Wednesday, October 19, 2016

China to World: We Don’t Need Your Factories Anymore

Judah Huang works deep in the global supply chain at a Chinese company that makes nonstick coatings for cookie sheets, frying pans and grills sold in stores such as Wal-Mart.
Until a few years ago, the pans and griddles were made in China, but most of the materials that went into them were not. Mr. Huang imported most of the resins, pigments and pastes for his coatings from multinational suppliers such as Dow Chemical Co. of the U.S. and Eckart Effect Pigments of Germany.
Now, in a shift that is echoing throughout China’s vast manufacturing sector, he is buying more than 70% of those things from local suppliers.
“All these raw materials, now somebody in China makes it,” says Mr. Huang, chief technical manager of GMM Non-Stick Coatings, which has a factory in this city near Macau.
China, long the world’s factory floor, is taking control of a bigger portion of the world’s supply chains as well, causing a shift in global trade patterns by buying less from abroad.
The No. 2 economy after the U.S. pulls in huge volumes of raw materials and components, from aluminum to microchips, which it fashions into finished products such as iPhones and George Foreman grills for sale around the world. Those supply flows turbocharged global trade for years and made China one of the top export destinations.   
Now those flows are shrinking, which is pummeling China’s trading partners, slowing global growth and providing further ammunition for politicians including Donald Trumpwho question the benefits of global trade.
Exports to China, which had risen nearly every year since 1990, fell 14% last year, the largest annual drop since the 1960s. They are down another 8.2% this year, through September. The decline helped shave 0.3 percentage point off world trade growth last year, and is a big reason that growth is expected to slow to 1.7% this year from the 5% a year it has averaged over the last two decades.
China’s trade surplus with the U.S. hit a record last year, largely because China is buying less and because global commodity prices fell.
Some of that decrease is the result of economic slowdown and a glut of goods—in China and globally. But China also is increasingly turning inward for its manufacturing needs,pushing to substitute local inputs for foreign, especially in plum, high-margin areas such as semiconductors and machinery.
That is disturbing for many global manufacturers, which have ceded low-end production to Chinese rivals but are banking on staying ahead in higher-end goods and ingredients that feature more advanced technology.
“The very high end is still not there,” says Ka Lok Cheung, head of operations in Zhuhai for Germany’s Eckart, noting that local rivals still have trouble maintaining consistent quality in some hard-to-make pigments. “But for many things, they’re really catching up.”

