When I was a child, my first memories of so-called “Made in China” products were the cans of Chun King chow mein noodles that my mother would buy at the supermarket. The brand name, printed in Asian brush-stroke yellow, stirred my young imagination: Who was this king named Chun and how did he inspire those crunchy, dried strings of rice?
Fast forward 40 years or so, and I’m walking through the sprawling metropolis of Chongqing, in Southwestern China. It turns out, there’s no king here and the local treat is hot pot instead of shoestring noodles. Yet, until recently Chongqing was unknown to most Westerners. Despite its size—a population of 28 million people—and a thriving industrial sector that historically specialized in motorcycles and car parts, the city labored in the shadow of more famous coastal manufacturing areas along the East Coast of China.
That anonymity vanished in the 10-plus years since China announced its Western Development Program (WDP)—otherwise known as the “Go West” strategy. Aimed at bringing the prosperity of the Shanghai and Guangdong provinces inland, the policy included massive infrastructure investments and economic incentives to lure foreign manufacturers.
Sure, every new manufacturing success creates its own supply chain strategies. But when government officials and the factory ‘big boys’ meet to make their plans, the subject of how to bring component materials to these cities and how to move finished goods back out rarely is the first topic of conversation. This leaves my fellow supply chain colleagues—and myself included—finding ourselves working the docks of Chengdu, Xinjiang, Wuhan, Changsha and Chongqing, searching for answers after the fact.
Location, location, location
There’s a reason that the “Go West” regions account for more than 70 percent of China’s land but only about 20 percent of economic output. They’re inland areas, often remote and with primary access via roadways and rail.
Take Chongqing, for example. It’s located along the Yangtze River but is otherwise landlocked. When I first visited there several years ago, the most popular transportation option was floating goods by barge nearly 1,200 miles to Shanghai. Highways were an alternative, as they traveled through remote areas with no vehicle tracking. The local airport, while it serves as a bustling passenger hub, until 2010 did not have runways long enough to accommodate the largest cargo freighters.
The slow transit times and volume constraints of river barges might not be a concern for muffler and spark plug makers. They also can be less critical with goods destined for Chinese domestic consumption. For instance, PepsiCo just launched a snack plant in the inland city of Wuhan. With low-value goods and a growing base of Chinese consumers, the location serves the food and beverage (F&B) giant well.
In Chongqing, the “Go West” incentives brought the world’s largest electronics manufacturer, Foxconn, to town. With Foxconn came clients such as Hewlett-Packard, Cisco Systems and Epson. Nearby Chengdu is now home to manufacturing lines for AG Siemens, Motorola and Intel. Similar growth is occurring in the aerospace sector, where over-size assemblies often require special equipment for transportation.
Goods such as these call for highly responsive supply chains and custom-designed transportation solutions. In D.W. Morgan’s case, we made local investments in order to offer dedicated trucks with continuous GPS tracking all the way to the ocean ports. That reduced transit times of a week or more to just a few days.
These days, many of the constraints in the larger, “Tier Two” cities—like Chengdu and Chongqing—have been eliminated. After Chongqing lengthened one airport runway and added a second, cargo volume grew tenfold in a year. And while this solved that problem, similar supply chain challenges continue to play in reruns in the newest hotbed of “Go West” activity—the smaller “Tier Three” cities such as Mianyang, about six hours to the northwest of Chongqing. If you haven’t heard of that city yet, you will soon. It has been dubbed the Western Silicon Valley of China, home to a large high-tech industrial zone, prestigious engineering and physics universities.
The specifics of each new inland manufacturing area vary. In Mianyang, there’s a highway under construction to ease transport to the larger hubs of Chongqing and Chengdu. The local airport, like Chongqing circa 2005, isn’t yet wide-body friendly.
While any growing region can run into economic challenges, it is important to weigh all potential factors and market issues and apply the right solutions for proactive supply chains as concerns arise.
Governmental and stability issues—The “Go West” movement is built on a commitment to spend billions on transportation infrastructure and manufacturing subsidies. Some economists say that model is unsustainable, even in a fast-growing economy like China’s—but sooner or later you do run out of billions to spend. In addition, China’s political structure can result in sudden shifts in funding.
Last year, for instance, fortunes changed dramatically for Chongqing after its former party chief Bo Xilai, was implicated in a criminal scandal. After being detained indefinitely, his advocacy on behalf of the city vanished. As a result, commitments that once may have flowed towards Chongqing now are increasingly assigned to alternate sites in the Sichuan region.
Further west, in such provinces as Xinjiang, where Rockwell Automation has manufacturing, ethnic and religious tensions have resulted in protests and violence.
And when politics and social factors don’t present challenges, Mother Nature can overwhelm Chinese response capabilities, as she did in 2008, when an 8.0 magnitude earthquake crippled the Sichuan province. Business continuity plans become critical when transit modes are limited or shippers depend on outsourced, local providers.
Security—China relies on a trucking network of mom-and-pop providers. Unlike North America, where many large, national truckload and less-than-truckload suppliers exist, China’s top 10 trucking companies account for only three percent of volume. With a dynamic and mobile population, it can be virtually impossible to vet individual drivers for criminal history. Whether long-haul routes are via rail, air or water, there’s a critical drayage function that must be controlled. With Customs-Trade Partnership Against Terrorism (C-TPAT) requirements for full control of the chain of custody on all U.S.-destined goods, there is a current gap to be filled. Only by hiring dedicated trucks and specifying standard operating processes and security procedures can manufacturers ensure compliance with the law.
Damage and delay prevention—The same factors that make security a concern can also result in damage, delays and loss of continuous visibility. For products with short lifecycles, high values and rapidly changing demand, those quality defects can mean lost market share and customer dissatisfaction. In other words, for those routing routers through second- and third-tier “Go West” cities, it’s important to sweat the details, gain local knowledge and recognize the additional marginal cost associated with dedicated transportation and security.
If you’re shipping a can of fried, dried noodles, there’s nothing to worry about. Than again, I have a feeling that Chun King goods may have come from a plant somewhere in Ohio.
Grant Opperman is President and Chief Strategy Officer of D.W. Morgan Company, which provides asset-based transportation worldwide with special emphasis on hub locations for outsourced manufacturing and distribution.