focus on china

Richard Erb / 11-2004


Name : Richard ErbEducation : Diploma in Biology minor subject ChemistryAge : 55 years

Business : 2 years software developmentexperience : 14 years sales and marketing 4 years purchasing

Since 1992 in Asia (Singapore, Tokyo, Beijing, Hongkong, Taipei, Suzhou)

Actual position : Managing Director Fujitsu-Siemens Taiwan and China


1. About China

2. Fujitsu-Siemens in Greater China


1. About China 1. About China



Perception and facts

Cultureshock China

China the supplier

China the customer

China the competitor

China the partner


Perception and facts Perception and facts

Cultureshock China

China the supplier

China the customer


China the partner


LargeYellowYellowUnderdeveloped ?


1000 KM

1200 KM

3400 KM

1600 KM

4450 KM




457.000.000 Radios

410.000.000 TV sets

310.450.000 fixed line phones

320.240.000 mobile phones

45.800.000 internet users

170.000.000.000 SMS


Qingdao 7 Mio

Wuhan 7 MioTianjin 9 Mio

Harbin 9 Mio

Beijing 12 MioShanghai 20 Mio (13 Mio central city)

Chengdu 10 Mio

Chongqing 30 Mio (15 Mio central city)


Chongqing 30 Mio (15 Mio central city)

Chengdu 10 Mio


Perception and facts Perception and facts

Cultureshock China

China the supplier

China the customer


China the partner



Cultureshock China Cultureshock China

China the supplier

China the customer


China the partner


400 sounds * 4 tones = 1.600 sounds

56.000 characters / 1.600 sounds =

average 35 meanings per sound

Cultureshock ChinaLanguage


Cultureshock ChinaRelationship

Relationship in China is much more important than in Germany.

People usually know schoolmates from different classes


Cultureshock ChinaFamily Relationship

mother father

mother‘ssister

=aunt

mother‘sbrother

=uncle

father‘ssister

=aunt

father‘sbrother

=uncle

nephew nice

nephew nice

nephew nice

nephew nice

nephew nice nephew nice

nephew nice nephew nice

grandmother grandfather grandmother grandfather

uncle uncleaunt aunt

Germany

me


Cultureshock ChinaFamily Relationship

China

mother father

me

媽媽爸爸

mother‘ssister

=ai yi

阿姨

mother‘sbrother

=jio fu

舅父

father‘syounger brother

=shu shu

biao di biao mei

biao ge biao jie

表哥

表弟

表姊

表妹

father‘solder brother

=buo buo

伯伯

father‘ssister

=gu gu

姑姑叔叔

grandfathergrandmother grandfather grandmother

外婆外公爺爺奶奶

wai po wai gong nai nai yie yie

舅媽jio ma

姨丈yi jang

表妹表弟biao di biao mei

表姊表哥biao ge biao jie

伯母buo mu

嬸嬸shen shen

姑丈gu jang

tang ge

tang di

堂哥

堂弟

堂姐

堂妹

tang jie

tang mei

堂哥

堂弟

堂姐

堂妹

tang ge

tang di

tang jie

tang mei biao di

表哥

表弟

表姊

表妹biao mei

biao ge biao jie


Cultureshock ChinaRelationship

Relationship in China is much more important than in Germany

Each family relation has its own name

People usually know schoolmates from different classes

Business in China is done based on relationshipContracts may support the business, but are not mandatoryBusiness in Europe is done based on contractsRelationship may support the business, but are not mandatory

Mistrust between people without established relationship is not necessarily impolite

No business without lunch or dinner


Cultureshock ChinaBehaviour

Example: Negotiations about future business partnership

In western countries it is not unusual to give a leap of faith to the future business partner.This behaviour is based on the assumption, that the future partner will followthe agreed contractual terms and conditions

In China it is not unusual to start with a lack of trust to the future business partner. This behaviour is based on the fact, that contractual terms and conditionscan not always be enforced

This can lead to a situation, where the western partner shows his trustand the chinese partner shows his mistrust.

