Case Studies

Featured Case

Servicing China/Asia from Multiple Manufacturing Sites

Key Takeaway:
Attempting to utilize a single facility in Asia to supply multiple countries can prove problematic due to non-tariffs barriers such as lead times to markets, tax rebates, and access to both domestic and international markets.

A major Multinational Company (MNC) was attempting to deliver water pumps assembled in China with imported components to markets in Asia outside of China (Thailand, Indonesia, Philippines, Vietnam, Cambodia, and Myanmar). As a complication, the assembly operation in China was inland, thus making it difficult to expedite exports. It required 7 days to ship on the Yangtze River just to reach the port of Shanghai to then be prepared for ocean shipping. The other complication was importing components into China and matching them up with local components was efficient for consumption in China but more problematic for export.

The challenge was exporting these pumps was very bureaucratic as it related to matching up all imported documents/ paperwork with local components in which VAT was paid, then working with Chinese authorities to draw back the VAT paid on the local sourced components when exported. In addition, freight cost was prohibitive from China to several South East Asian ports.

East West Associates (EWA) personnel were tasked to perform an analysis of alternative methods to assemble the pumps in China or outside of China to sell domestically and to reach export markets. Since the pump market was highly competitive and margins very slim, the supply chain analysis was critical.
  • EWA analyzed moving the assembly to a duty free zone in China
  • Analyzed moving the pump operation into another one of U.S. MNC’s China facilities without disrupting the efficiency of the sister facility
  • Looked at splitting up the pump assembly operation into 2 facilities
EWA personnel were able to quickly analyze options 1 and 2. Moving to a duty free zone was some help as to drawing back VAT it still required to be in a high cost zone and did not help with the cost of moving the pumps to South East Asia.

Option 2 was not pursued; as the Plant Managers were not supportive of disrupting their operations to focus on a small pump assembly operation, which did not really help spread their overhead.

This left to analyze developing a pump assembly operation in South East Asia.

EWA surveyed the major free trade zones in Singapore, Thailand, Philippines, and Hong Kong.

The screen to review each zone was (1) operating zone cost, (2) ease of moving products into and out of zone for both export and domestic consumption, (3) shipping cost to major markets from each zone and (4) labor cost within zone.

After analyzing duty free zones in Asia, Subic Bay in the Philippines was selected.

The Subic Bay location offered the lowest operating cost within the zone as compared to the others and the lowest logistic cost to pack, warehouse and ship to all the Asian markets. In addition, the labor cost and subsequently product cost were the lowest in the Subic Bay Industrial zone. EWA personnel identified component suppliers in Philippines to then match up with the imported engines into the duty free zone. This allowed complete assembly of water pumps in the Philippines with only one imported component, ease of movement in and out of the duty free zone and a location near all markets in Asia. It also allowed for the Manufacturer to benefit from the duty free advantages of new ASEAN agreements to all ASEAN markets.

Market Strategy & Competitive Research

Western client needed critical competitive data on the China market in order to evaluate multiple Market Entry Strategies. East West Associates (EWA) conducted the Market Research on-the-ground in China and evaluated the data with the Company to determine which strategy best met its Financial, Strategic and Operational objectives.

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