Sustainability and Chinese Suppliers: Not Everyone is Dumping Dead Pigs in the River

by Julian Righetti on April 16,2013 in China Trade , Uncategorized ,

Sustainability and Chinese Suppliers: We visited a manufacturer in Shanghai recently. The most impressive part about their raw material sourcing strategy was how they obtained the resin for production. While many Chinese suppliers consider cost more important than sustainability, this Shanghai manufacturer actually

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devised a supply chain strategy to reduce their raw material costs while also promoting sustainability in the United States. Do Chinese suppliers care about sustainability?

Fox News Did a Story about the Chinese Supplier’s Supply Chain Operation

Sustainability and Chinese Suppliers: Extracting Greater Value Through Sustainable Raw Material Sourcing

This Chinese supplier finances EPS (extended polystyrene) compression equipment in the United States for small business owners. Next, the supplier sets up purchasing agreements with those small business owners. Because used EPS (Styrofoam) is often thrown out as garbage in the United States, recycling collection points need to only identify large users and setup up collection agreements (Home Depot, Walmart, etc.). Next, this Chinese supplier purchases the EPS and ships it to China. Because bulk shipping TO China is much cheaper than FROM China (empty containers go back to China from USA), the costs to ship the used EPS and use it as a raw material in the Chinese supplier’s manufacturing facility is cheaper than buying locally in China. Moreover, they have a consistent and controlled

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raw material supply source. Pretty cool!

The EPS is often used as packaging for raw fish, food, and other products.

Learn more about EPS recycling: http://epsrecycling.org/

Not everyone cares though….

The following day, we visited a small factory that had a fire burning right outside their production center. When we asked if anything was wrong, the factory manager told us that the factory real estate manager just burned all the trash from the factory or dumped it in the neighboring empty lot rather than paying the trash collection fee. The fire burned 24 hours a day and was only a few meters from the work site……

Sustainability and Chinese Suppliers

This story validates a number of observations I have had about China, sustainability, and Chinese suppliers:

  • Sustainability can be financially smart and environmentally beneficial.
  • Far more value is unlocked when American or Australian importers look for Win-Win or Cooperative supply chain agreements with their Chinese suppliers than when importers view their suppliers as adversaries.
  • Tremendous opportunities exist between China and North/South America and Australia. Companies that can recognize and devise strategies to unlock these opportunities will win in the long-term.
  • There are great Chinese companies just like there are great Australian companies or American companies. There are also terrible Chinese companies just like there are terrible Australian or American companies. Many people give lip service to sustainability, but few devise successful strategies on how to implement more “green” supply chains.
Sustainability and Chinese Suppliers: Do Chinese Suppliers Care About Sustainability?

After we visited these suppliers, I had several discussions with some clients about sustainability and Chinese suppliers. Clearly, pollution from factories is a major problem in China. While we were in Shanghai, we read reports about Beijing air quality and saw stories about dead pigs in Shanghai. (http://www.cbc.ca/news/world/story/2013/03/10/wrd-china-shanghai-river-dead-pigs.html). Clearly, environmental safety is not a major priority for many companies in China.

 

Pork is very cheap in Shanghai now….

From those discussions, our client asked me:

  • Should Chinese factories be held more responsible for environmental problems in China?
  • Should China overall do more to reduce global warming including developing more environmentally sustainable energy sources?
  • Do Chinese suppliers not care about environmental problems?

My responses were:

  • I think China and many Chinese suppliers are very concerned about environmental issues. Ask the average factory worker or executive about baby milk in China and they will launch into a discussion about ethical manufacturing and stringent quality control.
  • Many suppliers are too small or ignorant of environmental problems to make changes. Some do not care. However, I think other suppliers would say that it is extremely difficult to shut down a coal plant if the cost of energy is so much cheaper than the cost of energy from a solar power plant. Many Chinese small and mid-sized factories already have extremely tight margins. If energy costs increase or transportation costs increase, they can quickly go out of business.
  • Particularly when so many people live on a small paycheck, any increases in the cost of energy or manufacturing can force hundreds of suppliers out of business. If people are living off $1 USD a day, can or should they commit $0.20 to go green?

I think it is a difficult problem to solve, but what do you think? How important is sustainability for your sourcing strategy? Is it something that most importers give lip service to but actually place less importance on compared with pricing? Would you import from a Chinese supplier that had 10% higher prices, but a more environmentally conscious sourcing strategy or production facility?

Hammersourcing.com is a trade services business based in Shenzhen, China. You can reach us at import@hammersourcing.com

 

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