How Chinese Manufacturers Are Changing Global Trade Flows

Chinese manufacturers are buying more raw materials and components from domestic suppliers, taking a chunk out of imports from multinational companies. The push to use local inputs for manufacturing is spreading to higher-tech items and contributing to slower global trade growth.
Value of China's annual imports
Portion of foreign inputs in China's exports
Annual value of China’s high-tech and new-tech imports
Change from previous year of World Trade Monitor index
Sources: Wind Info. (imports); CPB Netherlands Bureau for Economic Policy Analysis (index)
The value of components and materials imported by China for use in other products fell 15% last year from the prior year, the largest annual decline since the global financial crisis, and it dropped another 14% in the first nine months of this year, according to Wind Info, a Chinese data provider that uses official Chinese customs figures.
Part of that decline is because Chinese exporters have been using less of those imports in their goods, data from an International Monetary Fund study suggests. The proportion of foreign-made inputs in Chinese exports has been shrinking by an average 1.6 percentage points a year over the past decade, and last year fell to 19.6%, from more than 40% in the mid-1990s, according to Chinese trade data.
Woodridge, Ill.-based Wilton Brands, which makes baking pans in China that use GMM’s nonstick coating, previously used steel from Japan or South Korea because Chinese steel had too many flaws, says James Hill, executive vice president of global operations. With improvements in Chinese steel, the factories now buy locally, which means that almost all of the pan, including the ingredients for the coating, is now produced in China, he says.
For low-end products, especially in sectors that have suffered from overcapacity, China’s Ministry of Commerce has levied antidumping tariffs against companies such as Dow Chemical and Eastman Chemical Co. that it views as undermining local industry by unloading goods in the country at too cheap a price.
Dow Chemical declined to comment on the tariffs but said it has sold the business that was affected and focused on higher-end chemicals. Those now account for more than 95% of its revenue in China, says Peter Wong, the company’s president for Asia Pacific. Eastman declined to comment.  
To build domestic capabilities on the high end, the Chinese government last year announced a plan to raise the domestic content of core components and key materials to 40% by 2020 and 70% by 2025. It has been spending large amounts on research and development: $213 billion last year, or 2.1% of gross domestic product, according to state media reports. In June it pledged more money for “technological innovation.”
Biotechnology, aerospace and other high-tech-related exports to China fell 5% this year through September, compared with the same period last year, according to Wind Info, extending a two-year decline.
In specialty or higher-end chemicals—GMM’s industry—the amount China imports from the U.S. fell 8% in the first seven months of this year.
GMM was founded nearly a decade ago by U.S. chemical-industry veteran Ravin Gandhiand his Hong Kong business partner Raymond Chung, one of a wave of manufacturers attracted by China’s huge, cheap labor force and growing network of factories. GMM’s plant produces 20 metric tons of coatings each day, enough to stick-proof around 600,000 cooking pans or 200,000 electric grills.
For years, GMM acquired more than half of its raw materials from chemical giants such asDuPont Co. and Dow Chemical, with which DuPont is merging. It imported all of its two most important types of ingredients—silicone resins and aluminum paste, tricky, high-margin chemicals that Chinese suppliers weren’t able to make. GMM’s purchases in China tended to be lower-end ingredients such as solvents, which were easy to make and dangerous to ship.
The global recession and demand slowdown that started in 2008 pummeled chemical sales and worsened a supply glut. Chinese chemical factory utilization rates dropped sharply between 2008 and 2014, a sign of slack in the industry. China’s chemical makers, whose profits were getting squeezed by overcapacity and falling prices of cheaper ingredients, accelerated their push into higher-value areas.
Around 2012, salespeople from Chinese chemical makers started showing up at GMM with five-gallon buckets of resins and higher-end pigments that cost much less than their imported counterparts and passed the rigorous quality standards required by regulators such as the U.S. Food and Drug Administration, says GMM’s Chicago-based CEO Mr. Gandhi. GMM’s customers were pressing for cheaper prices and a wider variety of colors and features, such as smoother pan surfaces.   
GMM started shifting purchases to local firms. Until last year, GMM bought silicone-based fluids for its coatings from Dow Corning. In 2015, it shifted much of its business to a local Chinese supplier.
Because domestic suppliers are 10% to 20% less expensive than foreign ones, says Mr. Huang, who previously worked for a German industrial-coatings company, the shift has been a “game-changer” for GMM. It has cut the cost of finished coatings by 10% from 2012, raising the company’s profit as much as 15% and allowed price reductions for customers. More than 70% of GMM’s 200 vendors are now based locally, compared with 40% five years ago, Mr. Gandhi says.
Dow Corning declined to comment.
One local producer whose chemicals GMM now uses is Fujian Kuncai Material Technology Co. Ltd., a maker of shiny pigments and aluminum paste based in Fuqing. After initially plying its wares to small industrial paint shops in China’s southern manufacturing zone, it increased investment in new products, set up a big R&D center in China and started working with Chinese universities to hone its technological edge. A year and a half ago, it formed a joint venture with a Netherlands-based distributor to sell its China-made pigments in Europe.
GMM now buys blue, silver-white, gray and copper-colored pigments from Fujian Kuncai rather than import them, says Mr. Huang. The pigments cost as much as a quarter less than the cost of an equivalent import, he says.
Around 10 miles from GMM’s Zhuhai factory, at the headquarters of German pigment maker Eckart’s main China unit, Mr. Cheung, the operations chief, says competition with local manufacturers is getting more intense.
“They really want to chase us,” he says. “They see the market demand is increasing for this better product.”
Eckart sells aluminum pastes to GMM. Five years ago, GMM imported those pastes from Eckart’s German facilities; now it uses pastes Eckart recently started making for less in Zhuhai. While Eckart still makes those pastes from raw materials it imports from its German and U.S. facilities, it is looking to purchase more locally as well, Mr. Cheung says.
For its part, Dow Corning, a subsidiary of Midland, Mich.-based Dow Chemical, is fighting back with lower-priced offerings that are only sold in China, says Dow Corning’s Greater China President Jeroen Bloemhard.
The company is looking for more opportunities to source domestically, particularly as it vies to supply China’s domestic market. “Fundamentally, there will be a preference to buy locally if it is actually possible,” he says.

