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.