In his latest column Mark Millar looks at how China is developing two economic markets, and the impact this could have on domestic and multi-national companies alike
In continuing its impressive development path of recent decades China has become two economic markets that are interconnected and converging:
its Global market which is driven by mass production for export to developed countries, and
its Local market which revolves around rapidly expanding domestic consumption.
Multi-national companies first came to China to capitalise on the abundant supply of low-cost labour and take advantage of the incentives to establish operations in Special Economic Zones. Nowadays they remain in China to sell products to Chinese consumers in the local market.
Factories and shops are interconnected and converging – the workers have become the shoppers. One development has fuelled the other, increasing economic prosperity across the nation. The latest saying is that the foreign companies “came to China for the workers, now they stay in China for the shoppers”.
From the China logistics perspective, the emphasis is therefore no longer purely on transporting products from factories to the ocean ports on the eastern seaboard for export to the developed markets. Nowadays there is just as much emphasis on distributing goods within-and-throughout the domestic China market - in order to reach the increasingly prosperous consumers located all over this vast country.
Continuing economic development in both production and consumption sectors brings new challenges and opportunities for the logistics industry. Although logistics in China is the backbone of the domestic supply chain, the industry itself remains complex, inefficient and fragmented.
Whilst we are seeing improvements in the quality of warehousing infrastructure – largely driven by a combination of property developers and the increasing presence of foreign enterprises and their related investments – the domestic transportation sector remains massively fragmented and hugely challenging.
As China’s economy continues to develop, the logistics sector will gradually mature, and outsourcing levels increase. The increasing presence of multinational companies in the domestic market – in particular the consumer, retail and electronics sectors - will accelerate the deployment of international best practices in logistics - embracing multi modal transportation, structured distribution networks and more efficient supply chain ecosystems.
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