The story of how household products supplier CeDo went to Shanghai in search of its own low cost production base is a reflection of what has been happening in the wider Chinese economy. Charles Reed reports

Take a 30-minute drive westwards from downtown Shanghai and as the skyscrapers and tower blocks fall away you will come to a vast light industrial park. Welcome to Qingpu Industrial Zone. For the past eight years or so, the park has been home for some of the US and European companies that have opted to switch their manufacturing to China. And since 2000, it has also been home for one of the grocery trade’s leading suppliers of disposable household products.
CeDo is not a name that will be familiar to consumers. But as one of Europe’s leading suppliers of a range encompassing everything from bin liners to cling film, CeDo deals with almost every major retailer and that means consumers across the continent have certainly put its products into their shopping baskets at one time or another.
Increasingly, however, many of these products are made in the company’s 10,000 sq m factory in China, which today has the capacity to churn out 21,000 tonnes of bags, sacks and liners a year, having brought a second phase of expansion on line in June. And the bulk of that capacity is earmarked for export to Europe.
Bags, sacks and food wraps may not be sexy, but they are a big business. In the UK, for instance, CeDo estimates that the market is worth £308m a year and growing by almost 3% a year. It is also a highly competitive business, so suppliers need to have a low cost manufacturing base to
prosper. And that’s why CeDo decided to shift production to China in recent years and focus its European sites on more sophisticated, added-value ranges.
Group chief executive Peter Humphreys says: “We see it as an opportunity to balance the manufacturing footprint. We needed additional capacity and, having identified that there would be increasing competition from the Far East, we decided to invest in a lower cost region ourselves.”
CeDo’s factory is impressive, if only for sheer scale of operation: it employs 700 people who are running more than 175 extruders and bag-making machines. But, as Humphreys explains, the factory is also designed to meet all the standards demanded by European retailers - whether it be the need for clean rooms, ethical employment requirements or quality systems. “The benefit of our operation over existing Chinese manufacturers is that we can bring the benefits of western manufacturing practices while remaining competitive,” adds Humphreys, a grocery
industry veteran, whose career has included stints with Pedigree and Eden Vale.
He says CeDo opted for China for a number of reasons. For starters, land is readily available. And with local authorities committed to economic growth, new developments get off the ground relatively quickly. CeDo also knew it would be able to tap into a large pool of well-educated people with a strong work ethic. As for the decision to locate in Shanghai, CeDo says it has the best industrial infrastructure in China and well-established logistical links with the rest of the world.
Mind you, it’s not all plain sailing. As any inward investor will explain, doing business in China involves getting to grips with some pretty major cultural differences. Local managers can be vital and invaluable when dealing with the bureaucracy that surrounds export businesses. For CeDo, there are also the issues that arise from having an extended supply chain, which does lead to higher logistics costs and requires a strong focus on inventory control to manage the
lengthy process of shipping into Europe. Nonetheless, investing in China has proved to be a no-brainer. And in many ways the CeDo story encapsulates what has been happening in the wider Chinese economy in recent years as more manufacturers have seen the advantages of setting up shop in cities like Shanghai.
Fanchen Meng, of consultants AT Kearney, points out that China has successfully attracted foreign direct investment, particularly through the 1990s, and last year $52.7bn flowed into the country (about 38% of all investment in emerging markets). Meng explains that companies from western Europe and the US accounted for just 15% of China’s foreign direct investment between 1978 and 1998. In other words, as more companies on this side of the globe start switching production, the trend can only accelerate.
Meng insists that China’s obvious cost advantages over Europe are sustainable. Take labour costs. AT Kearney reckons that a Chinese worker earns an average hourly salary of $1.10, compared with $16.50 in the UK. And, says Meng, it will remain low for the forseeable future because there is a potential labour pool of 300 million people living in China’s rural hinterland. Land is also plentiful, the business infrastructure is improving, WTO membership makes the economy more stable and there are good tax breaks for foreign investors.
Another massive upside to establishing a manufacturing base in China is the ability to sell into an economy that is the world’s sixth largest, but also one of the most under-developed for consumer goods. And if you are a consumer goods company whose business back home operates in markets dominated by own label and economy lines, then this is an opportunity that should not be overlooked. As Humphreys explains: “Our operation in China has made us look at Asia as an emerging market. Accordingly, we launched our Mrs Williams brand in December 2002 in the Shanghai region. Already we have achieved 16% market share in Shanghai and we are now expanding into other regions of China.”
He is clearly excited by the prospects for the fledgling brand. But that is very much a story for tomorrow. As for today, CeDo’s Shanghai factory is humming with production activity - and the bulk of it is headed our way.