from Shanghai. In the mid-1990s, Intel chose Pudong as the site for its first Chinese plant, citing Pudong's free trade zone as a major factor in its decision. The government is now following a similar strategy to promote development in the Binhai region. Located in northeast China near Tianjin Harbor, Binhai is starting to attract manufacturing and logistics operations.
More recently, the government saw another of its highstakes bets pay off. Thanks to its investment in roads and a telecom network, China's government succeeded in drawing Intel even further inside—this time to Chengdu. Located more than 1,000 miles west of Shanghai, Chengdu is China's fourth largest city. Last year, Intel opened a 600,000-square-foot testing and assembly facility near the Shuangliu International Airport in Chengdu's high-tech industrial development zone. Intel says it selected Chengdu because of its strategic location, its educational system and the region's well-trained workforce.
Trouble inside
For allits advantages, Chengdu also has its drawbacks. One of those, as Intel found to its dismay, is its transportation infrastructure.
"This is very much in the hinterlands of China," says Byron Ba, Intel's director of logistics for the Greater China area, which includes Taiwan and Hong Kong. "We knew before we announced our investment here that we may get into some trouble ... because it is so far inland, but we obviously had underestimated the ... problems that we got ourselves into."
One ofthose problems is the inability to land wide-body 747 aircraft at the local airport. That may not sound like a major obstacle, but it presents serious challenges for Intel, which imports the delicate precision equipment used to make semiconductors. The equipment's sensitivity to shock, vibration, and fluctuations in temperature and air quality makes it unsuitable for highway transport, leaving air as the only option. On top of that, Intel's equipment vendors have a contract that voids the warranty on the parts if they're not shipped by air.
"Not having a single wide-body freighter flying into Chengdu is our number one disadvantage," says Ba. "We are working hectically with local government and our freight forwarders to enable a pure freighter in and out of our market. We're cautiously optimistic."
As a temporary measure, Intel is using commercial jets to fly in its equipment. However, Ba suspects that by the middle of next year, Intel will run into a shortage of lift capacity. In addition to its airlift problems, Intel is still working out other transportation and handling problems that have arisen from its location so far inland and the inability to load by pallets. Intel has also found itself embroiled in complex customs negotiations. Those problems have been exacerbated by the fact that a growing number of Intel's parts are no longer exported out of China, but are being consumed within the country.
For these and other reasons, Fishman advises companies making their initial foray into China to start with one of the developed regions. "It's hard enough to manage when an operation is in one of China's most accommodating cities," he says, "but it becomes [that much] tougher when you locate people further and further away from the East."
Based on his experiences in Chengdu, Ba adds this advice: "Bring a strong team with you that can handle the customs and supply chain issues." Still, for all the challenges, Ba says he doesn't regret Intel's decision to build a plant deep in China's interior. "There can be some very painful issues," he admits,"but these are not showstoppers."
Berlin's Wall comes down; DC walls go up
Landing the Olympics, as Beijing has for 2008, is always a coup. But hosting the biennial games isn't the only way to raise a city's profile. The city of Leipzig, Germany, received a similar boost by serving as a host city for this summer's World Cup. Through broadcasts of the matches, millions of viewers around the world were exposed to Leipzig, located in the former East Germany. Also known as Heldenstadt, or the City of Heroes, Leipzig was the rallying point for the revolt against the Communist dictatorship in East Germany that culminated in the collapse of the Berlin Wall in 1989.
But the city isn't just attracting sporting fans. Thanks to its central location, Leipzig is starting to become something of a distribution hub. Online retailer Amazon, for example, opened a 750,000-square-foot facility in Leipzig this fall. Amazon, which expects to employ 400 workers at the DC, cited the city's central location within Europe and the quality of its workforce as factors in its decision.
Leipzig isn't alone. Other parts of Eastern and Central Europe are also experiencing a boom in DC growth. The main draw, of course, is their central location, which gives companies easy access to markets throughout Europe. But there are other factors as well: recent infrastructure improvements, inexpensive land, low labor costs and a population whose spending power is rapidly catching up with that of their neighbors to the West.
Right now, Poland, Hungary and the Czech Republic are the fastest-growing regions. But Bulgaria and Romania, which will join the European Union in two years, aren't far behind.
A developer familiar with the market urges companies to get in early. "Romania has a big upside ahead of it," says Reginald Neirynck, country manager for the USA at Eurinpro, a developer that specializes in logistics real estate. "If you are there early in the game, you will be able to benefit from a big upside on your investment."
