News: Remanufacturing, a Growth Opportunity in China
A field report has been posted by Adrian Gonzalez of ARC Advisory Group.
Saturday, 16th December 2006
Although China isn't exactly a poster child for the environment today, the country's leaders realize that it must take action or else China, with its large population and limited developable land, will ultimately become the world's largest garbage dump. Therefore remanufacturing, where parts from used automobiles, machinery, high tech equipment, and the like are reclaimed and reused, will be a hot growth area in the years to come. During my visit to China, I had the opportunity to meet with representatives from Caterpillar Logistics. Remanufacturing was one of the topics they discussed with me, and it was really the first time I saw China's potential for becoming a leader in this field. This past September, about a year after my meeting with them, Caterpillar announced it had signed a letter of intent with China's National Development and Reform Commission (NDRC) to promote the development of China's remanufacturing industry. Caterpillar Remanufacturing Services is the first wholly owned foreign company to receive a remanufacturing license in China and the company recently opened a regional remanufacturing center in Shanghai. (see separate news item.) Caterpillar is no stranger to both China and remanufacturing. The company has been operating in China for almost 80 years, and its remanufacturing division achieved over $1 billion in revenues in 2005. Caterpillar Remanufacturing Services, one of Caterpillar's fastest growing divisions, processed over 2.2 million end-of-life units last year (about 135 million pounds of returned products).Remanufacturing in China makes sense for a variety of reasons. The most obvious is that China is becoming the manufacturing hub for many of the products suitable for remanufacturing, such as industrial equipment and automobiles. Also, materials typically account for 70 to 80 percent of the cost to build a new product, while the balance is mostly labor. In a country like China, where labour costs are relatively low, reducing material costs has an even greater economic impact. When you factor in the rising costs of fuel, metals, and minerals, which China mostly has to import, remanufacturing makes a lot of economic sense. And of course, there are the environmental benefits too. One of China's current weaknesses, namely its logistics infrastructure, may ultimately develop into its greatest strength with regards to enabling a strong remanufacturing industry. Simply stated, in more developed countries remanufacturing is dependent on logistics networks and infrastructure that were primarily designed for the forward flow of goods. Since China is still, relatively speaking, in the design stage of modernizing its logistics systems and networks, it can 'design in' capabilities to better support reverse logistics processes, thus creating a more streamlined and efficient environment for remanufacturing. But China lacks the logistics and remanufacturing expertise to pull this off itself, hence the opportunity for companies like Caterpillar to lay the groundwork and establish themselves as leaders in an industry expected to flourish in the years ahead.