China, the world's largest manufacturing base, is in the midst of a major marketplace transformation. Recent discussion about manufacturing restructuring, escalating labor costs due to tighter laws, and rising raw material and energy costs have all raised questions about the new business environment emerging in China. This uncertainty presents a unique opportunity for material handling equipment manufacturers, technology integration providers and 3PLs.

Jim Tompkins, CEO of Tomkins Associates, and Steve Ganster, Senior VP with Technomic Asia (a division of Tompkins Associates), addressed China's changing business climate this morning at the 2008 North American Material Handling Show in Cleveland.

"The smartest move that material handling and related companies can make is to adopt a dual strategy," says Tompkins. "Now, it is all about 'globalization' instead of 'China-fication.'" Tompkins advises companies to develop operations in China that export back to the United States as well as sell to customers within China. "Integrate sourcing from China with product sales in China and make Asia part of your overall global supply chain and customer base," he adds.

This dual strategy also recognizes the growing middle class in China, currently estimated at 100 million. Opportunities for sales and distribution will expand as the middle class continues to grow.

Western companies require "competitive intelligence" in their Asian business strategies in order to be successful, however. "It is a mistake to assume that what works in the United States or Europe will work in China," says Ganster. "People, thought processes, how technology is viewed, and even the different terrain must be considered when establishing China as part of the global supply chain."

Ganster also points out that China's material handling industry has grown aggressively due to continued construction and industrial expansion. "Material handling equipment sales have increased 25-30 percent a year over the last four years," he notes. "And the opening of China's logistics market will provide a huge opportunity for suppliers to the warehouse industry."

On the other hand, the country's level of technology (including WMS) is still in the embryonic stage, with only about 5 percent of warehouses in China reporting that they have sufficient IT systems. "Many Chinese companies are writing their own WMS programs that are not built to international standards, and this will only add to their difficulties in globalizing," Ganster says.

It is predicted that China will move from manual labor to automation at a much greater rate in the next five years. Manufacturers there are seeking new ways to increase productivity while cutting costs, which opens up a sure-fire niche for companies in the material handling industry.

Building a dual strategy and understanding how to compete intelligently will provide an edge for logistics, material handling, and systems integration companies to conquer the changing tides in China.
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