Autonomous forklift maker Cyngn is deploying its DriveMod Tugger model at COATS Company, the largest full-line wheel service equipment manufacturer in North America, the companies said today.
By delivering the self-driving tuggers to COATS’ 150,000+ square foot manufacturing facility in La Vergne, Tennessee, Cyngn said it would enable COATS to enhance efficiency by automating the delivery of wheel service components from its production lines.
“Cyngn’s self-driving tugger was the perfect solution to support our strategy of advancing automation and incorporating scalable technology seamlessly into our operations,” Steve Bergmeyer, Continuous Improvement and Quality Manager at COATS, said in a release. “With its high load capacity, we can concentrate on increasing our ability to manage heavier components and bulk orders, driving greater efficiency, reducing costs, and accelerating delivery timelines.”
Terms of the deal were not disclosed, but it follows another deployment of DriveMod Tuggers with electric automaker Rivian earlier this year.
Manufacturing and logistics workers are raising a red flag over workplace quality issues according to industry research released this week.
A comparative study of more than 4,000 workers from the United States, the United Kingdom, and Australia found that manufacturing and logistics workers say they have seen colleagues reduce the quality of their work and not follow processes in the workplace over the past year, with rates exceeding the overall average by 11% and 8%, respectively.
The study—the Resilience Nation report—was commissioned by UK-based regulatory and compliance software company Ideagen, and it polled workers in industries such as energy, aviation, healthcare, and financial services. The results “explore the major threats and macroeconomic factors affecting people today, providing perspectives on resilience across global landscapes,” according to the authors.
According to the study, 41% of manufacturing and logistics workers said they’d witnessed their peers hiding mistakes, and 45% said they’ve observed coworkers cutting corners due to apathy—9% above the average. The results also showed that workers are seeing colleagues take safety risks: More than a third of respondents said they’ve seen people putting themselves in physical danger at work.
The authors said growing pressure inside and outside of the workplace are to blame for the lack of diligence and resiliency on the job. Internally, workers say they are under pressure to deliver more despite reduced capacity. Among the external pressures, respondents cited the rising cost of living as the biggest problem (39%), closely followed by inflation rates, supply chain challenges, and energy prices.
“People are being asked to deliver more at work when their resilience is being challenged by economic and political headwinds,” Ideagen’s CEO Ben Dorks said in a statement announcing the findings. “Ultimately, this is having a determinantal impact on business productivity, workplace health and safety, and the quality of work produced, as well as further reducing the resilience of the nation at large.”
Respondents said they believe technology will eventually alleviate some of the stress occurring in manufacturing and logistics, however.
“People are optimistic that emerging tech and AI will ultimately lighten the load, but they’re not yet feeling the benefits,” Dorks added. “It’s a gap that now, more than ever, business leaders must look to close and support their workforce to ensure their staff remain safe and compliance needs are met across the business.”
The “2024 Year in Review” report lists the various transportation delays, freight volume restrictions, and infrastructure repair costs of a long string of events. Those disruptions include labor strikes at Canadian ports and postal sites, the U.S. East and Gulf coast port strike; hurricanes Helene, Francine, and Milton; the Francis Scott key Bridge collapse in Baltimore Harbor; the CrowdStrike cyber attack; and Red Sea missile attacks on passing cargo ships.
“While 2024 was characterized by frequent and overlapping disruptions that exposed many supply chain vulnerabilities, it was also a year of resilience,” the Project44 report said. “From labor strikes and natural disasters to geopolitical tensions, each event served as a critical learning opportunity, underscoring the necessity for robust contingency planning, effective labor relations, and durable infrastructure. As supply chains continue to evolve, the lessons learned this past year highlight the increased importance of proactive measures and collaborative efforts. These strategies are essential to fostering stability and adaptability in a world where unpredictability is becoming the norm.”
In addition to tallying the supply chain impact of those events, the report also made four broad predictions for trends in 2025 that may affect logistics operations. In Project44’s analysis, they include:
More technology and automation will be introduced into supply chains, particularly ports. This will help make operations more efficient but also increase the risk of cybersecurity attacks and service interruptions due to glitches and bugs. This could also add tensions among the labor pool and unions, who do not want jobs to be replaced with automation.
