Q: How has your firm coped with the decline in exports?
A: Certainly we’ve been affected by the economic downturn, but we see two economies coexisting. One is the domestic economy which has gone without any major impact. We haven’t seen the same major disruption in terms of domestic processes as we have with the export or international trade-related China industries. The local manufacturers are continuing to grow. White goods for example, and obviously there’s massive growth in automotive products. But those with international trade-related operations within China – which is still the world’s production house – whose business is driven by global demand, they have been substantially affected.
Q: Why are white goods increasing?
A: As far as I understand, there have been government incentives to help promote sales, and the beneficiaries of those have been domestic refrigerator and washing machine manufacturers. The march of progress of China to develop economically has continued unabated in this time of global financial turmoil. Our customers who are involved in the China domestic market have benefitted substantially from the government recovery package to stimulate consumer demand within China. The good thing about white goods for domestic distribution is it is a bulky product, so it’s not something you want to ship very far from your point of production. It’s usually manufactured closer to the consumer, so it is a good product for the government to focus on for their stimulus package.
Q: How "green" is your supply chain?
A: We have a global initiative focused on the green supply chain. We see it as a way of changing our whole approach to the way we do business, not just a flash and run process. We have a number of initiatives, upgrading and modifying facilities that use temperature-controlled environments, upgrading the old energy-inefficient plants and equipment with new, less energy-hungry kit, and using substantially more recycled materials so that we aren’t generating unnecessary one-way pallets or disposable shipping devices. We’ve introduced slip sheets, which are basically pieces of cardboard in a forklift device which make it possible to move product without using a pallet, which eliminates the wooden product on international shipments, which causes fumigation and import control problems. It also increases yield-per-container, which in turn lowers the carbon footprint per item shipped.
Q: How expensive are these upgrades?
A: We are now using the next generation in industrial equipment. It’s not necessarily the cheapest capital investment but it’s the best environmentally. In some cases we are retrofitting old facilities, and in a number of cases we made the decision to pay more for equipment to reduce energy consumption, which is a better for the environment. The tipping point is the carbon footprint, but at the end of the day we need to be commercially minded and responsible corporate citizens. We also have a quality-assurance program developed according to the LEAN principles, and we have extensive training and implementation of LEAN across all of our sites. Each LEAN operation is charged with contributing LEAN savings that are part of our green audit, which not only makes it cheaper to run our facilities but also to meet our corporate sustainability targets.
Q: How is CEVA positioned to take advantage of developments in western China?
A: To be blunt, the development of our industry in western parts of China is not enough. The government has led the way; investing in infrastructure development projects that show foresight and long-term plans for the west, which we as an industry have not been able to capitalise on.
Q: What’s the hold-up?
A: Too much going on in too many places at once. For us, it’s a matter of restructuring and reorganising, which we will do in 2010. We are putting resources into western China to take market share and develop logistics opportunities out there. When you look at our competitors, our footprint is smaller than it needs to be. And we see western China as a growth area.
Q: Which provinces are the most likely targets?
A: Sichuan, Chengdu, those are going to develop into the western hub, and our activities will be centred around the transport interchanges there.
Q: How globalised is Chengdu capable of becoming? Doesn’t it have some modal limitations?
A: I think it’s already an international hub. There are direct flights to Europe already. The development of the airport continues to move in the right direction, but the cargo centre still needs some work.
Q: Are the coastal provinces going to lose out if firms expand out west? Is the eastern market saturated?
A: In my opinion, it’s not either/or, it’s both/and. The east is not losing to the west; both are developing. We are seeing many industries pack up and move west seeking lower costs and government incentives. But this is not so much an exodus as a part of normal economic evolution. As these companies move out west, higher-value firms move in and take advantage of more sophisticated opportunities in the east. It’s not a matter of saturation and abandonment, it’s part of a normal evolution of industry moving up the food chain, which pushes firms inland and westward. Is China changing? Of course it is. Has it gone past the point where opportunity is reduced? I don’t think so.