Analysis of Manufacturing Location by Dragon Sourcing

1
One stop.
Worldwide sourcing.
Eine Adresse.
Weltweite Märkte.
christian.santner@dragonsourcing.com | Tel: +43 664 88518030

About Dragon Sourcing
2
We offer procurement services that deliver value
from emerging markets, both for export and for
localisation requirements
Relevant category experience includes:
Capex, Components, Transportation, Services, Raw
Materials, Packaging, Promotional, & MRO.
Key Services:
•  Procurement Intelligence
to deliver insight into categories and markets, and
support effective procurement decisions.
•  Global Sourcing
to deliver sustainable value from sourcing goods and
services from emerging markets.
•  Procurement Outsourcing
and setup of international procurement offices to
increase productivity and decrease overheads.
•  Capability Assessment 
of your international procurement operations to
identify and implement practical opportunities for
improvements
•  70 staff globally
•  15 locations across Asia, Latin America,
Middle East, Europe & US.
•  Headquarters in Shanghai (45 staff)
•  Private ownership since 2004
•  Turnover: $7.5m (managed spend ~$1.2b)
© 2018 Dragon Sourcing. All rights reserved.

London
Paris Graz
Ljubljana
Warsaw
Budapest
Istanbul
Tel Aviv
Mumbai
Shanghai
Hong Kong
Ho Chi Min City
Bangkok
Jakarta
Johannesburg
Melbourne
Sao Paulo
Mexico City
Houston
Addis Ababa
Prague Kiev
Bucharest
Riga
Manila
Lagos
Buenos Aires
Nairobi
Brussels
Santiago
Novosibirsk
Myanmar
Cambodia
Rome
MadridMilan
Ø  Unsere Teams sind ideal verteilt, um genau auf die Bedürfnisse unserer Kunden eingehen zu können.
Büros von Dragon Sourcing Vertragspartnern
Sales-, Key Account Management und Projektbüros
Einkaufsbüros
Unser Netzwerk

Service and Pricing
Dragon
Sourcing
-‐
Service
Offerings
Pricing

DS
Inhouse
Outsourced
Standard
Comment

Market
Intelligence

Procurement
Intelligence
x

Fixed
fees
according
to
price
list

Should
Cost
Model
x

Supplier
Financial
Assessment
x

Supplier
Supply
Chain

Assessment

x

Supplier
Ethics
Assessment
x

Category
ExecuBve
Dashboard
x

Country
and

Manufacturing
Site

EvaluaBon

Country
SelecBon
x

Customized
fixed
fees
based
client's

needs

Country/Region/City
Analysis
x

Factory
ramp
up
support
x

Global
Sourcing

PorHolio
Analysis
&
Category

PrioriBzaBon

x

Fixed
fees
according
to
price
list

We
can
offer
performance
related
deals

(gain
sharing,
commissions,
trading).
Deals

are
structured
on
a
case
by
case
basis

based
on
(1)
spend
value,
(2)
types
of

categories
and
(3)
nature
of
the
work

required
by
the
client

IdenBficaBon
of
potenBal

suppliers
(RFI
process)

x

Measuring
cost
compeBBveness

of
suppliers
(RFQ
process)

x

AudiBng
x
x
For
Long-‐term
Projects
/
High
workload

Projects,
we
move
away
from
our

standard
pricing
approach
based
on
#
of

categories
and
#
of
countries
to
adopt
a

team-‐based
pricing

Sample
development
and
tesBng
x
x

Supplier
development

x
x

Contract
negoBaton
x

Procurement
OperaBons

QC
Management
x

x

Fixed
fee
based
on
daily
billing
rate

LogisBcs
Management
x

Payment
/
Invoice
management
x

Outsourcing

Interim
Management
x
(Buyers)
x
(SQE,
SDE)
Fixed
fee
based
on
monthly
billing
rate

IPO
Management
x

Fixed
fees
based
on
team
size

Performance
related
deals
are
possible
to

be
craPed
on
a
case
by
case
basis

Our Clients
Automotive
Energy/Chemicals
Consumer GoodsIndustrial Products

Kunden
Food & Beverage Construction
Government
DIY
Service
Heavy Machinery
Pharma / Medical
Retail
Packaging

Manufacturing Location Analysis

Analysis Approach in 3 Stages
45
Country Selection
Country Analysis
Region and City Analysis
2
1
3
•  Macro Analysis: Simple Score Card with basic indicators fitting client’s business case
•  Detailed Analysis: Detailed Score Card with specific indicators for client’s business case

