DRAGONS ATTRACTED

BY EAGLES IN
LOGISTICS
By,
S.H.nivas
Rufus
An overview of Asian giant: china
 GDP growth rate : 9.3%
- agriculture : 14.4%, Industry: 53.1, Service: 32.5%

 Exports : $752.2 billion (2005)

- export partners: US 21.1%, HK 17%, Japan 12.4%, S
Korea 4.7%, Germany 4% (2004)

 Imports : $631.8 billion (2005)

- import partners: Japan 16.8%, Taiwan 11.4%, S Korea

11.1%, US 8%, Germany 5.4 % (2004)

Source: www.chinaeconomic.net
What drives US firms to setup logistic base in china
Market driver: to respond global market with more flexibility from shop
floor.

Competitive driver: to be a competitive player in inbound as well as

outbound logistics by adding unique values.

Cost driver: to sustain competitive advantage through cost leadership

strategy by utilizing low cost factors.

Government drivers: to make use govt. policies for effective trading.

Source: Yip’s globalization drivers (1992); porter’s generic strategies (1985); porter’s generic value chain (1985)
 Why US firms make use of
china
Almost 90% of fortune 500 industries in world set their manufacturing &
assembly plants in china. Cost effectively they want to distribute their
products to the global market from shop floor.

For that they started to highly co-ordinate their geographically

dispersed activists in the value system by making use of logistic as a
tool.

(high foreign investment in dispersed activities with high degree of co-

ordination among subsidiaries)

Source: porter’s model of global strategy-the value system (1986a,b; 1990)

Porter’s diamond model (1990)
 Evaluating china’s CA – Porter’s diamond
Factor conditions: quality and availability of key inputs to business
processes.
Availability of input resources like human, technology, knowledge, physical
and capital resources for an logistics industries is quiet enough in china.

Demand conditions: the quality and quantity of domestic demand.

The demand for logistics industries is soaring at the rate of 29.9% to a
total worth of RMB 38.4 trillion in 2004 compared to 2003. the total
logistics expenses account for 21.3% of GDP in 2004.
source: www.chinaeconomic.net

Related and supporting industries: the interlinked or driving

industries.
The supporting industries like transportation for logistics started to grow in rapid
manner. The Chinese govt. started to integrate all modes of transports by developing
infrastructure like ports, highways, railways.
Table 1. Transportation Volumes (100 million tons/kilometer)
Mode 1998 1999 2000 2001 2002
Rail 12517 12838 13663 14575 15516
Road 5483 5724 6129 6330 6783
Water 19406 21263 23734 25989 27511
Air 34 42 50 44 52
Sources: China Statistical Yearbooks, 1999, 2001, 2003
% of mode of transport

Source: US agricultural trade office, Shanghai

Firm’s strategy, structure and rivalry: the nature of domestic rivalry.

Logistic is a new born industry for china and mostly closed for foreigners. But
due liberalization in 2001 with agreements with WTO it opened the gate for
global players. This creates competitive advantage for the country where
major players started to operate in high competitive market.

Governments: policies, subsidies, industrial limitations in openness.

Chinese government couldn’t cope up with its economic growth in logistics

fields. To improve logistics industries to a world standards it opened its gates
to third party logistic players (3PLs). The various provinces integrated by
a standard set of norms to ease the logistics operations. To improve
management skills it encouraged universities to offer logistic management
courses with latest technology.
Four types of emerging 3PLs in china
 Large SOEs: like Sinotrans, COSCO and China Post with extensive transport
and warehousing assets, broad national networks, and strong relationships
with central and provincial governments. These firms already enjoy a
monopoly in several areas of trucking, shipping and postal services.

 Medium-sized domestic logistics providers : (generally privately owned),

which focus on one or two key industries.

 Logistics divisions of manufacturers and processors: primarily providing

services to internal customers, but sometimes offering 3PL services to outside
companies.

 Foreign logistics providers: new Wholly Foreign Owned Entities (WFOEs)

and smaller firms working in niche markets.
 Still china lags to meet global
standards!
Compare to burgeoning china’s economy the logistic industry
lags due to major reasons like:
 Poor infrastructure
 No coordination between provinces
 Regulation
 Bureaucracy and culture
 Information and communication technology
 Limited logistical management skills
 Undeveloped domestic industries

Source: www.sdcexec.com
conclusion
For any firms who made their presence in
china have to attain their competitive
advantage through cost leadership by
effectively make use of logistics industries.
By adding uniqueness in their value chain
activities (inbound and outbound
logistics) they can able to sustain globally.