Multinational companies no longer position China as just a source of cheap manufacturing. Increasingly companies are relocating or opening research and development, procurement and other core functions to China. Moreover, China's critical role in global supply chain has been increasingly recognized by multinational companies. However, due to underdeveloped supply chain infrastructure and a lag in core competency buildup in the supply chain, companies are facing a range of supply chain challenges in China: multiple layer distribution system with limited sales visibility; lag in real time information sharing; long logistics lead time and high logistics cost; shortage of qualified suppliers and inadequate supplier management.
China is becoming increasingly integrated into the global economy, through trade, foreign direct investment and cross-border M&A. China's economic growth and integration into the global system has fostered an increase in Chinese companies that expanded their operation overseas, including production, sales and marketing, distribution and customer services. However, most Chinese companies are still in the early market entry stage of globalization and therefore face a number of supply chain challenges. These supply chain challenges include: low end product image, difficulty in understanding overseas markets, lack of management expertise in building up the logistics and distribution networks overseas, and complex post M&A supply chain global integration. All of these supply chain challenges are major obstacles which hinder the growth of both Chinese and multinational enterprises within and outside of China's marketplace.
In order to capture growth in a globally connected world, we believe that building a "Globally Integrated Supply Chain" is fundamental to success. In order to successfully participate in a Globally Integrated Supply Chain, companies must build up the following areas of core competencies: leveraging global assets for peak performance and effectiveness; differentiating capabilities for local markets; synchronizing supply and demand; incorporating sustainability in strategies and processes; managing risk with global partners and enabling collaboration and supply chain visibility.
Both multinationals operating in China as well as Chinese companies are facing various supply chain challenges and risks. To successfully integrate into the China supply chain and the global supply chain, companies need to implement specific actions to address China-specific challenges as well as build up core competencies targeted at operating in a Globally Integrated Supply Chain. These actions include, but are not limited to: taking a holistic view for improvement and optimizing the network; developing flexible and scalable operations; removing obstacles to collaboration; conducting a supply chain due diligence study prior to cross-border M&A; and proactively mitigating supply chain risks.
The ability of a company to successfully integrate the China supply chain with the global supply chain will decide whether they are going to win in the China and global marketplace. Companies should take early actions to set their supply chain improvement agenda, continuously prioritize it and align it with their global and business strategies.
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