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Daniel M. Krassenstein Procon Pacific Director Asia Operations (Shanghai)

Daniel M. Krassenstein Procon Pacific Director Asia Operations (Shanghai) 30 Years Global Supply Chain AmCham Shanghai Board (past) Mandarin & Spanish fluency Adjunct Professor (UCLA + Dayton). USC Marshall School of Business Master of Science Global Supply Chain Mgt (2015)

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Daniel M. Krassenstein Procon Pacific Director Asia Operations (Shanghai)

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  1. Daniel M. Krassenstein • Procon Pacific Director Asia Operations (Shanghai) • 30 Years Global Supply Chain • AmCham Shanghai Board (past) • Mandarin & Spanish fluency • Adjunct Professor (UCLA + Dayton) • USC Marshall School of Business • Master of Science Global Supply Chain Mgt (2015) • Lean Six Sigma Green Belt • USC Marshall Center for GSCM • Advisory Committee (China Ambassador) Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  2. Largest FIBC (Big Bags) importer to North America from China AIB, BRC, Kosher, HACCP, ISO 22000 & C-TPAT Certified Shanghai WFOE with J/V factories in Jiangsu, Shandong & Chongqing. Sharp growth in India and Vietnam for production . Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  3. Supply Chain Shift • Labor Intensive Manufacturing Supply Chain Shift from China to S & SE Asia is already underway due to increasing labor & compliance costs and labor displacement. The US Tariff war is accelerating the shift.  • 2.  US vs. China (Divergent Paths) • a. China Wants - Stability, Independence, Respect & Diversification • b. USA Wants - Old World Order, Fair Trade & Domestic Politics  • 3. Balanced US Factories in China • Healthiest American factories in China are sales-balanced - selling domestically China, selling to the US and selling to the World. Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  4. Global Value Chain Shift 1970s ->Japan 1980s ->Taiwan S Korea Hong Kong Singapore 1990s -> China 2000s 2015 -> Vietnam 2017 -> India Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  5. China average yearly wages Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  6. 2018 Labor Cost Comparison Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  7. 2010 2008 2015 20% Shandong 10% Chongqing 100% Jiangsu 40% Jiangsu 80% Jiangsu 50% Shandong 10% Vietnam 20% Jiangsu 2018 30% India 25% Shandong 15% Chongqing Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  8. Jiangsu – Higher Tier • Migrant Workers • High Labor Cost • Expensive Land • Excellent Infrastructure • Chongqing – Middle Tier • Logistical Challenges • Slower Paced • Domestic Market Focus • Shandong – Lower Tier • Labor Displacement • EPA Compliance • Quality Fade • North Asia Focus Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  9. Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  10. Why leave china Now? • Labor Cost Increases • Labor Displacement in Coastal Provinces • RMB Appreciation • Cost of Compliance – EPA • Raw Material Costs Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  11. S/SE Asia Stretched Supply Chain • Shanghai Buying Office • Distance from Factories - QC Audits & Vendor Relations – Time & Cost • Different Cultures – Language, Holidays, Gov’t Relations, Sexism, Safety • Difference Standards – Imperial-Metric, Tolerances, Testing Norms • Logistics • New Ocean Routes with Transshipments • New Carrier/Forwarder Relationships • FCL Mentality with no Multi-Vendor Consolidation • Weaker Infrastructure (Highway & Port) • C-TPAT, ISF and Tariffs – US Regulatory Considerations • 3. Variables • ForEx • Raw Material Costs • Labor Cost Increases • Payment Terms • QC Claims Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  12. India – Pros and Cons PROS • Labor Cost is Cheaper • English Language • Global Certifications (C-TPAT, BRC, AIB, etc) commonplace CONS • Communication Weak (not proactive nor transparent) • Infrastructure is Poor (Roads and Ports) • Lead Time Integrity less reliable • Transit Time is Longer • Frequency of vessel calls is Less • Transshipments more common Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  13. vietnam – Pros and Cons PROS • Labor Cost is Slightly Cheaper than China • Educated Workforce willing to work CONS • Labor Cost is catching up to China • Infrastructure weaker than China • Heavy Rains flood highways • Vehicle growth has outstripped capacity • Transit Time is Longer • Frequency of vessel calls is Less Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  14. Supply Chain Shift • Labor Intensive Manufacturing Supply Chain Shift from China to S & SE Asia is already underway due to increasing labor & compliance costs and labor displacement. The US Tariff war is accelerating the shift.  • 2.  US vs. China (Divergent Paths) • a. China Wants - Stability, Independence, Respect & Diversification • b. USA Wants - Old World Order, Fair Trade & Domestic Politics  • 3. Balanced US Factories in China • Healthiest American factories in China are sales-balanced - selling domestically China, selling to the US and selling to the World. Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  15. US vs. China (Divergent Paths) • USA Wants • Old World Order • Fair Trade • Domestic Politics  China Wants Respect (History) Change the World Order Domestic Stability Diversified Markets Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  16. The Thucydides Trap: Are the U.S. and China Headed for War? • In 12 of 16 past cases in which a rising power has confronted a ruling power, the result has been bloodshed. Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

  17. Supply Chain Shift • Labor Intensive Manufacturing Supply Chain Shift from China to S & SE Asia is already underway due to increasing labor & compliance costs and labor displacement. The US Tariff war is accelerating the shift.  • 2.  US vs. China (Divergent Paths) • a. China Wants - Stability, Independence, Respect & Diversification • b. USA Wants - Old World Order, Fair Trade & Domestic Politics  • 3. Balanced US Factories in China • Healthiest American factories in China are sales-balanced - selling domestically China, selling to the US and selling to the World. Krassenstein – 3-Aug-2018 – USC Supply Chain Summit

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