U.S. companies opportunities in China can’t be ignored

You may decide against having a presence there, but you should at least ask “what if?”

Tom Andel -- Logistics Management, 5/15/2008

CLEVELAND—U.S. companies planning to build their success on domestic markets alone will be gone in five years. That’s Jim Tompkins’ opinion, anyway. As president & CEO of Tompkins Associates, he sees an opportunity for U.S. companies to take advantage of the changing demographics among China’s 1.3 billion people.

“The real Chinese market is the affluent people,” he says. “That’s a little over 100 million. And there are thousands of people becoming affluent every day.”

Companies that are sourcing less than 35% of their materials from China are getting half the profit of companies that source more than 35%, Tompkins believes. He says it’s not just about how many dollars-worth you source but how well.

Tompkins recommends a dual sourcing strategy. The U.S. Chamber of Commerce studied companies with a single strategy versus a dual strategy with China. A single strategy is one that only exports from. A dual strategy exports from and sells to. With that strategy, he maintains, you’ll have a more substantial economy of scale that will not only help you in the Chinese market but will change the competitive landscape globally.

If you sell high-tech labor saving products or services, don’t let that stereotype of cheap, plentiful Chinese labor stop you from considering China as a market. As the density of China increases, so will the need for better space utilization, throughput, and crossdocking. Don’t go there without a carefully crafted strategy, however.

“In 20 years their economy will be as big as the U.S.,” says Steven Ganster, Tompkins’ senior vice president, Asia. “Automotive will be as big or bigger in less time than that. Warehousing and land costs are going up, as are labor costs, and it will push them to more automation.”

Ganster adds that the materials handling market in China is growing 25-30% a year, yet only 5% of the market has a WMS system. That hunger for high-tech solutions will soon explode, Ganster believes.

“We tend to talk about China years as dog years,” he concludes. “One year in China is like seven here. China is not for everybody but almost everybody had better make a proactive decision, even if they end up not pursuing it.” 

Tom Andel is editor-in-chief of Modern Materials Handling, a sister publication of Logistics Management