Presented by Judy Huang President

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Presented by Judy HuangPresident CEO889
Global Solutions Ltd.
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Why Consider Sourcing in China?

• To be more competitive!!
• By incorporating sourcing of higher volume or
  difficult margin products to supplement your own
  manufacturing process.
• By taking advantage of the lower labor costs and
  the growing sophistication of Chinese
  manufacturers.

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Chinas Unique Environment 3D

• Legal/regulatory legal infrastructure, body of
  rules, application of rules, enforcement of
  rules, transparency.
• Structural economic entities/behaviors, banking
  systems, post, media, transportation.
• Social/cultural ethics, language, psychology,
  human resources, demographics.

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Why the rapid development of world-class
suppliers in China?

• Abundant, well educated, cheap labor
• Stable, mature government and infrastructure
• Increasing domestic Chinese and world market
  demand
• US Tier One and Tier Two suppliers began to
  follow their
• customers to China and each multinational
  company would
• pull 10 international suppliers to China

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Chinas General Information

• Population 1.3 Billion
• GDP Growth 9.1
• 4th Largest Trader in the World!
• China is expected to have the worlds largest
  economy by 2040!
• Great export performances and rising foreign
  investments forecasts a positive outlook for
  Chinas economy!

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Best candidates for China sourcing

• High labor content
• Require secondary operations such as assembly,
  surface plating and chrome plating
• Low cube/weight
• High volume and quick sellers
• Troublesome profits
• Infrequent engineering changes
• Castings subject to environmental control

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Poor candidates for China sourcing

• Specialized products
• Engineering intense
• Frequent modifications required
• New products
• Low volume products

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Potential pitfalls of sourcing direct

• No relationship, no business.
• Qualityqualityquality becomes an issue when
  communication and mutual understanding of quality
  standards fail.
• Legal recourse and product liability insurance
  issues arise if taking a direct approach.
• Payment and shipping terms

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Special Considerations

• Western managers tend to look at suppliers as
  business partners with common goals and long term
  relationships.
• Many Chinese suppliers are salesmen first and
  tend to over-promise in order to get the
  business.
• Dont be wined and dined into a partnership.
• Get professional help and advice.

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Determinants of Sourcing Fees

• Labor needed to staff the project
• Special technical skills needed for QA work
• Number of sub-suppliers that need to be
  coordinated
• Location of suppliers
• Difficulty of production
• Starting from blue prints or off the shelf?
• Frequency of orders
• Consolidation of shipping location
• Coordination of export and banking documents

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Risk Management Intellectual Property

• Trade secrets and the competitive edge
• Keep the Crown Jewels safe at home
• Separate manufacturing process of the whole
  product into several different manufacturers

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Risk Management Quality Control

• Clearly specify the inspection requirement to the
  supplier.
• On-site inspections and monitoring
• Samples
• Pre-approval of changes
• Set per shipment failure tolerances

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Risk Management -- Currency

• Pressure of currency devaluation has caused
• Increase in raw material cost therefore raising
  cost production costs
• Increase cost in commodity items
• Decrease of trade rebates to Chinese
  manufacturing factories
• Devaluation of currency have taken place of 2
  last year and plan to further devalue in 2006 by
  another 2-5

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Risk Management -- Arbitration

• Choose arbitration over litigation
• Internal arbitration in China subject to nepotism
  and inadequate arbitrators
• Hong Kong Arbitration is well respected and
  likely to be enforced.

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Transportation Infrastructure

• 16 major shipping ports in China
• Capacity of 5 million tons per year
• Combined total national shipping capacity 1400
  million tons.
• Major upgrades to Port of Shanghai
• Shanghai Model Port Alliance drives many of the
  upgrade
• Improvements include
• automate port facility
• minimize loss of goods and transit times
• help Customs collect more accurate tariffs.
• If successful
• program will be repeated in other parts of the
  China.

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• ?? ni hao How are you ?
• ?? zai jian Good-bye .
• ?? xie xie Thank you.
• ?? hao chi Delicious !

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889 Global SolutionsYour China Connection