Tuesday, October 18, 2016

Logistics services drive growth for auto-rickshaw app Jugnoo

After having started by providing ‘affordable and reliable’ auto-rickshaw rides to commuters in close to 40 cities, app-based mutli-service provider Jugnoo has clocked a sharp growth in logistics services.
Based out of Chandigarh, Jugnoo delivers raw materials and finished products to restaurants, florists, chemists and pathological laboratories, and distributes sports equipment, stationery and electronic hardware, among others.
Cargo delivery in three-wheelers is catching up so fast that in Gurgaon, where the firm launched services only a month-and-a-half ago, about 1,000 autorickshaws have already signed up, Zorawer Singh, who is driving the initiative for Jugnoo, told BusinessLine. Customers include Burger King, florists, Subway, Ferns N Petals, Baskin Robbins and many neighbourhood kiranastores
Of the over 10,000 auto-rickshaws on Jugnoo’s platform, 4,500 have signed up for delivery service. As of now, the firm offers cargo delivery in 13 cities for the business-to-business segment. The recent spurt in growth is driven by auto drivers who ferry passengers and have time to spare, and also Jugnoo’s “competitively priced” cargo transportation.
Going dynamic
Jugnoo’s charges for cargo movement are the same as that for passenger movement. At present, the fares of auto-rickshaws hired through Jugnoo’s app are lower than those defined by a city or State’s transport regulations, said Singh.
The company, which at present offers a flat tariff level through the day, is, however, looking at dynamic pricing, Singh added. At times when it rains, there may be demand, but supply of autorickshaws may be low. This situation may call for higher tariffs, he said, adding that while Jugnoo’s tariffs are based on distance and weight of packets, the drivers get paid more if they help in loading and unloading.
Dodo, a door-to-door delivery service lead by Singh, did so well that it has been spun off as a separate segment and re-branded as Jugnoo Delivery. It is now replacing transportation services, earlier done through commercial vehicles, two-wheelers, cycle rickshaws and even auto-rickshaws that were independently hired.
From a pricing perspective, the highest delivery charges are in Bengaluru, as also Nagpur, where auto-rickshaws run on petrol as well as diesel. In cities such as Delhi and Gurgaon, autos are CNG-based and thus have lower fares.
The delivery timings also vary across cities, with the majority offering services between 8 am and 11 pm, stretching to 12-12:30 am in Chandigarh. The company is looking to extend the time to 12-12:30 am in Gurgaon, too.
The firm, which has about 350-400 people employees across 36 cities, is looking to expand to Chennai and Hyderabad in a month, and to over 20 cities cities by this year-end, Singh said.
Multiple pick-up points
Additionally, Jugnoo is looking at widening its services to allow multiple pick-up and delivery points, as the three-wheelers on its platform have flagged interesting patterns. For instance, demand from restaurants rises between 12 noon 3 pm in Chandigarh and florists in Bengaluru report higher demand after 11 pm. While most of the demand is intra-city, demand for inter-city delivery is also growing, as the auto-rickshaw fleet on Jugnoo’s platform has a mix of commercial and passenger vehicles.
“We never thought we will have demand from pathological labs, surgical equipment from hospitals, textiles and dry-cleaners,” Singh said, adding that the firm is already cash positive.
Payment mode
The delivery service has a pre-paid wallet for the merchants, who can credit the amount for Jugnoo delivery using cheque, cash, PayTM and debit or credit card. The payment gateways through debit/credit cards were added last week. The platform has over a 1,000 merchants, of which 600 are active users, with 140-150 transactions daily. On the drivers’ side, Jugnoo credits the fare twice a week into the account of each driver. Jugnoo Delivery gets a commission for each transaction.
Acquiring new customers and three-wheelers while keeping the fares competitive and fulfilling demands is a challenge for the platform, which is also in talks with FoodPanda, Ekart, Flipkart, Jabong and a national-level courier service. As of now, the company is operating in B2B, as getting into B2C delivery will be extremely challenging, Singh said.