46
TAIWAN
FUJIAN
GUANGDONG
The analysis focused on the 2 pre-selected cities, Xiamen and Shenzhen,
with the objective to establish a preference among these 2 options
Client
Preliminary
Considerations
•  Development of the area
•  Direct sea access
•  Air Access from Europe
•  Proximity and access to
Taiwan
Xiamen
Shenzhen
Client
Pre-selected Cities
•  Xiamen
•  Shenzhen
People Republic of China

Information from multiple sources were used to analyze each of the 2
options in terms of cost and convenience
•  Shenzhen bureau of trade & industry information center
•  Shenzhen council for the promotion of International
investment
•  Shenzhen Administrative bureau of free trade zones
•  Administrative of local taxation of Shenzhen municipality
•  Guangdong province price information website
Information Sources
•  Xiamen Foreign Investment Bureau
•  China council for the promotion of
International trade – Xiamen office
•  Xiamen Price bureau website
•  Interviews with General Managers of western companies already located in Shenzhen or Xiamen
•  Various others (Sea shipment companies and sea forwarders, Airlines schedule, etc.)
COST RELATED CRITERIA
•  Existing building rent / Land cost
•  Labor cost
•  Shipment cost
•  Utilities costs
•  Taxes
CONVENIENCE RELATED CRITERIA
•  Infrastructure / local traffic
•  Safety
•  Local authorities attitude
•  Utilities supply quality
•  Labor "manageability"
•  Air access to/from The Netherlands & Taiwan
•  Seaport convenience

48
Cost related criteria
CRITERIA INDICATOR / PRACTICAL MEASURE
Building cost
Rental cost/m²
Land cost
Labor cost
Minimum wages level set by local government
Actual average wages for the typical worker profile
Other employment related costs: insurances and other
charges, allowance, etc…
Sea shipment cost Freight cost to respectively Rotterdam and Los Angeles
Utilities Utilities cost
Taxes Local taxes

49
In summary, the cost difference between the 2 cities can at this stage be
estimated between -230k€ and +80k€
Shenzhen Xiamen Difference / Comment
Building / Land
Potentially -310k€
in "downtown"
areas
Could represent around 310k€/year
[50-30] x 13 000 x 12 = 3 120 000 RMB = 310 k€
Labor Insignificant difference
Container shipping +80k€ 30 containers/month (45% Rotterdam, 35% LA)
Utilities
Electricity
+5% during peak
hours
-1% over 24 hours
Water -17%
We may need to clarify the importance
of water and gas consumption
Gas +124%
Taxes No difference

50
Convenience related criteria
CONVENIENCE RELATED CRITERIA
• Infrastructure / ease to get around
• Safety
• Local authorities attitude
• Utilities supply quality
• Labor "manageability"
• Air access to/from Germany & Taiwan
• Seaport convenience

51
We surveyed 13 GMs of Western companies with factories in Shenzhen or
Xiamen to assess convenience criteria and complete unavailable information
37 General Managers
from Western
companies with a factory
located either in
Shenzhen or Xiamen
invited to respond to the
questionnaire through a
phone interview
23 questions survey
covering:
• Road Infrastructure
• Safety
• Local Authorities
• Utilities supply
• Labor
• 13 participants to the
survey
• 7 from Shenzhen
• 6 from Xiamen
• 30-45 minutes phone
interview with each of
them for comments on
their answers
• Statistical assessment
of soft criteria through
the satisfaction level of
people in these 2
locations
• Complement when no
available information

52
Despite Shenzhen slightly better sea shipping and air travel services, Xiamen is
clearly a better place to be than Shenzhen, from a convenience point of view
Shenzhen Xiamen Difference / Comment
Infrastructure / Ease to get around Clear advantage to Xiamen
Safety
Responses to the survey don't reflect the
danger often associate to Shenzhen
Local authorities attitude
Small difference on the average, but
significant on support to companies,
efficiency and corruption
Utilities supply quality Clear advantage to Xiamen
Labor "manageability"
Clear advantage to Xiamen, mostly due to
the higher weight of "local" workers
Air access Benefit from Hong Kong proximity
Seaport convenience Mostly due to shorter lead-time to Europe
Very Good Good Fair Bad Very Bad

53
In conclusion, Xiamen appears to most likely be a better option for an
assembly plant in China
Shenzhen Xiamen Comment
Cost + + +
•  Only certainty on sea shipping (~80k€/year)
•  Building would actually be cheaper in
Xiamen should client decide to pick a
"downtown" location (estimated ~310k€/year)
Convenience + +
•  Sea shipping and air travel services are
Xiamen only identified weaknesses
Considering:
•  The importance given by client to most of the convenience criteria
•  The cost difference that can either be in favor of Xiamen, or represent in the worst case
~80k€ per year
We consider Xiamen is most likely a better option for client

