Enabling SMEs and Developing Economies to Plug Into GVCs: Practice and Thoughts

Transcription

1 2014/SOM2/CTI/DIA3/019 Enabling SMEs and Developing Economies to Plug Into GVCs: Practice and Thoughts Submitted by: Fung Group Public-Private Dialogue on Building Asia Pacific Partnership Through Global Value Chains Collaboration Qingdao, China 12 May 2014

2 Enabling SMEs and Developing Economies to Plug Into GVCs: Practice & Thoughts Gordon Lam 林至颖 Chief Representative & General Manager - Southern China, Fung Group Adjunct Professor, China Renmin University Business School Vice President, Guangdong Society of Commerical Economics Deputy Secretary-General, Guangdong Society of Logistics & Supply Chain Ex-Part-time Member of the Central Policy Unit, Government of the Hong Kong, China May 12, 2014 APEC Public-Private Dialogue, Qingdao, China The 20 th century rise of global supply chains Drivers of Change Supply Chain Innovation Global Market Development Trade Policy Transportation & ICT Technology pre 1940s 50s 60s 70s 80s 90s 2000s post Ford s assembly line beginnings of the Toyota Production System the rise of offshoring & outsourcing US is the world s largest consumer market Japan reindustrialized export-driven rise of the four Asian Tigers China joins the WTO global financial crisis GATT created Special regimes on textiles and clothing, mid 1950s-2005 WTO created automobiles invented commercial air freight shipping containers invented commercial fax machines personal computers commercial mobile phones internet commercialized first smartphones Source: Fung Global Institute 1

3 Over 50% of trade is in intermediate, not final, goods Intra-regional and major inter-regional imports of intermediate goods, 2008 (in billions of US$) Global production sharing is the norm, not the exception World non-fuel merchandise exports by type of good, (in billions of US$) Source: UN Comtrade, WTO estimates Case Study: A suit made in China and sold in the US Cost Breakdown by Economy Manufacturing Costs and Invisible Assets USA 86% Manufacturing CHN JPN 5% 4% 91% 9% HKC KOR 4% 1% Invisible Assets Services (retail, logistics, banking, etc.) Intellectual Property Profits Other Unknowns Source: Fung Global Institute Li & Fung case study 2

4 economies must compete in capturing the value chain Competitive Advantage Value Added education/legal institutions proximity to market low cost labor education/legal institutions proximity to market R&D customer services design marketing parts & components logistics manufacturing & assembly Production Process Source: Fung Global Institute, adaptation of the smiling curve by Stanley Shih Changing patterns of Supply & Demand - Source from Asia - Sell to OECD - Source from Asia - Sell in Asia + OECD 3

5 Paradigm shift since the Financial Crisis 91% The Fung Group Multinational Group based in Hong Kong, China Established in Guangzhou in Group Turnover: Over USD 22 Billion About 300 offices and DCs in more than 40 economies with 41,000 employees and a sourcing network of over 15,000+ suppliers Core competence: Supply Chain Management (SCM) 4 core businesses: Global Sourcing, Logistics, Global Brands Distribution and Retail Harvard, Stanford, Wharton and many Chinese universities have conducted and published multiple academic studies on Li & Fung s SCM, Value Chain Model and Network Orchestration respectively 4

6 The Fung Group has 108 years of history in GVC The Fung Group was founded in Guangzhou, China and is now a global trading group of consumer non-durables, based in Hong Kong, China with supply chain management as its core competence A Canton-based China Trader Exporter based in Hong Kong, China Emergence of a Regional Company Evolution of a Multinational Group Today A Global Supply Chain Group The Li & Fung Supply Chain 5

7 Global and diversified customer base TRADING Global and diversified customer base LOGISTICS 6

8 Global and diversified customer base DISTRIBUTION Manage a loosely coupled GVC network In contrast to the traditional adversial relationship, modern SCM emphases a close, risk- and profit-sharing relationship with business partners A collaborative environment that is flexible and adaptable to the changing customer needs Working with critical entities along the supply chain as a team to eliminate non value-added processes, and leveraging the capabilities of each team member to maximize value Avoid wasting time in matching the right partners, improve product quality, shorten production lead-time and lower costs Follow 30/70 Rule - create loose-tight organizations - becomes the orchestrator of the entire production process - share responsibilities with suppliers 7

9 Network orchestration The Network: Universe of Suppliers Order Fabric Cutting Sewing Packaging Delivery Dispersed manufacturing / Borderless manufacturing USA Austria Crystal France Lining China Design Assembly Italy Leather Japan Zipper India yarn Korea Shell Performing production slicing to identify the best location/ economy to undertake each stage of process, adding value along the way & integrating the entire supply chain 8

10 Soft $3 Orchestrate and discover value along the supply chain Product Design Sourcing Quality Assurance & Vendor Compliance Logistics Distribution/ Wholesale Marketing, Information & Management The cost that is spread throughout the distribution channels $1 $4 the Soft $3 Smiling curve Value Added Value Chain Innovation Product design Product Development Parts Manufacturing Assembly Logistics Marketing Brands 9

11 Vendor support services (VSS) 91% Our Commitments for 2013 Shared commitment to sustainability & CSR 4. Corrective Action Plan 1. Code of Conduct 2. Supplier Guidelines 3. Monitoring Tools 6. Supplier Performance Report 5. Capacity Building Program 10

12 Firms now face risks and uncertainty on a global scale Natural disruptions earthquakes ash clouds flooding State trade policy regulation fiscal policy financial policy Man-made disruptions armed conflict labor unrest Endogenous terrorism commoditisation compliance/ reputation inventory financial Customer dynamics local tastes disposable income levels attitudes toward social/ environmental impact Innovation technology organization business model Source: Fung Global Institute Anticipating the future evolution of supply chains Drivers of change for the 21 st century supply chain: Shifting patterns of supply and demand A continent of new consumers is shopping the global market Low wage jobs are leaving China; who will be next? The changing nature of risk Shocks are transmitted faster and further than ever before Policy change and uncertainty has intensified side effects Natural resource and social infrastructure constraints Population and higher incomes strain scarce resources Social and environmental pressures rearrange priorities Continued innovation Advances in knowledge and business adaptation sustain growth Technologies such as cloud-computing, 3D printing, automation Source: Fung Global Institute 11

13 Enabling SMEs and Developing Economies to Plug Into GVCs: Practice & Thoughts END. THANK YOU Gordon Lam 林至颖 Chief Representative & General Manager - Southern China, Fung Group Adjunct Professor, China Renmin University Business School Vice President, Guangdong Society of Commerical Economics Deputy Secretary-General, Guangdong Society of Logistics & Supply Chain Ex-Part-time Member of the Central Policy Unit, Government of the Hong Kong, China May 12, 2014 APEC Public-Private Dialogue, Qingdao, China 12