MakeMyTrip, ibibo to merge, creating one-stop travel shop

India's leading travel portal MakeMyTrip is all set to completely acquire Naspers-backed ibibo group, signalling a major consolidation in the online travel aggregation space.
The companies did not disclose the deal size, but sources and industry experts pegged it at $400-$450 million, making it the biggest acquisition in this space.
Ibibo, in which South African investment firm Naspers and Chinese Internet giant Tencent hold 90 per cent stake, had acquired online bus aggregator RedBus for about $110 million in 2014.
The acquisition creates a one-stop shop for Indian travellers, as it brings together leading consumer travel brands, including MakeMyTrip, goibibo, redBus, Ryde and Rightstay.
The transaction is expected to close by the December end, and is subject to approval by MakeMyTrip shareholders and regulators since it is listed on Nasdaq.
Naspers and Tencent are selling their stake in ibibo Group to MakeMyTrip in exchange for an issuance of new shares. With the acquisition, MakeMyTrip will own 100 per cent of ibibo Group while Naspers and Tencent will together own about 40 per cent in MakeMyTrip, and will contribute proportionate working capital for the acquisition.
Besides, China’s leading OTA company Ctrip, which invested about $180 million in MakeMyTrip early this year, will also be used for the acquisition. Ctrip will have a 10 per cent stake in the combined entity.
Deep Kalra, founder of MMT, will remain Group CEO and Executive Chairman of the new entity, while ibibo Group founder Ashish Kashyap will join MakeMyTrip's executive team as a Co-founder and President.
Kalra said the announcement “is a significant step... for the... travel industry in India. We expect this to create an even more scalable business with the expertise to transform the booking experience for travellers..”
Experts reckon the combined entity will command over 50 per cent in the OTA space, which has other players like Yatra and ClearTrip.
Experts feel the OTA space has become cluttered, with everyone burning up cash in deals and offers, and incurring huge losses.

