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Strategic Opportunity Analysis of the Chinese Logistics and Supply Chain Management Market
Frost & Sullivan, Oct 2005
Growing Chinese Economy Likely to Drive Logistics and Supply Chain Management Market
The attraction of foreign direct investment (FDI) as China's gross domestic product (GDP) grows is expected to serve as a major boost for the logistics and supply chain management market in the country. The Chinese economy is displaying positive signs with a growth of almost nine per cent every year. As the economy grows, more manufacturers will be keen on investing in China, thus hiking demand for logistics and favourably impacting supply chain management market as well.
This Frost & Sullivan research service provides an in-depth look into the status of Chinese logistics and supply chain management market as well as future trends, especially for the third-party logistics (3PL) market, and forecasts up to 2011. It also examines the Chinese transportation sector, studies the logistics management in different industry sectors and identifies strategic market opportunities. In addition, this study evaluates the supply chain management market dynamics in China.
Potential Dampers Expected to be Smothered as Market Matures
This developing market is characterized by poor infrastructure, unsystematic and complicated policies, high transportation cost, poor information technology infrastructure, lack of experienced personnel as well as imbalanced regional development, according to the analyst. Despite these challenges, China’s GDP, which is expected to maintain a level of fast development, is likely to help attract FDI and the market is expected to witness double-digit growth rate in the next five years (2006-2011).
The rapid growth of the Chinese economy has made it a favourable business destination. Multinational companies (MNCs) have increasingly begun establishing manufacturing plants locally. The cheap labour, highly skilled work force and hospitality in terms of Government regulations that favour foreign investment have positioned China as a manufacturing hub. Moreover, MNCs are also bringing their 3PL applications from abroad and raising the demand for 3PL services to support their manufacturing locally. With Government support and increasing encouragement in terms of investment, this market is likely to grow sharply and see the eventual ironing out of challenges.
Government Support as well as Upcoming Olympic Games and Shanghai Exposition Strongly Encourage Market Growth
Despite hesitance to invest in China due to stringent bureaucracy, FDI is pouring in as a result of impressive GDP and economy growth year on year. In a move to encourage further investments, the Chinese Government has begun changing regulations and simplifying operational processes. In addition, China's entry into the World Trade Organisation (WTO) has created a bout of liberalisation in the domestic logistics sector, including allowing foreign companies to operate wholly owned logistics units since December 2004. In addition, preparation for the 2008 Beijing Olympic Games and the 2010 Shanghai Exposition requires huge amounts of materials and cargo to be prepared and moved locally as well as internationally. As a result, the demand for logistics is expected to rise sharply.
The Chinese logistics industry is willing to open up to global competition and has potential for growth despite significant challenges. While globalization is expected to regulate this market in the following years, merger and acquisition activities are likely to provide the next step to the integration of capital, material, network, services and other resources, explains the analyst. In such a scenario, foreign logistics providers are expected to have more opportunities to develop their own strategies to obtain leadership positions in the Chinese logistics market, thus making it a highly competitive but profitable arena.
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