Challenges ahead


The general belief that logistics is the 'third source of profit' and the central government's supportive approach to logistics development as a new area of economic growth have prompted more than 30 cities to put logistics at the top of their development agenda. Many have engaged a significant amount of capital in building 'logistics centres '. In a country such as China, macro leveraging by government policies does play an important role in terms of guiding development into the desired direction.

There has previously been no separate category in the national economic administration system for logistics. In other words, logistics cannot be fitted into any existing industrial sector and so government support is important to eliminate unnecessary administrative barriers. However, excessive government involvement in designing the development of logistics, regardless of economic rationale, may lead to distortion of the logistics market. Should logistics be demand-driven or supply- pushed ? Or, should logistics be developed with the 'invisible hand' being the determinant? The answers to these questions need to be supported by the fundamentals and not just by the government's goodwill. If everybody jumps on the bandwagon of the 'logistics economy', will an investment bubble be generated?

Inadequate technology and limited capacity to innovate are particular weaknesses of many industries in China. In many respects, logistics in China “ both in- house and third party “ fall short of the technological and management requirements of modern logistics. For example, in the case of data communications, although there have been growing electronic links between supply chain participants , there has also been an absence of logistics tools (ie software) to offer effective tracking systems. There is also a lack of IT specialists to take care of data communications on both sides of a logistics relationship “ shippers and logistics providers. Shippers' general reluctance to share information with logistics providers is also an impediment to effective two-way data communication. As well as all this, the information infrastructure varies in quality from place to place, which causes real problems for electronic connections.

Regional blockades and departmental partition have remained a frontier to conquer before logistics services can effectively move goods around unchecked across different regions and industries. Rail, road and water transport are under the jurisdiction of different government departments, all of which have plans to develop logistics capabilities. Departmentalism may result in the patronage of the department's own logistics providers, driving others out of competition, while a regional blockade will check the free flow of goods and services, all of which will endanger the optimisation and integration of logistics resources. Effective coordination between different departments and regions is key to the healthy development of logistics in China.

The misconception of logistics by shippers as a 'third source of profit' has resulted in a reluctance to outsource logistics services. Many enterprises have in-house transport capabilities, which encourage decision- makers to take a step further by developing in-house logistics. In addition, there have also been fears that outsourcing logistics may lead to a loss of control over purchasing and sales, the additional lay-off of workers and disposal of transport assets at discounted values. Moreover, there is often a gap between what logistics can ideally do in terms of cost reduction, and logistics providers' actual ability to deliver on their claimed advantages. The lack of qualified personnel in logistics management has also been attributed to low levels of confidence in the quality of servicee offered by logistics providers. Third party logistics providers will need to take time and effort to educate buyers , while at the same time sharpening their skills to provide really cost-effective services.

Following accession to the WTO, China has pledged to offer national treatment to foreign logistics providers. The entry of foreign logistics providers will not only bring in modern logistics technology and management expertise, but also, more importantly, trigger off intense competition. Competition will lead naturally to the consolidation and integration of the existing logistics structure, and eventuallyvthe convergence of China's logistics services to international standards.

To conclude, the saying that has become popular when assessing competitive situations in China “ 'challenges and opportunities co-exist' “ may best describe the future trend of logistics development.




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

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