Supply Chain Management in China - Essay Example

Supply Chain Management in China Introduction: Among Asian countries the rapid growth and advancement of China’s economy is outstanding. Moreover, this boom of Chinese economy is an outcome of the country in becoming the largest inexpensive source of labor and the one of the most significant destination for investors all over the world. China is not an attractive and preferred location for the international investors but also for its domestic markets, as the domestic market of China is emerging at a rapid pace. However, despite the growth there are certain factors that are crucial to the business practices either domestic or international. Among them, there is an increasing issue of supply chain management and its practices in China for domestic as well as international business. The underlying paper is the research proposal based on highlighting the issue that would be in the interest of Chinese and international business sector as well for the supply chain decision makers. Contextual Background of the topic: China is among those countries that have quite a huge economy. Not just that, the Chinese economy comes among those who have a great influence on the overall economy of the world. There are many factors that have been attached to China and its economy that has strengthened itself. The geographical position of China and having cheap labor and low cost of production it has become the attraction for international businesses. However, with the increasing population of the country that has reached around 1,393,783,836 in the year 2014 have its problem that is emerging problems (World Meters, 2015). The domestic consumption of China is rapidly rising, and the underdeveloped, and overburdened infrastructure has resulted many difficulties for many international businesses. Among them, the difficulties related to supply chain management tend to cause hindrance to the ongoing business activities. The reason that has caused that issue intrigued from the state-owned distribution companies that are inexpert and often underfunded. In addition to that the logistics and distribution sector of the country is fragmented and enormous and face much regional protectionism. With that the international companies also have to face many bureaucratic restrictions that prohibit them to precede their business operation in a simple and uncomplicated manner. Aims and Objectives of the research: The underlying paper is the proposal for the research that is aimed to address the “Impact of Supply Chain Issues in China on International Business”. With this aim the objectives of the research include a thorough analysis of the previous done research literature on the economy of China. The other aims include to analyze the growing business sector in the country, supply chain management and practices in China and the impact of the practices of the international businesses. In addition to that the research will take the viewpoint of the individuals to gain a comprehensive insight into the matter. Literature Review: There are many countries that are successful in proving the effectiveness of logistics and distribution in order to attain the market share and substantial growth in China. All the big, multinational and developing companies are very much inclined to outsource many of business related products and activities from China. This has provided the organizations with access to capability, capacity, technologies and the skills that they are required to invest in their business. This has led the companies to get independent from the capital and resources. Moreover, this allows them to concentrate on the main differentiators and on the core competencies of the company (Hogan, 2004; Kim, 2003) and benefiting from the economies of scale of the suppliers they have outsourced from China. Hence, in this way the organizations can lessen their debt and risk, this has increased the flexibility of the organization (Farrell, 2004). In china, the supply chains are in their infancy, and this is the reason that are not many companies in China that focus on the flow of material, lead times, and inventory management. A partial cause, for this reason, is the lack of individuals in the country that have education in supply chain management. A significant perspective related to supply chain in China reflects the reality that despite a good margin of prices of manufactured goods and cheap labor, the international firms have to face the increased cost of operations and business transactions in China. Brubaker (2007) stated that if a company is not saving up to 10% to 15% after the deduction from transportation cost, there will be no advantage in outsourcing from China. Moreover, according to Maniscalco (2004) often it gets too late for companies to make the outsourcing decision from China because majority of the costs is fixed at the time of product’s life cycle. Risk in Outsourcing in China: With many benefits for multinational companies and other international businesses in outsourcing in China, there are certain risks associated with that. The risk arises in China from the negligent law enforcement in the country. this has resulted in the increase in the labor pool in an unpredictable manner, increase in labor wages, the rise in the cost of raw materials, etc. this has brought many challenges for many multinational companies to control the supply chain of the company. A good example of this is taken from Disney; the company generated around 2.7 billion dollars in the year 2007, around 10% of the total revenue of the company in account from giving rights of manufacturing the products of company to thousands of licenses (Ruwitch, 2007). Now, due to the outsourced production, the company was exposed to the practices of poor labor as compared to the companies that have a significantly direct control on their supply chains. There have been many issues about the labor compliance in the factories where the branded products of multinational companies have manufactured. Moreover, despite monitoring the issues remain there further in the supply chain. Although the manufacturers of United States of America are well aware of a good percentage of cost reductions in outsourcing the processes and parts of the products from different Asian countries (La Londe, 2004; La Londe, 2005), there are the risk of overrating of the wage saving value, obsolescence, underestimating the inventory, risk related to the currency and intellectual property are all associated with outsourcing from China. In addition to that there are some logistical risks incurred by the manufacturers’ especially when a new Chinese supplier is bit away from the existing customers rather than from the prevailing in-house capabilities (Hogan, 2004). As cited in Jiang (2002) a latest survey conducted by the Business Council of United States and China found that the companies of United States