This month SmartProcurement publishes the second article in a series considering China’s warehousing options, as presented in a report by C.H. Robinson Worldwide. This month considers the challenges of warehousing in the world’s second largest economy.
Challenges to consider
While the benefits of a warehouse solution in China make it a viable opportunity
for many organisations, it is important to weigh them against the potential
challenges, says the report.
1) Lack of technology solutions. “Many warehouse providers in China hesitate to invest in costly IT platforms because they operate on a build-to-order basis. While most welcome customer-owned platforms and take steps to install and utilize them, some only offer simplistic platforms. This can severely limit the organisation’s visibility to its supply chain, which is essential to successfully managing overseas operations.”
2) Limited commodity expertise. “Some local warehouse providers are only experienced in handling specific commodity types, such as electronics, garments, and housewares. As a result, they may lack experience in working with a wide variety of industry verticals.”
3) Longer lead times. “Warehousing overseas requires extra lead time. For example, pulling from North American inventory may only require a few days of lead time, but pulling from inventory in China could require a week or more of lead time. This can be a difficult adjustment for many companies and create delivery delays for their end customers.”
4) Local customs relationships. If an organisation has strong local relationships with specific Chinese customs officials, they may opt to maintain those relationships instead of moving locations or pursuing a new warehouse solution for their export customs clearance.
5) Increased inventory costs. Depending on terms of sale, there is the potential that end customers will end up carrying inventory for longer periods of time, which could lead to excess costs.
6) Ownership of inventory stored overseas. Organisations that own inventory and store it overseas can be exposed to income taxes in the country where their inventory is stored. In addition, organisations may be exposed to other taxes, such as customs duties or value added tax (VAT). Before storing inventory overseas, companies should speak with their tax advisors to discuss potential risks and consequences.
Furthermore, “while deal-makers understand that execution takes longer in China, many still underestimate the time it takes to close a transaction. Access to information in China may be restricted or difficult to obtain, and financial and tax records may lack transparency. There may be a need to focus more on operational due diligence as opposed to traditional financial due diligence,” noted a Grant Thornton LLP study Is China in Your Future?