Monday, October 17, 2016

As India's 'granary' exhausts groundwater, farmers eye new crops

It is hailed as India's granary, but the northwestern state of Punjab faces a drastic decline in agricultural output unless it halts the rapid depletion of its groundwater, experts warn.
Groundwater irrigates almost three-quarters of Punjab’s agricultural land, but groundwater levels are dropping by 40 to 50 cm (16 to 20 inches) a year, according to Rajan Aggarwal, head of the soil and water engineering department at Punjab Agricultural University (PAU).
That has left farmers like Ajmir Singh struggling as their irrigation wells dry up.
"We are not able to find water even if we go down to 200 feet (61 m) or more at some places,” said Singh, who has farmed for 35 years in Jalandhar, 150km (95 miles) north of Chandigarh, the state capital.
His neighbor, Pawanjeet Singh, said lack of irrigation water has forced him to sell part of the land that has been in his family for generations to a large-scale farmer who has the resources to drill for water at much deeper levels.
“I took this decision with a heavy heart after I realized that drawing water for all my land is beyond my means,” Singh said.
According to Aggarwal, groundwater has been overexploited in 110 of the state’s 138 administrative blocks.
“This is alarming given that more than 73 percent of irrigation is taken care of by groundwater,” he said.
Experts say dealing with the problem, in the region that led India’s Green Revolution in the 1970s, will require a rapid shift away from crops that require large amounts of water, such as rice and wheat, to less-thirsty pulses, maize, vegetables and sugarcane to safeguard the state's agricultural economy.
Rice and wheat make up 81 percent of Punjab's irrigated crops, according to a report by PAU. Although the state accounts for only 1.5 percent of India’s geographical area, over the past two decades it has contributed 35 percent of the nation’s rice production and 60 cent of its wheat.
According to Sunil Jain, regional director of the Central Ground Water Board for northwest India, groundwater started dropping in 1985 in Punjab, and has sunk to alarming levels in recent years.
Thirty years ago farmers in most parts of the state could draw water at a depth of 10 meters (32 ft), but by 2015 this was 20 meters, while farmers in some central parts of the state are unable to find water even at 30 meters or deeper, he said.
“There has been a substantial rise in groundwater utilization, which has mainly happened because of the fact that Punjab gets less rainfall. Since paddy (rice) requires a lot of water, the farmers resort to heavy usage of groundwater for irrigating the paddy fields,” he said.
Jain added that Punjab gets less than 700mm of rainfall annually. This compares to a national average of 1,083mm, according to the World Bank.
Amit Kar, an economist at the Indian Council of Agricultural Research, attributed the groundwater shortage to government policies such as free electricity for irrigation, credit facilities and subsidies for digging wells and buying pumping equipment, as well as heavily subsidized diesel fuel for pumps.
The PAU report said annual demand for irrigation in Punjab is 4.76 million hectare meters (mhm) against a total annual supply of 3.48 mhm from canal and groundwater resources.
The deficit is met by overexploitation of deeper groundwater by farmers using nearly 1.4 million tube wells, which exacerbates the loss of more accessible groundwater.
According to the PAU report, 3.5 million of Punjab’s 9.1 million workers make a living from agriculture or associated activities.
Jain said the statistics suggest Punjab’s agricultural success may not be sustainable.
“Punjab’s exports of rice and wheat to other regions literally mean the export of its groundwater to those regions,” he said.
Amitabh Kant, chief executive officer of the government's National Institution for Transforming India (NITI Aayog), predicted “the present rate of withdrawal will lead to complete exhaustion of groundwater within a decade” in the region.
Kant said India, already water-stressed, is rapidly moving towards becoming water-scarce.  
Switching to new crops is one way to ease the problem in Punjab, said PAU's Aggarwal. Rice requires about four times as much water as maize, pulses or oilseeds, for instance.
Vinod Kumar Singh, a scientist at the Indian Agricultural Research Institute, said Punjab must make the shift at any cost.
“The government has to make some policy decisions like assuring the farmers it will procure their produce other than paddy (rice) and wheat. Only then will they be convinced to switch over to these crops,” he said.
Under India’s state-sponsored Public Distribution System, the national government buys staple foods like rice, wheat and sugar from farmers and sells them to citizens at fair or cheaper prices. Commodities worth $2.25 billion, including rice and wheat, are sold annually to about 160 million families.
Jasbir Singh Bains, Punjab's director of agriculture, said that system makes farmers reluctant to cultivate other crops.
“We have started making efforts to popularize the cultivation of pulses, maize, vegetables and oilseeds,” Bains said. “For example, we have appealed to the central government to increase the procurement of pulses and are urging the farmers to grow vegetables, which also have a good market.”
Farmers like Shamsher Singh, in Nokdar–Jalandhar, said they would switch to less thirsty crops with government help.

“We are ready for this, but the government should give the guarantee that it will procure our products like it is doing in the case of wheat and rice,” he said.

