Emerging Market of China Dr Ping Wang Deputy Director, Public Procurement Research Group University of Nottingham

World Population today 350m people EU 300 m people North America 2.9Bn people Asia 1.3b China 1.1b India 24 m people Australia and New Zealand Over 1 million Engineering Graduates per year

Globalisation across Emerging economies Source Boston Consulting Group

The top 10 most attractive FDI destination China is by far most attractive India is very close to edging out United States … and probably will in near future China and India s attractiveness to investors will remain high for the next 10+ years Where are people investing?

KPMG survey (Jan 2007) KPMG survey (Jan 2007) Four in Ten foreign companies with operations in the China mainland suffered losses due to fraud Only 50% investigated them Only 25% of companies have a supply chain review programme Only 31% conduct due diligence on their suppliers and business partners When dealing with a 3 rd party, either as customer, supplier or JV partner, you are essentially importing their ethics and integrity into your control frameworks

PMMS research into Defect Free delivery PMMS research into Defect Free delivery Direct measurement of over 100 China based suppliers across 2 industry sectors showed that…….. less than 5% of suppliers delivered on time and to agreed quality standards every time over a two year period

Some comments European/NA organisations with sourcing operations in China Some comments European/NA organisations with sourcing operations in China Our China based suppliers are often late Our suppliers dont seem to understand our requirements Our local China office is not able to influence the supplier Quality is fine one shipment but not the next It was ok when we were here but slips when we are back home The supplier does not manage his sub suppliers well We cannot get any attention to our problem at the supplier The supplier cannot meet our volume demands Local IPO Office

Some comments from on-the-ground Sourcing teams in China Some comments from on-the-ground Sourcing teams in China Communications with home office not clear Your English is not English as I was taught in China We cannot get up-to-date drawings Black-Hole syndrome Need more resources in China if we are to assure quality Forecasts are wrong, Suppliers become vary of estimates Supplier defers to westerner in meetings and we lose face Everything urgent, unrealistic time-frames Local IPO Office

Sourcing in China: obstacles Suppliers in some industry sectors in China are very busy with domestic business (eg Utilities). Not interested in business outside of China. Even less interested in audits or questionnaires from potential customers who are just checking the market or who promise but do not deliver. Quality requirements greater outside of China. Sometimes viewed as a hassle Cultural differences Lack of reliability Lack of continuous effort from Western utilities Subsidiary operations of major overseas suppliers which the utilities will already know

Sourcing in China: Advantages –Cost reduction –Chinese government willing to foster internationalisation of Chinese suppliers –Chinese suppliers general interest in gaining business with utilities outside China. –Some suppliers will be keen to pay to participate, seeing this as a marketing opportunity

Changing Legal Environment Foreign Investment Laws Enterprise Income Tax Law Labour Contract Law Anti-Monopoly Law Tendering Law Government Procurement Law

Chinas GPA Accession Background Progress Issues Solutions