of America has cited the issues related to supply chain as their major problems faced in the executing the business practices in China. A close study of the matter has revealed that the restrictions imposed by providing the distribution facilities via third parties is the cause of the issues faced by international companies. It is necessary for all the foreign companies to import their products via those trading companies that are officially sanctioned. In china, the foreign third party distributors and trading companies are banned and elicited from the direct participation in the market and also from facilitating an entire variety of distribution and trading services. In addition to that, other supply chain related problems faced by the international businesses in China involves the difficulty and intricacy in identifying the qualified suppliers locally, dealing with the telecommunication, information technology (IT) and infrastructure that is underdeveloped, the element of unreliability of the transportation structure in several areas of China and an escalating rate of loss and damage to products in transit. For all the global organizations that have an interest in China, the possibility of success must be evaluated against the factor of risk. Below presented is the cause and effect figure that outline the risk associated with outsourcing in China. The figure explains the way the methods, systems and people of logistics contribute their share in the risky business environment in China. However, the risk can be mitigated by the proper identification of the sources. (Kumar and Sosnoski, 2009) Diagram showing cause and effect diagram reflecting the risk in outsourcing in China The studies revealed that the road that goes towards the prosperity of China is quite bumpy and it order to navigate the road, the proper understanding and comprehension of the risks and flexibility is needed to face the potential challenges on the way. Thousands of tires, back in 2007, that were manufactured in China were taken back due to some problems in that. Further, in the same year the toys of Thomas and Friends were recalled as they had coated in lead paint. With the passage of time, another massive recalled occurred, and that was of the pet food that resulted due to the increase death of cats and dogs. Similar to that many products have been recalled due to safety concerns. Despite manufacturing of several high-quality products in China 60% of the entire recalls of United States and 100% of all toys recalls in the year 2007 were made in China (McNulty 2007). The literature on the sustainable supply chain management reveals that sustainable developments are the ones that meet the current needs without putting the abilities of the future generation to fulfill their need on comprise. The rationale lies behind the sustainable developments involves social equity, environmental protection as well as growth of the economy. The structure for the sustainable management of supply chain have incorporated the tradeoffs exists between the three significant pillars of sustainability, these are the social, economic and environmental along with the domain influenced by the integration of sustainability in the supply chain management that include strategic planning, organizational culture, organizational transparency and risk management. In view of this a sustainable supply chain management is the transparent and strategic integration and achievement of the social, economic and environmental goals of the organization in a systematic coordination of the fundamental business processes that are inter-organizational in order to improve the economic performance of the company and its extended chains on long term basis. The element of cost reduction and effectiveness have always developed a main focus with logistics; never the less awareness of demands regarding sustainability have evolved with a stress on the transportation. The study of Jingxian and Liqing (2009) about the domestic manufacturing enterprises classified the risk of supply chain with the risk related to the demand and supply information risks and production risks. Their model on the subject reflects a relationship between the competitiveness of an enterprise and supply chain risks. The model exposed that the information and production risks had a direct impact on the competitiveness of the company whereas the demand and supply risks affect the competitiveness of the company indirectly. In addition to that Jingxian, Guohong and Hawu (2009) had found to measure and quantify the supply chain performance from four different dimensions. These dimensions include the flexibility, reliability, financial performance and service quality. Supply chain trends in China: According to Bolton (2004), the logistics and distribution in China offer a significant challenge for the companies that do business in China. According to the estimation of Morgan Stanley in the year 2001, the logistics spending incurred in China reached to the level that is one fifth to the GDP of the nation and double the level of spending on logistics in United States of America. According to the report of Economist Intelligence Unit in the year 2001, the average Chinese manufacturer’s time spent on logistics is 90% and just 10% is spent on the manufacturing of goods. The entire situation has a very negative impact on the account receivable of the companies. It reflects a fundamental measure ineffective and inefficient practices of distribution and logistics that often exceed the duration of 90 days. However, despite the above-stated loopholes the distribution and logistics sector of the company is growing very rapidly, and this growth is mainly consolidation driven. The logistics and distribution companies in China are quite big in number, but none of them offers the distribution and logistics services nationwide. The industry is totally fragmented with the existing level of competition in the market among more than 1800 registered logistics and distribution companies. However, the foreign providers of logistics and distribution services have strong international networks and effective and efficient management hence they are in a better position to gain a big share of the market (Bolton, 2004). Methodology of the Research: Research onion, as illustrated below will be used in defining the methodology of research, which is proposed in the research report (Saunders, Saunders, Lewis, & Thornhill, 2011) Type of Research: The type of research that will be used in this study is qualitative research. Qualitative researchers aim to gather an in-depth understanding of human behavior and the reasons that govern such behavior.  Qualitative research involves looking in-depth at non-numerical data.  