The Transportation and Warehousing Challenge for Multinational Corporations in China

Article excerpt

INTRODUCTION

China has enjoyed significant economic growth leading to a position in the world as a global manufacturing center with the ability to produce quality products of all types, at a cost and degree of efficiency that is difficult to match in most other countries. Companies who have produced products in other parts of Asia, such as Hong Kong and Taiwan, have shifted their manufacturing to China. Firms which once found Mexico to be a low cost manufacturing location have begun to relocate production to China. Many of these' firms are multi-national corporations (MNC's), outsourcing their manufacturing, or international retailers who are sourcing products for consumption in Europe and North America. In addition, production is increasingly relocated in China as the basis for penetrating the growing domestic market within China itself and the rest of Asia.

The quality and cost of transportation and logistics services are important factors in considering the role of China as a source of products or materials, as a manufacturing location, or as a market for products. MNC's need to assess how products will be moved to and from locations in China to determine the total landed cost of sourcing products or contracting production in China. Sourcing from or manufacturing in China may result in longer, more variable supply lines that affect product availability and responsiveness of the supply chain. This, in turn, may require increased inventories or dependence on premium transportation. Firms that are seeking to enter China to market their products must recognize the logistical capabilities that exist in China and adapt their manufacturing and distribution strategies accordingly.

Most of the economic growth of China has been in coastal regions, specifically around three major metropolitan areas: Guangdong, Shanghai and Beijing/Tianjin. Much of the initial foreign investment, sourcing and manufacturing subcontracting is concentrated in these areas. Further, these regions have become significant consumption centers as the income and local population have grown with the increase in industrial output. These industrial areas are relatively well served by modern sea and air ports and the most highly developed highways in China surround these cities. Transportation and logistics service is available from domestic, foreign and joint venture logistics service suppliers, competing for international and local freight movement. In contrast, the domestic transportation and logistics system connecting these regions to each other is not so well developed and the logistics system connecting these regions to inland China is even less developed. The quantity and quality of domestic logistics services will become increasingly important as the sourcing and production of finished products moves further inland. This is occurring because of growing income and cost disparities between regions in China, making coastal locations more expensive for business. In addition, central government is actively promoting more balanced development across the country. As other geographic regions of China develop, comparative and absolute advantages of each region will emerge. Supply chains requiring intercity and interregional product flows will grow. Finally, domestic logistics is growing in importance as the non-coastal retail markets develop.

The purpose of this article is to evaluate the status of selected logistics service sectors within China for the movement of finished (non-bulk) goods. This may be purely domestic movement or movement of products moving internationally but with a significant inland portion. Transportation and warehousing are two core activities of logistics which will have to be outsourced or produced internally by foreign firms entering the China market. The focus here is on road and rail transportation, the primary forms of transport utilized to move finished goods, as well as the warehousing and distribution center service sector. …