or customs authorities. One of the
greatest challenges for foreign operators in China today is to understand the regulations that exist;
understanding how different
provinces interpret those regulations poses a different set of challenges. For example, although a particular regulation may be clearly
documented and properly distributed, varying levels of enforcement
make it difficult to understand how
to remain competitive while still
operating within the rules.
It may be difficult for now to find
a 3PL that can provide the required
level of service in China’s West.
According to the China Logistics
Association, about 78 percent of the
top 50 privately held logistics firms
are concentrated in the coastal
regions, where the manufacturing
centers first emerged.
The 3PLs are cautious when it
comes to migrating further inland,
and their hesitation to invest in
operations further inland is justi-
fied. They face the prospect of
increased damage and product loss
during long transits in areas with
poor infrastructure; the availability
of skilled labor is questionable; and
for many 3PLs, it is too risky to
establish operations before a suffi-
cient customer base has arrived.
While warehousing and logistics
hubs are becoming more prevalent
in these emerging inland manufac-
turing locations, the logistics opera-
tors will wait for customer demand
to reach viable levels before under-
taking any major investments.
“We’ve been hearing about ‘Go
West’ for so long that we won’t com-
mit to any capital investments in a
Western city until we actually wit-
ness our customers moving there
first,” said a general manager for a
multinational 3PL with operations
throughout China.
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GO WEST WITH CAUTION
Moving away from China’s coast will have
implications not only for logistics operations but also for the entire supply chain,
requiring careful orchestration of all stakeholders. When production shifts inland,
manufacturing is moving either closer to or
farther away from the supply base and customers. The resulting impact on transit
times and lead times mandates a revised
supply chain strategy that includes new
safety-stock levels; improved or relaxed
service levels to accommodate longer delivery lead times to the customer base;
revamped economic-ordering-quantity
modeling and adjusted inventory policies;
and an assessment of the potential need to
vertically integrate the supply chain to support growth in the region.
With a move as significant as this, overseeing logistics—and indeed, all supply
chain activities—from overseas can be a
dangerous approach. Depending on company size and global strategy, a risk-averse
company should bring in a senior-level
manager who has experience in the
province as well as with multinationals to
oversee everything from selecting 3PLs to
outfitting warehouse operations to managing supplier lead times.
Although China’s coastal cities have provided golden opportunities for foreign
companies to invest in production, rising
manufacturing costs have diminished their
competitive advantage versus the interior.
More and more companies are viewing
Western and Central China as a viable
location for production, particularly
because this strategy answers corporate
calls to leverage cost savings while exploiting the consumer-market opportunities
that are becoming increasingly available in
inland regions. However, as with any
China strategy, the opportunities are not
without risk. Companies can minimize
that risk by conducting rigorous analysis
and modeling to ensure that they get the
supply chain component of the equation
right before they begin manufacturing in
China’s interior.
Pilar Dieter ( pilar@solidiance.com) is principal for Solidiance
Consulting in Shanghai, China. The author would like to
thank MD Xiaoye Ma for his contribution to this article.