The western part is concerned, because the future partner shows openlya lack of trust.The Chinese partner is concerned, because the western partner is sonaïve to trust someone he does not yet know.

Both behave different, however, both are right from their personal point of view

Sleeping in the same bed, but dreaming different dreams


Cultureshock ChinaBehaviour

a “YES” must not necessarily mean “YES”


Cultureshock ChinaBusiness opportunities

Examples for business difficulties based on cultural differences

Karaoke systems in Germany

Tanning salon in China

Advertisement


Why can’t they behave like us ?

Why should they ?

Cultureshock China



Cultureshock China Cultureshock China

China the supplier

China the customer


China the partner



Cultureshock China

China the supplier China the supplier

China the customer


China the partner


China the supplier

The majority was represented by products of the IT industry, clothing (textile as well as leather goods) and household appliances

In 2004, Germany imported products from China at a value of 25 bln Euro (+ 17,3%)

If China does not ship, German shops are empty


China the supplier

Most probably, all of you here in the audience have something which was produced in China


35% of all microwave ovens are produced by Galanz in Shenzen

40% of all harddisc drives, scanners, and PC housing are produced in China (Shanghai, Suzhou, Wujiang, Kunshan, Shunde, Dongguan)

35% of all mobile phones are produced in China

75% of all photocopiers are produced in Dongguan

80% of all PC motherboards are produced in Taiwanese factories in China

80% of all DVD players are produced in China

50% of all shoes are produced in China

55% of all digital cameras are produced in China

70% of all toys are produced in China

70% of all notebooks are produced in Taiwanese factories in China

China the supplier

60% of all bicycles are produced in China



Cultureshock China

China the supplier China the supplier

China the customer


China the partner



Cultureshock China

China the supplier

China the customer China the customer


China the partner


China the customer

In 2004, Germany exported products to China at a value of 18,2 bln Euro (+ 24,9%)

The majority was represented by machinery and complete industrial facilities, specialized technical equipment and cars.


China the customer

~ 100 mio people earn more than 5.000 US$ per year

~ 40 mio people earn more than 25.000 US$ per year

~ 300K people earn more than 1.000.000 US$ per year

Swiss luxury watches 2003:150 mio US$ revenue (+ 15%)

Diamonds 2003:1.5 bln US$ revenue (+ 8 %)

Body care 2003:5.5 bln US$ revenue (+ 25 %)

Tourism to Germany Jan. – Jun. 2004:344.000 people (+ 48 %)average spending per person and day: 200 EuroExpectation for 2010: 1 mio tourists p.a.



Cultureshock China

China the supplier

China the customer China the customer


China the partner



Cultureshock China

China the supplier

China the customer

China the competitor China the competitor

China the partner



China is a major competitor in

- Demand for raw materials

- Demand for investment money

- Supply of cheap labor



Stannous : Price increase from < 4 US$ / kg to 9 US$ / kg within 2 years(Zinn)

Copper : Price increase of 70% within one year (cabling, electronics)(Kupferl)

Lead : Price increase of 65% within one year (car batteries)(Blei)

Nickel : Price increase of 40% within one year (steel coating)

Coke : Price increase of 500% within two years (steel production)(Koks)

Raw material



In 2004, China consumes:

- 50% of worldwide cement production

- 25% of worldwide copper

- 33% of worldwide steel production

Raw material consumption in % of world consumption 2003

China US EU Japan

Coal 31,3 22,3 8,6 4,4Steel 26,0 11,6 16,2 8,5Oil 8,0 25,1 17,6 6,8

In the first 6 months of 2004, the consumption of mineral oil and steel grew by 50%

Raw material


China the competitorRaw material


China the competitorInvestment

FDI CI 2003 *

* (Foreign Direct Investment Confidence Index A.T.Kearney)

2004 2003 2002

1 1 1 China 2 2 2 USA 3 6 15 India 4 7 3 Great Britain 5 5 4 Germany 6 11 5 France 7 19 10 Australia 8 22 18 Hong Kong 9 12 6 Italy 10 15 12 Japan



