Sourcing in China

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Sourcing in China

• Pitfalls to Profits
• A Presentation for
• AAPEX 2005
• October 31, 2005

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INTRODUCTION TO CHINA AUTO GROUP
Who Are We? What Are We?

• Not a Trading Company
• Not a Manufacturers Rep
• Not a Purchasing Agent
• Not a Contract Manufacturer
• The Best of All The Above

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WHY SHOULD YOU BE IN CHINA?

• Constant Cost and Margin Pressure
• Pre-Emptive Positioning
• Competitive Response
• AND
• Exposure to the Worlds Future Largest Market

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MY COMPANY IS ALREADY IN CHINA
ARE YOU REALLY?

• Do you have a Statement by Senior Management
  Establishing your Goals and Objectives in China?
• Are these Goals Written and Date Specific?
• Do you have an identified CHINA TEAM which
  includes Senior Engineering, Purchasing and
  Financial Staff?
• Does this Team really have Time and Budget to
  Impact the Bottom Line?
• Does the Team Formally Report to Senior
  Management?
• Can you Identify China Based Cost Savings that
  Exceed 10 of your Total Company Gross Margin?
• If you answered NO to ANY of the above, you are
  NOT REALLY in China

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SURE, WE WOULD BE IN CHINA BUT THERE IS NOTHING
WE COULD DO THERE

• Typical Excuses for not having a China
  Initiative
• Were 100 In House Manufacturing
• We Cant Deal with the Long Lead-times
• We Cant Handle the Logistics
• Were Already the Worlds Lowest Cost Supplier
• Were Making Plenty of Money Now, Why Change?

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OK. LETS LOOK AT SOME NOT SO CONVENTIONAL CASE
STUDIES
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TIER 1 OE MIRROR SUPPLIER
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MAJOR MANUFACTURER OF AFTERMARKET PERFORMANCE
PRODUCTS FOR DIESEL ENGINES
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TIER 1 OE AC HOSE SUPPLIER
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OTHER EXAMPLES

• Limited Tooling Budget
• New Product Introduction
• End of Life/Mature Products
• Maximize Manufacturing Sweet Spot
• Line Extension and Completion
• Value Line Options
• Low Volume, Custom Projects
• Non-Traditional Products, Opportunity Projects

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SO, LETS AGREE, YOU SHOULD BE IN CHINA, WHATS
STOPPING YOU?

• 5,000 miles, 13 Hour Flight from LA
• 12 Hours Time Difference
• A Small Language Barrier
• Metric World
• ASTM and SAE Material Specs vs. China Material
  Standards
• ISO Process Compatibility and Documentation
• Factory Certification
• RFQ Preparation in Chinese
• Factory Inspection
• Financial Transactions, Risks and Currency Issues
• Export and Import Licensing, Logistics
• Packaging and Labeling
• AND WHAT HAPPENS WHEN THE STUFF GETS HERE AND
  ITS NO GOOD?

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THATS JUST THE TIP OF ICEBERGOTHER ISSUES IN
CHINA

• When a Contracts Not a Contract and a Deals
  Not a Deal
• The Hierarchy of Obligation
• Confidentiality and Intellectual Rights
  Protection
• Commissions and Agent (and Local Employee)
  Motives

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OK, WHAT ARE MY OPTIONS?

• Set Up a Wholly Owned Venture in China
• Establish a Joint Venture Partnership
• Set Up a Buying Office
• Hire a Trading Company
• DIY From the USA
• Team Up with a Bi-Cultural Sourcing Partner

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IN SUMMARY

• Trot Before You Run
• Commit and Focus
• Understand Your Limitations
• Set Financial and Date Specific Goals
• Measure Progress Frequently
• Succeed By the Best and Most Expeditious Means
  Possible

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OF COURSE, WE WOULD BE HAPPY TO HELP!

• For a copy of this presentation go to our Website
  at www.chinautogroup.com