The Hong Kong alternative
Journal of Commerce
Monday, June 27, 2005
By: ALAN M. FIELD
V-Logic featured in Journal of Commerce
When a U.S. manufacturer that sources restaurant equipment in China decided to set up a distribution center for China and Southeast Asia in 2002, the Shanghai Free Trade Zone seemed the perfect choice. Many of its customers were nearby in China's Yangtze River Delta. For the minority located elsewhere in Asia, the Port of Shanghai offered efficient delivery service.
Yet so many things went wrong in Shanghai that the U.S. manufacturer ultimately relocated its distribution center to Hong Kong. Getting its products in and out of the Shanghai Free Trade Zone, and distributed within China was no problem, said Peter Levesque, chief executive of V-Logic, the Hong Kong-based third-party logistics provider that set up that distribution center.
"But it became so hard to do the simple things to make sure that the products got to where they needed to be outside China," said Levesque, former managing director of APL Logistics in Hong Kong.
China's unique system of harmonized customs codes was part of the problem. "The harmonized system in China is not necessarily the same as in other countries," Levesque said. To overcome that barrier, V-Logic created a software tool that converted global harmonized codes into Chinese codes for employees who handled trade documents.
Another headache was China customs' language requirements. Whenever products were shipped in and out of the Shanghai Free Trade Zone to customers in Malaysia, Thailand and elsewhere, the accompanying paperwork had to be translated into Chinese.
These days, things are working much more smoothly now that the manufacturer uses Hong Kong as its distribution hub for China and the Asia-Pacific region. Hong Kong provides all the advantages of the Shanghai Free Trade Zone, but none of its disadvantages, Levesque said.
Like the Shanghai FTZ, Hong Kong also functions as a free-trade zone, but there are no language or regulation barriers to overcome in Hong Kong. Unlike China customs, Hong Kong customs is transparent and efficient. Hong Kong uses global harmonized codes, which simplifies documentation.
"Even though Shanghai was closer to the manufacturer's customers in central China, Hong Kong is working out better for those customers," Levesque said.
Hong Kong also has proved to be an ideal base for V-Logic, a 5-year-old, privately funded company that provides such services as vendor management, online inventory management, order fulfillment and product return. V-Logic's customers in the region include Yum Brands, Intel, Johnson & Johnson, McDonald's and Warner Home Video. Fueling V-Logic's growth is the trend for more multinationals to distribute China-sourced products throughout the Asia-Pacific region. Many of those firms are also learning that it makes little sense to transport those products all the way across the Pacific to their U.S. distribution center for consolidation and re-export to Asia-Pacific markets.
For those sorts of shipments, Levesque said, setting up a Hong Kong distribution center for the entire Asia-Pacific region not only can shorten a multinational's supply-chain region, but eliminate related U.S. warehousing and handling costs, and U.S. customs and clearance fees on these shipments.
"Some people think that you have to be in China to distribute in China," Levesque said. "A lot of people don't realize what you can do in Hong Kong. We have a lot of different customers who distribute different products. Hong Kong is the one location that they can all use no matter what their product is, or where they want to ship it to. To do what we are doing here in China, we would need several kinds of licenses" in China for categories of logistics services.
Despite his customer's unpleasant experience in the Shanghai Free Trade Zone, Levesque said things should get easier for foreign 3PLs in China, as the government further relaxes regulations and local service providers upgrade their skills and technology. Demand for logistics service will be booming in China, and not every company will need to set up shop in Hong Kong. For those sorts of customers, Levesque plans to open V-Logic's first office in China later this year - in Shanghai.
