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360° China

By: Jeb Gleason-Allured, Editor
Posted: March 17, 2009, from the March 2009 issue of P&F magazine.

In a telling introduction to Women in Flavor and Fragrance Commerce’s “360° China” event, Joan Huang (US Smokeless Tobacco) remarked that during her childhood in China the only orange drink she had access to was Tang, which at the time seemed “so sophisticated.” Despite this humble past, according to World Luxury Association estimates cited by Mei Xu (Chesapeake Bay Candle), China’s luxury goods market is expected to eclipse those of the United States and Japan by 2025. This remarkable evolution was the focus of the day’s expert presentations.

Quality and Competitive Challenges

The event coincided with the 30th anniversary of reforms that rapidly brought China from Soviet-style stagnation to world economic power. Matthew Rouse (Tohzen Distribution China) noted, however, that there have been growing pains. There are players coming into the supply chain from myriad directions, he explained, many with no accountability and all with a cost-saving mantra. Facing pressures from the West to freeze or even cut costs, fraud and corner-cutting is common in China. “Anticipating desperation and malicious fraud have to be part of your quality and assurance processes,” Rouse said. On the upside, he added, there was growing visible management engagement in QC, QA and supply chain.

China, Rouse noted, is exceedingly energy ineffi - cient; raw material and labor costs are rising. He added that managerial talent is a big problem for Chinese companies crossing into new markets and that international competition would likely come from the purchase of an existing company. At the same time, the country’s GDP is slowing along with the rest of the world’s, though it is somewhat protected by cash reserves. Finally, Rouse explained that China’s reputation as an exporter often obscures the fact that it does a tremendous amount of sourcing. Essentially, he said, the country is “an enormous assembly plant.” In this role, Rouse noted, China’s relationship and trade with the United States is not quite as important to that equation as typically thought.

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