In the 1960s and 1970s, China was known as a developing nation where labor was available at the cheapest rate. Its government was trying to establish worldwide trade routes by expanding its commerce with various countries. China was once a developing nation trying to shift its economy from the agrarian to the secondary and tertiary sectors. It made investments in technology, infrastructure, and training, and the rest is history. [Guest post by: Somen Jagtap]
Economic Development of China
The economy of China was not that great compared to other countries like the U.S. and Germany, but in 1978, China enacted economic reforms. They allowed the farmers to sell their products in the open market, and the Chinese Govt. supported the farmers and local manufacturers to a great extent.
In 1980 China became a member of the World Bank and IMF, thus establishing four SEZs (Special Economic Zones) at the southwest border of China (Xiamen, Shenzhen, Zhuhai, and Shantou). Along with these four, Hong Kong also played a significant role.
China‘s Supply Chain
So, how did this help to boost the supply chain and logistics sector? As the Special Economic Zones were created, China made sure that these cities willfully allowed foreign investment to enter China, resulting in the growth of the manufacturing sector. They also made sure products produced in China were cheaper than any other market; thus there was a rise in demand for Chinese products from all around the world.
To meet this demand, China had to improve its supply chain, and the first thing they studied was how to bring technology in the logistics sector, which helped reduce the lead time for any shipment from China. This was followed by a high level of transportation infrastructure investment and new economic reforms which acted as an icing on the cake. China also focused on the Logistics of Everything, where they emphasized customer experience and last-mile delivery.
China articulated mass distribution of goods to various cities and countries. So much so that China can deliver over 140 million packages in a day. Functioning in a low-cost environment, the Chinese Govt. made sure that delivery costs wouldn’t be more than about one US dollar per delivery. This is about one quarter of average delivery costs in the US, although it could also be said that China’s cheap yuan policy acted as a helping hand.
The ease of buying was another primary reason why China’s supply chain became so significant in the world. They focused on accessible mobile applications for ordering goods, tracking shipments, and keeping return policies very lenient with minimum customer involvement.
CAN INDIA MATCH THESE STANDARDS?
The covid pandemic has played a significant role for India. Problems in receiving products from China have prompted people and companies to see the potential of India replacing China as the world’s production House. But can India match the standards set by China? Yes, definitely. But will it be immediately? NO.
Shifting any manufacturing operation from country A to country B is not an easy task. Many ancillary services are attached to this, and all must be completed before starting production in the new country. This applies especially to the supply chains of that new country.
We all know China’s logistics and supply chain infrastructure is the best or one of the best in the world, followed by the U.S., Singapore, Japan, etc. To address the elephant in the room, we must admit that India’s supply chain infrastructure is one of the worst in the world. There is no one reason for this as multiple factors are involved:
- First and foremost is the lack of logistics expertise in India. In recent times however, people are looking at Supply Chain and Logistics as a career option, and companies are focusing on this sector as the critical backbone of economic development.
- Secondly, the road transportation market is very fragmented with acute inefficiencies. There are demand and supply mismatches, low utilization rates, low pricing and low wages. As a result, transportation services in India can be unreliable, and unprofitable.
- Advanced logistics services such as supply chain management, inventory management, logistics consulting, and data analytics are still under-developed in India. The majority of logistics services providers are not capable of offering complete supply chain management services.
- Unfavorable government policies in previous years made it unattractive for companies to make heavy investments in logistics
Since 2015, government policies have now swung in the other direction. Regulations have changed to support investment, while urbanization and consumption upgrades are driving increasing supply chain activity. Structural shifts within companies toward outsourcing more of their logistics functions enable new logistics providers to enter the market. These new players need to focus on developing expertise in information systems, and building an experienced team of supply chain professionals who can offer integrated logistics services.
Technology requirement
Integrated logistics services providers rely heavily on information technology in transportation, warehousing, inventory management, and other logistics processes. The capital and expertise required to build and operate effective integrated information systems are significant, and often become barriers for new logistics companies seeking to enter the market.
Experienced management team
An experienced management team with solid expertise in logistics is necessary for companies to compete successfully within the logistics services industry. However, as there is a limited supply of experienced management in India’s logistics services industry, new entrants must provide considerable incentives to recruit experienced management individuals from established companies.
Reputation and client relationships
Integrated logistics services providers build their brand reputations over time through clients’ experience, and new entrants’ lack of brand reputation makes it difficult to convince clients to trust their competence. Since logistics services can be highly integrated with clients’ operations, from sourcing raw materials to inventory management and the delivery of final products, the risk of selecting a less well-known logistics services provider can be very high.
Conclusion
Establishing a supply chain to compete with developed nations will be a mammoth task for India. But with the right mindset and flexibility, India can rise to this challenge and meet the high standards of supply chain operations required to compete successfully in the global market.
Author Bio:
Somen Jagtap – Supply Chain and Logistics Professional || Six Sigma -Yellow belt || UniMentor || Freelance Supply Chain Content Writer. LinkedIn Profile: https://www.linkedin.com/in/somen-jagtap-77b258146/