Understanding China's Manufacturing Value Chain
Total Page:16
File Type:pdf, Size:1020Kb
Understanding China’s manufacturing value chain Opportunities for UK enterprises in China Selected case studies in white goods, TFT-Liquid crystal display and pharmaceutical sectors 1 Acknowledgements This study has received funding and support from the British Embassy, Foreign & Commonwealth Office, Science & Technology Unit through its Global Opportunities Fund. The fieldwork and support was crucial for our engagement with policy makers and industry associations. In many cases initial introductions to industry were also facilitated through FCO contacts. Our special thanks go to the FCO staff in Beijing, Shanghai, and Guangzhou and in particular Rapela Zaman, First Secretary, Science and Innovation, British Embassy, Beijing. Thanks also go to the representatives from the following organisations who have provided valuable information and insights on industry drivers and trends: Industry associations, government • Flextronics (EMS) and policy advisors • Fresenius Kabi (Pharma) • Galanz (White Goods) • State-owned Assets Supervision and • Haier (White Goods) Administration (SASAC) • Hengdian Group (Magnets) • General Research Institute for Non-Ferrous • Hon Hai (Electronics) Metals (GRINM) • Huawei (Telecoms) • Development Research Centre of the State • HYT (Telecoms/Electronics) Council (DRC) • Johnson Electrical (Electric motors) • Zhejiang University • Kelong/Hisense (White Goods) • Guangdong University • Lenovo (Computers) • British Embassy, Beijing and Consulate Office, • MetersBonwe (Clothing) Guangzhou • Midea (White Goods) • British Chamber of Commerce • Rolls Royce Int. Ltd (China) • Institute of Industrial Economics • SAE Magnetics (Hard disc drives) • Ministry of Science & Technology (MOST) • Strix Ltd (Components/Home appliances) • Institute of World Economics and Politics • TCL (Consumer electronics) • • Unilever China (Consumer detergents) Industry • Xiangxue Pharmaceutical • Airbus China Ltd • Yi Wu Trade (Consumer goods) • AUO (TFT-LCD) • Youngor (Textiles) • BOE (TFT-LCD) • Yue Yuen (Sports footwear) • ExcelStor (Electronics) • ZTE (Telecoms) Understanding China’s manufacturing value chain Copyright © University of Cambridge Institute for Manufacturing. All rights reserved. First published in Great Britain 2008 by the University of Cambridge Institute for Manufacturing. www.ifm.eng.cam.ac.uk ISBN: 978-1-902546-69-8 No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior permission in writing of the publisher, nor be otherwise circulated in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser. Contents Foreword Executive summary 1 Introduction ...............................................................................................6 Background Regional focus of the study Manufacturing focus Report structure Future work 2 Overview of Chinese manufacturing .........................................................9 Introduction Economic overview Sustained growth over the last 20 years China - the workshop of the world? International trade 3 A value-chain overview of Chinese manufacturing capabilities .............14 Introduction Research and development Design Supply management Production Distribution/route-to-market After-sales services Emerging Chinese manufacturing capabilities Summary 4 Sector review: white goods .......................................................................20 Overview of China’s white goods sector Case study companies visited Value chain highlights Emerging models and future trajectory Potential UK-China complementarities 5 Sector review: TFT- Liquid crystal display ..............................................26 Overview of TFT LCD Case study companies visited Value chain highlights Emerging models and future trajectory Potential UK-China complementarities 6 Sector review: China’s pharmaceutical industry .....................................31 Overview Case study companies visited Value chain highlights Emerging models and future trajectory Potential UK-China complementarities 7 Summary of findings and implications for UK enterprises ....................37 Summary findings Implications for UK companies Future work Further reading ...........................................................................................40 1 Foreword China’s manufacturing capabilities have developed rapidly over recent years and Chinese value chains have become increasingly sophisticated. They present opportunities for overseas companies to engage in China and Chinese companies to move overseas. This study seeks to review the impact of globalisation on Chinese industries from R&D through to production, service and disposal. The project team used a structured approach to review the value chains in a number of key sectors and companies, building on the framework developed for the UK’s recent review of science and innovation published by Lord Sainsbury in 2007. The team was made very welcome in a range of companies allowing new insights into their structure and evolution. For reasons of confidentiality detailed information about individual companies has been generalised but the insights and patterns remain clear. The value chain structure of the report reveals multiple opportunities for engagement by Chinese companies with the global industrial system, as well as providing a way to understand the dynamics of increasingly influential Chinese businesses. The approach has already led to an active network of senior industrialists, policy advisers and academics and we hope that this growing community will be well-placed to understand patterns of global industrial structures through what is likely to be a turbulent period. The team received tremendous support from staff at the FCO Science and Technology Unit and UKTI and greatly valued the opportunity to work in this most dynamic of manufacturing economies. Mike Gregory Head, Cambridge University Institute for Manufacturing 3 Executive summary hina’s dominant position in mass production TFT Liquid crystal display Cis well established. More recently the country The future trajectory of the sector remains uncertain, has been seeking to extract greater benefits from its however initial indications are: manufacturing sector by increasing its involvement in higher-end activities and across all elements of the • Rapid technology evolution is likely to continue manufacturing value chain. These developments present • The next stage of internationalisation may witness value significant opportunities for UK businesses who can offer chain specialisation with technology development complementary capabilities and who are prepared to enter in Japan, mass production by Korean and Taiwanese into partnerships with Chinese firms. companies, many based in China • Chinese firms are focusing on growing their domestic This study of manufacturing in China identifies market to secure a foothold in the sector opportunities for UK and Chinese companies to work • New technologies emerging from the UK may together for mutual benefit. Case studies from three challenge current industry structures with multiple selected sectors identify key characteristics of China’s evolution paths possible; collaboration with current manufacturing value chain, and the opportunities that mass producers is most likely to be based on current may result from further international collaboration. value chain strengths. The study Pharmaceuticals Exploitation of global value networks has seen: The research is based on case studies with selected China-based companies including interviews with senior • UK firms extend their R&D footprints into China (e.g. operations management on the development of their GSK, Astra Zeneca) having already transferred local manufacturing value chains. The analysis has also been generics production informed by discussions with senior Chinese policy • Emerging Chinese firms exploring development makers and academics on trends and future priorities. of R&D links in the UK e.g. Xiangxue’s UK R&D The report presents the case studies within a sector-wide university interactions context to identify broader trends. • The development of the Chinese downstream health care market by German firm Fresenius, using on-shore The case study analysis takes a comprehensive approach, operations covering all parts of the value chain, from R&D and • Export-oriented Chinese contract manufacturing design, through to after-sales service. service providers are now engaging with foreign resources to better equip their manufacturing systems, Regions investigated upgrade R&D capabilities and improve clinical support The report is based on case studies from the Pearl River practice. Delta, Yangtse River Delta and Pan-Bohai regions in 2007, and two investigative field trips to Beijing, Shanghai, Key findings Guangzhou and Chongqing conducted in early 2008. The key findings of this report are: • China is not only focused on low-end mass Industrial sectors market manufacturing but has made serious The study focused on the following sectors: investments in aerospace, shipbuilding, steel, IT and telecommunications White goods • Both government and foreign owned MNCs are now Chinese manufacturers dominate the white goods investing in aerospace, IT and Pharma R&D and sector, operating a mass–production operating model, manufacturing; expertise centres are expected to although few operate internationally using their