Manufacturing Location Analysis
Beispiel Äthiopien

Industrial Zones
Industrial Zones Current Operational Status
Selected for
next stage of
analysis
1 Operational
2 Operational
3 IZ Under Construction- No companies present yet
4 Govt. studying feasibility- awaiting external funds to commence construction
9 IZ not fully complete- very few companies present
13 Industrial Zones have been identified
but only 2 are operational
55
Selected for further analysis (only IZs already operational)
Not selected for further analysis

Of the 2 industrial zones that are immediately operational,
X is the preferred option
56
Parameters X Industrial Zone Y Industry Zone
Developer Government Chinese company Group
Area
Phase I: 156 hectares fully complete and sold out
Phase II: 186 hectares, construction in progress and is expected
to be complete by the end of 2015. Booking open for Phase II
Phase I: 233 hectares
Phase II: IZ in talks with the Govt. for additional 260 hectares
for phase II expansion
Tax Holiday for Investors
Yes
(Up to 2-7 years depending on case-by case approval by Govt.)
Yes
(Up to 2-7 years depending on case-by case approval by
Govt.)
Focus Industries
Textiles, Garments and leather products (including footwear)
sectors
Textiles, Garment, Shoe, Construction materials, Electrical
equipment, Engineering material equipment manufacturing
and Food processing factories
Companies Present 1. 
1. 
Factory Rent USD 1 per square meter in Phase II (Under construction) USD 2 per square meter
Available buildings for rent (L&R
requires a building with floor
space 20,000 sqm)
2 types of buildings in phase II being constructed: 5,000 sqm area
buildings and 10,100 sqm buildings. No buildings available
anymore of Phase I.
Buildings available with 10,688 sqm area in Phase I.
Closeness to Addis Ababa airport/
Djibouti sea port
15 km East of Addis Ababa 37 Km East of Addis Ababa
Shortlisted Industrial Zone
Recommendation
Yes
(Cheaper rental cost & closer to Addis Ababa)
No
(Rental more expensive, IZ focus is multi industry and
further from Addis Ababa)

Detailed Analysis – Location Analysis of X
(1) Building & (2) Legal Entity (3) Tax and (4) Electricity
57
Parameters Industrial Zone
Section Sub-section X
X - Location
Land Available (hectares) 156 Hectares in Phase I & 186 hectares in Phase II
Location 15 km east to Addis
Developer Ethiopian Government
Time to set up a factory
Six months to a year (estimated time to construct factory by the tenant) from the time
company is registered and lease signed
Special Economic Zone Yes, no import duty and export duty for products manufactured for 100% export.
Monthly Rent per square meter
IZ provides building at a rent of USD 1/m2 for 5 years and for the next 5 years at USD 1.25/
m2. Tenants have the option of building their own plant as well
Floor space of available buildings 2 buildings at 5,000 sqm each and one at 10,100 sqm
Security Deposit USD 25,000
Lease Option
Investing companies have the option of building their own building by leasing land from the
Govt. in X. Land is usually leased out for a period of 70 years at a one time payment of USD
11.55 per square meter (period of lease and price per square meter subject to case by case
approval by the authorities). Price per square meter can be paid in full or over a period of 20
years including interest charges.
Maintenance Cost to the IZ None. All utility costs will be paid by the tenants themselves directly to the service providers
Legal Paper work time for registering company in Ethiopia 10 business days from the time lease is signed
Tax
VAT 15%
Corporate Income Tax Holiday
2-7 years depending on case by case approval by the authorities based on the level of
investment and projection of the growth in exports by the investing company
Expat salary income tax holiday Up to two years
Electricity (Govt. Rates) High voltage Consumers for over 400 KW per month USD 0.038/KW (ETB 0.77/KW)

Detailed Analysis – Location Analysis
(6) Workforce – 2/2
Parameters Industrial Zones
Section Sub-section X
Workforce
Termination cost to employer
3 months salary as termination cost to be paid by the employer of 3 months notice not provided- normal
working practice in Ethiopia
Yearly bonus
Depends on the profit gained by the employer and based on its own policy, not stipulated by the
Government
Lean period Major religions are Christianity and Islam - Christmas time and Ramadan time are lean period
Indicative Time to
Recruit a worker
(number of days)
Operator 30-45 days
Technician 30-45 days
Supervisor 30-45 days
Engineer 30-45 days
Manager 30-45 days
Plant Manager 30-45 days
Indicative Total
Cost to the
Company per
worker category in
USD
Operator (2 years experience) USD 50 excluding mandatory 11% pension fund and 3% health insurance
Technician (2 years experience) USD 50 excluding mandatory 11% pension fund and 3% health insurance
Supervisor (3-5 years experience) USD 100 excluding mandatory 11% pension fund and 3% health insurance
Engineer (5 years experience) USD 350 excluding mandatory 11% pension fund and 3% health insurance
Manager (5 years experience) USD 550 excluding mandatory 11% pension fund and 3% health insurance
Plant Manager (5 years experience) USD 550 excluding mandatory 11% pension fund and 3% health insurance
58

