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Organization of the logistic chain in the Chinese international trade Small and medium-sized domestic logistics providers Generally private owned, with a regional or local scope, they usually focus on one or two vertical key industries. They have own assets and limited financial resources but are well know for their flexibility to serve their customers. They have little name recognition. Some have evolved from transportation, storage or wholesale companies into Logistics providers by expanding the scope of the services they offer. They have become the acquisition targets of multinational companies that want to grow quickly in China. Foreign Logistics providers European, North American and Asian multinational firms or new Wholly-foreign-owned-Entities (WFOE’s) and smaller firms working in niche markets. Most of the international logistic companies enter the Chinese market to provide extended services to their clients entering the Chinese market. They enjoy broad networks in their market of origin and high levels of sophistication in the services provided. They used to need local partners to provide services in China and have difficulties to attract domestic customers because of their higher costs. There are about 25-30 leading international companies. They sometimes lack of local know-how and need to build relationships with governmental authorities. These companies are following two ways to expand into domestic market, partnering or acquiring with local companies, to gain access to assets and clients while providing logistics capabilities. Logistics divisions of manufacturers and processors They are shippers’ in-house logistics providing services to internal customers. In some cases shippers use their own freight as a platform to get into logistics business directly or through joint ventures with foreign companies. Some difficulties to sell services to its own sector (lack of trust of their competitors). II.I.6. Use of logistics providers The potential demand for outsourcing logistics is very high in China. According to the latest survey “2005 China Logistics User Survey” from China Supply China Council: � 56% companies are currently using 3PL, (low percentage if compared to 70-80% in Western Europe and North America). � The top three services currently outsourced are Transportation (30%), warehousing (15%) and custom clearance (12%). � Only 20% of the respondents consider 3PL as a “Solution provider”. 3PL are still not perceived differently from transportation companies and warehouse operators. � The main criteria when selecting a 3PL provider in China are price, followed by local market experience, services range and good reputation. � 65% of manufacturers and retailers have their China logistics decisions taking place within China, 16% in Asia Pacific Headquarter, and 18% outside Asia. � The main problems impacting China logistics are: High logistics costs (47%); Quality of transport (13%); Reliability of Logistics providers (11%); Quality of service level (8%); Local regulations (8%); Quality of data and tracking (4%); Quality of infrastructure (2%). CEIBS Port of Barcelona Chair of Logistics 9
Organization of the logistic chain in the Chinese international trade According to Mercer survey in 2002, 70% of multinational companies outsource logistics while only 20% of domestic companies do. In general, Chinese companies still maintain a large number of logistics facilities which constitute a considerable proportion of their total assets. Chinese Government is strongly encouraging the outsourcing of logistics. The pressure to low cost is also a driver for companies to focus on core-business and outsource logistics. However there are still several constraints for domestic companies on the demand side: o Difficulty in coordinate if logistics activities come from different companies o Low methods to reduce operating costs and improve logistics efficiency o Difficulty to divest their low efficiency facilities and extra-personnel According to the last surveys about outsourcing logistics, the main reasons for not outsourcing are: o In-house capabilities still available o No confidence in service level of current logistic providers o Good providers not available II.I.7. Logistic Market Regulation China’s regulatory frame Numerous licenses and permits are required for Logistic companies to operate in China. Operating licenses and permits are provided by different ministries, provincial authorities and municipalities. Obtaining them can be time and resource consuming. The central government authorities involved are: • The Ministry of Communications (MOC) responsible for road and water transportation; • The Ministry of Railways, responsible for rail services; • The Ministry of Commerce (MOFCOM) (the former Ministry of foreign Trade and Economic Cooperation (MOFTEC) ) handling licenses for freight forwarding and other services; • The Civil Aviation Administration of China (CAAC) attending to aviation matters, • Customs for goods coming in and out of the country and • The State of Postal Bureau. The basic permits for foreign-invested international transportation joint venture enterprises to establish legal Entity (Joint venture) are: • Foreign Investment Enterprise Approval Certificate • International Freight forwarder Certificate (or “Class A License”) • Business License issued by State Administration for Industry and Commerce Companies also need to apply for key licenses depending on the activity. The operating licenses in China per service are: • Air cargo Agent permit • NVOOC registration certificate • Custom broker License • Custom Bonded/Supervised Warehouse license issued by Customs • Entrustment certificate for express services CEIBS Port of Barcelona Chair of Logistics 10
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Untitled - China Europe International Business School

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