215209

2362238269

11400

0

50000

100000

150000

200000

250000

2000 2001 2002 2003

Total direct foreign investment to Germany (2000 - 2003 in mio Euro)


11,4

42,4

0

5

10

15

20

25

30

35

40

45

Germany China

Direct foreign investment 2003 (in bln Euro)



0

5

10

15

20

US$

Salary per hour 2004 (US$)

US$ 0,92 1,15 1,68 6,79 15,08

China Turkey Sloveni Mexico Spain

China the competitorLabor cost


0

500

1000

1500

2000

1970 1980 1991 2001 China2003

Germany: annual working hours / employee

China the competitorLabor cost



Cultureshock China

China the supplier

China the customer

China the competitor China the competitor

China the partner



Cultureshock China

China the supplier

China the customer


China the partner China the partner


Partner China

In 1998, a German consortium won the contractto built the first commercially used highspeedmagnetic train from Shanghai Pudong airportto the city.

Part of the deal was the involvement of chinese companies and a reasonable know how transfer

In 2003 we can see the first test train, completeydeveloped and produced in a cooperation ofChinese companies and universities.


Partner China

Power generation equivalent to 14 nuclear power stations or 22 coal-fired power stations.

The Yangtse River Dam Project

Compared to power generation with conventional coal-fired power stations,the Yangtse river power generation saves annually 40 million tons of coal for China

saves annually

2 million tons of sulfur dioxide 100 million tons of carbon dioxide


Partner China

In the early nineties, a German consortium won the contract to built 8 power generators (each 700 MWatt for the Yangtse river project.

Part of the deal was the involvement of chinese companies and a reasonable know how transfer to enable them to built the other 16 generators.

In the late nineties, China was able to offer large power generators to a project in Iran.


What does China need ?

Partner China

- know how in managent and controlling

- know how in marketing

-technical know how in special areas (ex. server computer)


„Germany is China’s largest European investor, between 1990 and 2003 German companies have

done direct investments in an amount of 9 billion Euro”

(German president Koehler in Wirtschaftswoche Special Edition Nr. 1, 30.09.2004)

Investments into our future


0

5

10

15

Direct German investment to China 1990 - 2003

bln. Euro


0

50

100

150

Mrd. US$

Germany

Deutsche Direktinvestitionen in China 1990 - 2003



0

50

100

150

Mrd. US$

Germany

Deutsche Direktinvestitionen in China 1990 - 2003

10,8120

0

500

1000

1500

Mrd. US$

Germany Taiwan

Investitionen

0

20

40

60

80

100

120bln. US$

Deutschland Taiwan

Direct investment to China 1990 - 2003

Population80 Mill

Population20 Mill


10,8 120

1440

0

500

1000

1500

bln. US$

Deutschland Taiwan Aufbau Ost

Investment


?

10,8120

0

500

1000

1500

Mrd. US$

Germany Taiwan

Investitionen


1. About China 1. About China



1. About China

2. Fujitsu-Siemens in Greater China 2. Fujitsu-Siemens in Greater China


EMEA Asia / PacificAmericas

SCENIC

PRIMERGY

PRIMEPOWER

LIFEBOOK

CELSIUS

Deskpower

Millennium GS8000BS2000

FSC Ownership

Fujitsu-Siemens in Greater China

In 1999, Siemens Germany and Fujitsu Japan decidedto join their European it activities.Fujitsu became responsible for Americas and Asia Pacific andFujitsu Siemens Computers took the sales region EMEA.



Purchase Volume per Region

ROA *28%

USA47%

EUR12%

JAP13%

EUR

JAP

ROA

USA

* ROA = Rest of Asia e.g. China / Taiwan, Korea


With the growing importance of China and Taiwan as a supplierof high quality IT products, it became necessary to establishan organization in the region.

In 2001, a purchasing office was established in Taiwan.Until 2004, this office became the hub for 36 employees frompurchasing, engineering, product marketing and service.

In 2004, a logistics office was established in Suzhou.In the future, additional engineering and purchasing staff willbe added to the existing logistics employees.