The qualitative analysis is also aimed at answering the question of “why” and “how” of decision-making. Research Philosophy: The research philosophy has followed the Phenomenology. Idea behind this concept is that it concentrates on the processes and experiences. While positivism focuses on idea that reality is stable, observable and can be measured. Here, the views of people are judged taking help of perception and reality. Thus, Phenomenology is the philosophy used for conducting the research. Research approach: The research approach that is being used here is the naturalist–constructionist paradigm. Reason for choosing this approach is that the research topic is not a universal fact; different people will have different viewpoints. All the recommendations will be accepted as everyone has his opinion based on his or her circumstances. Strategies employed for research: One of the convenient and appealing ways of qualitative research methodology is used here. That is the interview approach. Hence, the people will be asked questions to know their views on this concern. The questions are open-ended, and proper record of the reply is maintained. The interview is unstructured (Cohen, & Crabtree, 2006). Hence, the researcher just has some general ideas about the topics of the interview, along with memories of points that might arise to be used as prompts, if required. It is the core responsibility of the interviewer to avoid personal bias. Moreover, the interviewer has not asked any leading questions to avoid conflict of ideas among respondents. Another approach used to avoid the researcher bias is the use of Focus Group. Hence, arrangement is made to interview people in a group. The people are from different fields of supply chain, to encourage debates on different issues in the problem. However, all the respondents are those who are affected directly or indirectly by the supply chain issues. Data collection: Data collection approaches used here involves interviewing individuals in a group setting. As the qualitative research data collection methods are time-consuming, therefore data is collected from a smaller sample of focused group. The respondents in the sample are people who are somehow linked to and affected by the supply chain issues. With the use of this qualitative data collection approach, information received is richer and has a deeper insight into the phenomenon under study. The primary source of data will be used, that is respondents will be interviewed. In addition to that the secondary source of data and information will be gathered from different academic journal and the research done by the previous researchers on the subject. Research Plan and Timeline: The assessment of the project will be conducted for about six months. During this time, all aspects of the research will be evaluated. All factors that impact the supply chain management will be assessed. The primary resource will be this research report. The activities involved in conducting and concluding research will be completed in six months. In the first-month approval will be taken from coordinator to start the research. On getting approval, the current and the past situation of the issue will be examined, and conceptual framework will be designed to carry out the project. Then in the second-month approaches will be devised to select appropriate research methodology. Subsequently, the respondents of the focused group will be chosen. In the third month, data collection and its analysis will take place. In fourth and fifth-month comprehensive report will be prepared will address all the issues. Then in the fifth month the first draft of research will be prepared and sent to a supervisor for approval. Finally in the sixth month after making all the corrections and amendments, report will be finally submitted. TIME HORIZON CHART   Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Approval from research coordinator             Review of Current and Past Situation             Development of Conceptual Framework             Research Methodology             Selection of Focused group members             Data Collection             Data Analysis             Development of Report             Development of Research result's First Draft             Recommendations from Supervisor for Improvement             Final submission after correction                           Conclusion: The above present paper is based on the proposal for the research on identifying and analyzing the impact of supply chain issues in China on the international business. The entire research would be a descriptive research that incorporates the qualitative analysis of the data that would be gathered from the primary and secondary data collection tools. The philosophy of the research will be of Phenomenology, and the proposed research will use the approach of naturalist–constructionist paradigm. The complete duration of the research will be of six months, and it will be completed section wise. The breakdown of the work has been done on month wise basis. As per the topic of the research, a brief review of the literature has been presented in the proposal that has incorporated part of the thorough analysis of the subject related to the supply chain management in China in relation to the international biasness. References Bolton, J. (2004). Supply Chain Management in China: Trends, Risks, and Recommendations. Mthink, Available from http://mthink.com/article/supply-chain-management-china-trends-risks-and-recommendations/ [Accessed 22nd March, 2015] Brubaker, R. (2007). But I thought everyone saved money in China. 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Dynamic outsourcing to contract manufacturers with different capabilities of reducing the supply cost. International Journal of Production Economics, vol. 86, pp. 63-80. Kumar, S., & Sosnoski, M. (2009). The Effects of China's Economic Growth on Domestic and International Supply Chains: Assessing the Risks. In Supply Chain Forum: an International Journal, Vol. 10, No. 2, pp. 10-24. La Londe, B. (2004). From outsourcing to “offshoring”-Part 1. Supply Chain Management Review. La Londe, B. (2005). Extending the enterprise. Supply Chain Management Review. Maniscalco, M. (2004). Manufacturing in China? The true cost may surprise you. IMM Magazine, Boothroyd Dewhurst, Inc, , Available from http://www.immnet.com/article_printab le.html?article=2491 [Accessed 22nd March, 2015] McNulty, E. (2007). The Chinese risk. Harvard Business Review, Available from http://discussionleader.hbsp.com/mcnu lty/2007/06/the_chinese_risk.htm [Accessed 22nd March, 2015] Ruwitch, J. (2007). Disney case highlights China supply chain pitfalls. Reuters. , Available from http://www.reuters.com/articlePrint?art icleId=USSP16307520080212. [Accessed 22nd March, 2015] Saunders, M. N., Saunders, M., Lewis, P., & Thornhill, A. (2011). Research methods for business students, 5/e. Pearson Education India. World Meters. (2015). China Population. Available from http://www.worldometers.info/world-population/china-population/ [Accessed 22nd March, 2015] Read More