Novel drugs for depression

IT STARTED out as LY110141. Its inventor, Eli Lilly, was not sure what to do with it. Eventually the company found that it seemed to make depressed people happier. So, with much publicity and clever branding, Prozac was born. Prozac would transform the treatment of depression and become the most widely prescribed antidepressant in history. Some users described it as “bottled sunshine”. It attained peak annual sales (in 1998) of $3 billion and at the last count had been used by 54m people in 90 countries. And, along the way, it embedded into the public consciousness a particular idea about how depression works—that it is caused by a chemical imbalance in the brain, which the drug corrects. Unfortunately, this idea seems to be only part of the story.
In science it is good to have a hypothesis to frame one’s thinking. The term “chemical imbalance” is just such a thing. It is a layman’s simplification of the monoamine hypothesis, which has been the prevalent explanation for depression for almost 50 years. Monoamines are a class of chemical that often act as messenger molecules (known technically as neurotransmitters) between nerve cells in the brain. Many antidepressive drugs boost the level of one or other of these chemicals. In the case of Prozac, the monoamine in question is serotonin. 
The monoamine hypothesis, though, is under attack. One long-standing objection is that, although drugs such as Prozac raise levels of their target monoamine quite quickly, the symptoms of depression may take weeks, or even months to abate—if, indeed, they do abate, for many patients do not respond to such drugs at all. Now, to add to that, a second objection has emerged. This is the discovery that ketamine, a drug long used as an anaesthetic and which is also popular recreationally, works, too, as a fast-acting antidepressant. Ketamine’s mode of action is not primarily on monoamines, so the race is on to use what knowledge there is of the way it does work to design a new class of antidepressant. This is a change of direction so radical that some think it heralds a revolution in psychiatry.
Special K
Ketamine works for 75% of patients who have been resistant to other forms of treatment, such as Prozac (which works in 58% of patients). Moreover, it works in hours, sometimes even minutes, and its effects last for several weeks. A single dose can reduce thoughts of suicide. As a result, although it has not formally been approved for use in depression, it is widely prescribed “off label”, and clinics have sprouted up all over America, in particular, to offer infusions of the drug (which must be taken intravenously, if it is to work). Anecdotal reports suggest that it has already saved many lives.
Ketamine’s rise has been gradual. The discovery of its efficacy against depression happened a decade ago. Conducting clinical trials of new uses for drugs whose patents have expired is not a high priority for pharmaceutical companies, which generally prefer to test new molecules whose patents they own—and without such trials, formal approval for a new use cannot be forthcoming. Now, though, novel ketamine-related treatments are emerging.
One such is esketamine. Normal ketamine is a mixture of two molecules that are mirror images of each other. Esketamine is just one of these “optical isomers”. Though it, too, is off-patent, Johnson & Johnson, a large American drug company that is developing it for use, hopes it will have the same positive effects as the unsorted isomeric mixture, but without side-effects such as hallucinations, dizziness and “dissociation”—a feeling of being awake but detached from one’s surroundings.
By changing its formulation so that it can be administered in the form of a nasal spray, the firm both makes esketamine easier to use than isomerically mixed ketamine and creates something patentable. Preliminary evidence suggests esketamine does indeed work, and the firm is seeking approval for it to be used to treat two conditions: major depressive disorder with imminent risk of suicide, and treatment-resistant depression.
Other companies, though, are taking a different approach, by studying ketamine’s mode of action and attempting to imitate the way it works. Many people think ketamine affects the action of a common neurotransmitter called glutamate, by blocking the activity of receptors for this molecule. One hypothesis is that it interacts with a glutamate receptor called NMDA that had never previously been thought to be involved in depression. Several firms are therefore seeking to mimic the effect of ketamine by aiming at the NMDA receptor.
One such is Allergan, an Irish company that last year paid $560m to buy Naurex, an American biotech firm whose NMDA-blocking drug rapastinel is intended as a once-a-week intravenous treatment. Evidence from an early trial shows rapastinel is well tolerated, does not induce hallucinations and seems to work quickly. Allergan plans to start more extensive trials later this year. Nor is Allergan alone in its interest in the NMDA route. Other firms working on molecules that interact with this receptor, or with a special flavour of it called NR2B, include AstraZeneca, Avanir Pharmaceuticals and Cerecor.
Reception committee
It would be a mistake, though, to think that science has now reached a neat conclusion about how depression acts in the brain. One surprise came earlier this year in the form of work published by Carlos Zarate of America’s National Institutes of Health, who is a pioneer in the field. This study suggests that, in mice at least, ketamine is not working directly on the NMDA receptor, but rather on another glutamate receptor. This finding will not matter to Johnson & Johnson, because esketamine mimics the effects of normal ketamine, which is known to work. But it may mean those taking the NMDA route with other molecules are barking up the wrong tree.
As to the specifics of Dr Zarate’s study, Husseini Manji, the head of neuroscience at Johnson & Johnson, says it is possible that this work identified an additional way to generate antidepressive effects. Even if ketamine is found to work via another receptor, this does not preclude it working via NMDA. Armin Szegedi, who runs clinical development of the drug rapastinel at Allergan, makes the same argument. He explains that all the glutamate receptors seem to interact with each other as well, and act as a complicated system.
Time will tell who is correct, but such minutiae will matter less than whether one of these new approaches works. Lots of drugs, for many indications, work well, even though no one knows precisely how. The important point, though, is that ketamine has opened up a new line of attack on a horrible illness—and that this attack is being pressed relentlessly home.