Major TasksFujitsu-Siemens in Greater China

• Product sourcing

• Supplier selection

• Contract negotiation

• Quality assurance

• Relationship management

• Risc management

provide information about new opportunities and future products

select the best available supplier in terms of total cost of ownership

negotiate and sign master purchase agreement

Establish excellent relationship in order to secure product availability

Qualification and test of products

Manage riscs which may endanger product availability

• Purchasing & Logistics Buy products and ensure on-time delivery

• Joint development Develop products in cooperation with local engineering teams


Joint developmentFujitsu-Siemens in Greater China






• Risc management








• Joint development• Joint development Develop products in cooperation with local engineering teamsDevelop products in cooperation with local engineering teams


PC value chainFujitsu-Siemens in Greater China

1980’s

Development Production Testing & Qualification

LogisticsPurchasing ServiceSales & Marketing



2004



others



1990’s



China: Moving up

the value chain

PC

Blade Server

Intel Server

Unix Server


How to prevent to get caught?


Maintain a technology headstart

Invest in R&D

Find a win-win proposition

Discover your strenght and weaknesses

Team up

If you can‘t beat them, join them !








• Risc management








• Joint development• Joint development Develop products in cooperation with local engineering teamsDevelop products in cooperation with local engineering teams






• Quality assurance• Quality assurance


• Risc management





Qualification and test of productsQualification and test of products




Quality assurance


HP replaces defect notebook memory (27. 06.2004)

Call-back for MSI Pentium-4-boards with defect southbridge (01.07. 2004)

Call-back for batteries of Apple 15´´ PowerBook G4 (19.08 .2004)

Call-back for IBM notebook charger because of fire hazard (03.09 .2004)

Call-back for Dell notebook charger (08.10 .2004)

On 27.02.2004, the company 4MBO declared insolvency Broad media coverage about radiation issues with the Volks-PC sold in Q4 2002 hurt the companies reputation severely

Quality assuranceFujitsu-Siemens in Greater China



Quality is built in !

Therefore, FSC is involved in the design phase of products.

FSC is involved in qualification and testing of all productsto avoid later call backs and customer complaintswhich lead to financial loss and customer dissatisfaction

Foodchain products are often bought off-the-shelve without involvement of the distributor during design.


weekly feedback of field return rates to production


Qualification and testing

- abrasion test for paint and keyboard

- EMI test (radiation test)

- CD and DVD Media tests

- I/O interface test

- safety test (power supply and charger)

- mechanical tests

- drop test for transportation

Source assessment

following international standards

Field return information loop



Quality will still be rememberedwhen the price has been long forgotten

(Aldo Gucci )






• Quality assurance• Quality assurance


• Risc management





Qualification and test of productsQualification and test of products




Quality assurance


Risc managementFujitsu-Siemens in Greater China






• Risc management• Risc management






Manage riscs which may endanger product availabilityManage riscs which may endanger product availability





Together with it´s partners, Fujitsu Siemens Computersdoes a Risc assessment on a regular basis.

Generic steps of risk management:

Identify

Evaluate

Manage

Monitor



Acts of God - earthquakes- weather- epidemics (e.g. chicken flue)

Government induced risks - termination of business / export / import licenses

- regional power shortage / cuts- changes in tax or duty structure

Management induced risk - loss of key personnel- growth management- acquisition

Purchasing & procurement risk - single source parts / suppliers- wrong forecasting / planning

Economic risks - slow down / up turn (resulting in shortage /oversupply)- price erosion (e.g. due to technology changes)- exchange rate

Identified risks which may impact our relationship


Accept

ResidualRisk


Transfer

Reduce

Avoid

Generic risk management measures

OverallRisk








• Risc management• Risc management






Manage riscs which may endanger product availabilityManage riscs which may endanger product availability




機機會會機機

險險Danger Opportunity

Crisis = 危危危危Fujitsu-Siemens in Greater China

Wei ji

Wei xiao Ji hui


Thank you foryour attention

focus on china

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