The new administration in the United States introduces a lot of uncertainty, with talks of major tariffs for numerous countries as well as talks of US freight getting preferential treatment through the Panama Canal. If these things do come to fruition, expect to see shifts in global trade patterns and sourcing.
Natural disasters will continue to become more frequent and more severe, as exhibited by the wildfires in Los Angeles and the winter storms throughout the southern states in the U.S. As a result, expect companies to invest more heavily in sustainability to mitigate climate change.
The peace treaty announced on Wednesday between Isael and Hamas in the Middle East could support increased freight volumes returning to the Suez Canal as political crisis in the area are resolved.
The French transportation visibility provider Shippeo today said it has raised $30 million in financial backing, saying the money will support its accelerated expansion across North America and APAC, while driving enhancements to its “Real-Time Transportation Visibility Platform” product.
The funding round was led by Woven Capital, Toyota’s growth fund, with participation from existing investors: Battery Ventures, Partech, NGP Capital, Bpifrance Digital Venture, LFX Venture Partners, Shift4Good and Yamaha Motor Ventures. With this round, Shippeo’s total funding exceeds $140 million.
Shippeo says it offers real-time shipment tracking across all transport modes, helping companies create sustainable, resilient supply chains. Its platform enables users to reduce logistics-related carbon emissions by making informed trade-offs between modes and carriers based on carbon footprint data.
"Global supply chains are facing unprecedented complexity, and real-time transport visibility is essential for building resilience” Prashant Bothra, Principal at Woven Capital, who is joining the Shippeo board, said in a release. “Shippeo’s platform empowers businesses to proactively address disruptions by transforming fragmented operations into streamlined, data-driven processes across all transport modes, offering precise tracking and predictive ETAs at scale—capabilities that would be resource-intensive to develop in-house. We are excited to support Shippeo’s journey to accelerate digitization while enhancing cost efficiency, planning accuracy, and customer experience across the supply chain.”
Donald Trump has been clear that he plans to hit the ground running after his inauguration on January 20, launching ambitious plans that could have significant repercussions for global supply chains.
As Mark Baxa, CSCMP president and CEO, says in the executive forward to the white paper, the incoming Trump Administration and a majority Republican congress are “poised to reshape trade policies, regulatory frameworks, and the very fabric of how we approach global commerce.”
The paper is written by import/export expert Thomas Cook, managing director for Blue Tiger International, a U.S.-based supply chain management consulting company that focuses on international trade. Cook is the former CEO of American River International in New York and Apex Global Logistics Supply Chain Operation in Los Angeles and has written 19 books on global trade.
In the paper, Cook, of course, takes a close look at tariff implications and new trade deals, emphasizing that Trump will seek revisions that will favor U.S. businesses and encourage manufacturing to return to the U.S. The paper, however, also looks beyond global trade to addresses topics such as Trump’s tougher stance on immigration and the possibility of mass deportations, greater support of Israel in the Middle East, proposals for increased energy production and mining, and intent to end the war in the Ukraine.
In general, Cook believes that many of the administration’s new policies will be beneficial to the overall economy. He does warn, however, that some policies will be disruptive and add risk and cost to global supply chains.
In light of those risks and possible disruptions, Cook’s paper offers 14 recommendations. Some of which include:
Create a team responsible for studying the changes Trump will introduce when he takes office;
Attend trade shows and make connections with vendors, suppliers, and service providers who can help you navigate those changes;
Consider becoming C-TPAT (Customs-Trade Partnership Against Terrorism) certified to help mitigate potential import/export issues;
Adopt a risk management mindset and shift from focusing on lowest cost to best value for your spend;
Increase collaboration with internal and external partners;
Expect warehousing costs to rise in the short term as companies look to bring in foreign-made goods ahead of tariffs;
Expect greater scrutiny from U.S. Customs and Border Patrol of origin statements for imports in recognition of attempts by some Chinese manufacturers to evade U.S. import policies;
Reduce dependency on China for sourcing; and
Consider manufacturing and/or sourcing in the United States.
Cook advises readers to expect a loosening up of regulations and a reduction in government under Trump. He warns that while some world leaders will look to work with Trump, others will take more of a defiant stance. As a result, companies should expect to see retaliatory tariffs and duties on exports.
Cook concludes by offering advice to the incoming administration, including being sensitive to the effect retaliatory tariffs can have on American exports, working on federal debt reduction, and considering promoting free trade zones. He also proposes an ambitious water works program through the Army Corps of Engineers.