Term Paper: Supply Chain Management Logistics China Has Transformed

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Supply Chain Management Logistics

China has transformed itself in recent years from a dormant, introspective giant into a dynamic juggernaut that has major potential significance to the global economy. Indeed, China's economic performance and exports have increased dramatically during the past decade, and experts predict that these trends will continue well into the future. With an estimated 20% of the world's population, China now represents almost 4% of world merchandise trade and a substantial percentage of global production as well. A concomitant of these trends has been an increasing reliance on outsourcing as a strategic business structure in many Chinese companies today, but there are some distinct constraints to the process that have been identified in the scholarly literature in recent years. Therefore, in order to identify how supply chain managers in China are adopting Western outsourcing practices in a wholesale fashion or modifying them to fit their unique needs, this study provides an overview of outsourcing and some of its common applications, followed by an assessment of outsourcing practices in China today. An analysis of current and future trends is followed by a summary of the research and salient findings in the conclusion.

Introduction

Review and Discussion

Background and Overview

Outsourcing Activities in China Today

Current and Future Trends

Conclusion

An Analysis of Outsourcing in China Today

Introduction

By any measure, China is on a roll. Today, China is emerging as a major player in the world economic arena and accounts for 20% of the world's population, and a significant share of global output. According to Michalski, Miller and Stevens, "With trade and production expanding at double-digit rates, the implications for many international markets as well as for the global system of trade and investment in the 21st century are quite daunting" (3). Indeed, the country's economic performance in recent years has surprised even many optimistic economists and, barring any unforeseen circumstances in the short-term, China appears well poised to fulfill its promise to make the 21st century the "Century of Asia." In this dynamic environment, identifying methods whereby Chinese companies are solving their supply chain logistics problems has assumed new relevance for supply chain managers in the West. To this end, this paper provides an overview of outsourcing and some of its common applications, followed by an assessment of outsourcing practices in China today. An analysis of current and future trends is followed by a summary of the research and salient findings in the conclusion.

Review and Discussion.

Background and Overview. Certainly, while the practice is becoming increasingly common today, outsourcing is not new. In this regard, Domberger (1998) reports that, "The contracting and outsourcing of goods and services are not new. Those who dismiss contracting as nothing more than the latest in a series of short-lived management fashions should take a longer look back in time. In the private sector, there are well-documented historical accounts of the contracting of specialist metal manufacturing functions in nineteenth-century England" (8). Outsourcing gained momentum during the closing decades of the 20th century when many large companies experienced a fundamental restructuring of their organizational structure and began adopting new business models that focused on core competencies, downsizing the workforce, and outsourcing non-core business activities in the process (Zhang 19).

According to this author, during the 1990s, "Giant firms underwent internal management reorganization to get 'fit' for the fast changing environment. Practices of de-layering, downsizing, outsourcing, privatization were adopted widely. The corporate headquarters were downsized to cut overheads and many of their activities were outsourced" (Zhang 23). There have been some recent events that have both accelerated the process as well as introduced new dilemmas for supply chain managers. For example, in their essay, "Has Outsourcing Gone Too Far?," Doig, Ritter, Speckhals and Woolson (2001) report that, "Global access to vendors, falling interaction costs, and improved information technologies and communications links are giving manufacturers unprecedented choice in structuring their businesses. Through outsourcing, companies can now dump operational headaches and bottlenecks downstream, often capture immediate cost savings, and avoid labor conflicts and management deficiencies" (25).

At first, most companies in the West outsourced manufacturing jobs; in recent years, though, many companies have been outsourcing service sector jobs in an effort to save money. "The Internet facilitates this strategy," Dulebohn (2005) adds, "and any service activity that can be done via wire and does not require face-to-face interaction with a customer may be outsourced. This trend is not limited to low-skill service jobs, such as data entry and call center jobs, but increasingly includes the use of high-skill, low-cost foreign labor for high-skill service jobs" (46). The decision to outsource a specific function, then, is a strategic one that requires careful assessment because the consequences of a misstep can be severe. According to Chow (2000), "Outsourcing can be a strategic logistics design decision that will impact the ability of the company to compete on the basis of logistics capability. Where logistics has a significant impact on cost or customer service, the outsourcing decision will be critical in gaining or maintaining competitive advantage. Outsourcing is also strategic because the decision allocates resources and such decisions cannot be reversed overnight" (2).

Generally speaking, outsourcing involves a long-term contractual relationship for business products or services from an external provider; such relationships are becoming increasingly popular in a wide variety of business activities. According to Lever (1997), "Firms widely outsource in areas once strictly considered internal domains, such as human resources" (37). Indeed, human resources functions emerges as one of the most common being outsourced by many companies today, but other functions such as information technology, have also been affected. Another recent trend has been the outsourcing of goods and services, with the push being away from the procurement of products per se, towards what might be described as the "product-plus" scenario. For instance, Fineman (2000) suggests that this move focuses on a concern to specify the type of outcome that is required by the purchasing organization, leaving some flexibility for the supplier to satisfy that requirement through a mix of product, expertise and service. Furthermore, modern technological innovations have provided even more opportunities for outsourcing of an unprecedented type and scale (Taylor 367).

Some of the recent trends in outsourcing as a function of Supply Chain Management are shown in Figure 1 below.

Figure 1. Supply Chain Trends - 1990 - to Date.

Source: Chow 1.

In sum, outsourcing can be viewed as being part of an economic transformation in which the linkages of production now reach around the world, but not just for high-profile products such as automobiles, but for services as mundane as telephone directory information as well (Taylor 367). "Outsourcing does cause economic disruption," Taylor adds, "like all productivity improvements (and for that matter, all new laws and regulations), but it is also one way in which the economy seizes the opportunities offered by the transformative advances in computer and telecommunications technologies" (368). Indeed, any benefits to be gained through the outsourcing function will be the result of careful administration and may take longer than many managers expect: "Most [companies] stumble into outsourcing arrangements expecting to save big from automatic economies of scale. Yet the service provided would have to be highly standardized in order for that to happen. Such plain vanilla engagements are rare. Outsourcing benefits are gained gradually and there is always a period of transition where you spend more time and effort than you imagined" (Bielski 38).

In fact, while outsourcing may appear as the right course for companies trying to reduce costs, experience has shown that this is not always the case. "Often the economic savings are less than anticipated," Dulebohn cautions. "Further, as with other cost-reduction strategies, there are human resource implications such as decreased morale among employees as well as the loss of control over primary organization assets such as company data and innovative technology and techniques" (46). The benefits to be gained through an effective outsourcing regimen - as well as the associated pitfalls -- have not escaped the savvy business managers in China either, and these issues are discussed further below.

Outsourcing Activities in China Today. In many ways, the same processes that have fueled the need for outsourcing in the West have been at play in the burgeoning economic juggernaut that is China today. Just as the human resources function has been outsourced in many Western countries, for example, the outsourcing of human resources (HR) services and the growing use of e-human resources techniques have also been adopted by firms in China (Cooke 13). According to this author, "Two recent developments are influencing the ways in which the human resources service is delivered in organizations in the Western economies. One is the increasing use of HR outsourcing specialist firms. The other is the adoption of e-HR. The increasing use of HR outsourcing by firms over the past decade is necessarily a management strategy in response to accelerating competitive pressure. Firms outsource (part of) their HR function for reasons such as cost reduction, improvement of service through… [END OF PREVIEW]

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