We have interviewed industry experts:
Summarized Feedback
Yarn Category:
•  Ethiopian spinning mills seem to be producing only 100% cotton yarn or viscose yarn.
•  Spinning mills are producing yarn either for self consumption if they are integrated mills or supplying limited volume outside to regular
clients.
•  Supply of cotton yarn to the local market is not sufficient hence garment companies or local suppliers are also importing cotton yarn.
30-40% of the cotton processed in Ethiopia is from local suppliers, rest is imported.
•  Local cotton price should be competitive, length of fibers and chemical composition often lack in quality.
•  Spinning mills are not producing man made yarns like Elastane, Polyamide, etc. so garment companies are directly importing or
buying man made yarns from the local importers.
Corrugated boxes Category:
•  Number of manufacturers is limited, small to medium scale manufacturers are available with limited flexibility to make customized size.
•  Suppliers’ capacity utilization seems very high leaving little room for new clients.
•  Local textile companies are buying the corrugated boxes from local manufacturers only but the supply is not easy and needs to be
followed aggressively to ensure on time delivery.
•  Manufacturers requesting 100% payment in advance before starting the production and almost every time do not comply with the
deadline.
•  Delays are happening due to frequent power cuts.
General comments
•  Ethiopian suppliers speak little English and the communication is mostly happening in local languages.
•  Ethiopian suppliers rather want to have face2face B2B relationships, and are rather weak in internet communication.
•  Importing yarn to Ethiopia will be cheaper only if the end purpose is for exports as the raw material can be imported under duty & tax
exemption.
•  Ethiopian companies are importing yarn from different markets globally.
•  Larger textile companies in Ethiopia try to be intensively vertically integrated, due to the difficult local supply situation.

ANALYSIS OF TOTAL COSTS IN
ETHIOPIA VS CHINA VS CZECH
REP
60

61
Level
#
of
staﬀ
CN
CZ
ETH

Weaver
100

Technician
10

Supervisor
10

Engineer
10

Manager
5

STAFF
COMPARISON OF LABOR COST PER MONTH

63
RAILWAY PLAN

64
MEETING 16
INDUSTRY MINISTER
Meeting with: Tadesse HAILE, State Minister, Ministry of Industry
Meeting notes:
•  Goal is to make cotton available at a competitive price from in and outside of Ethiopia
•  New railway will bring “50% improvement of land transport price”
•  80% of Ethiopian people live in the highlands
•  Proposed to move into Awassa IZ, there are 34 sheds under construction and already 22 of them are occupied/booked
•  There are only 12 sheds remaining for new investors
•  In order to get the sheds, the investor needs to submit its proposal
•  Government wants to subsidize the transport to Awassa, so that cost is similar than from Addis
•  Comparable quality and quantity of labor available in Awassa
•  Airport in Awassa needs 1,5 years to be finished
•  IZ in Awassa will be finished mid of 2016
•  8 Companies which have booked in Awassa:
1.  PVH - US - Garments
2.  Arvind - India - Garments
3.  Wuxi - China
4.  …

Summary
•  Mehrstufiger Prozess hilft, sich über die eingenen Anforderungen eines neuen
Standortes klar zu werden
•  Exakten Kostenvergleich schaffen wenn möglich auf Basis Produkt-Kosten,
welche verlagert werden sollen (inkl. Umfassender Import- und Export-
Kalkulation)
•  Lokale Vorteile/Incentives genau prüfen
•  Sehr hilfreich sind zahlreiche konkrete Einschätzungen von erfahrenen
Managern vor Ort als ausgewerte Umfrage zusätzlich zur Datenbasis

One stop.
Worldwide sourcing.
Eine Adresse.
Weltweite Märkte.
DI (FH) Christian Santner
Director Germany, Austria and Switzerland
christian.santner@dragonsourcing.com
Dragon Sourcing
Germany, Austria and Switzerland
Kohldorf 79 | 8323 Sankt Marein bei Graz
Austria
T: +43 664 88518030
F: +43 316 2311238882
Dragon Sourcing Ltd. Headquarter
7/F Hong Kong Trade Centre
161-7 Des Voeux Rd Central
Hong Kong SAR
T: +852 91 80 40 57
F: +852 25 80 24 26
www.dragonsourcing.com

Analysis of Manufacturing Location by Dragon Sourcing

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