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Article Excerpt
China has become a global manufacturing center with its high economic growth rate. Since its economic reform and opening up in 1978, China's economy keeps booming, with an annual GDP growth rate of nearly 10 percent. Some economists forecast that China will become the second largest economy within twenty years (Wang et al. 2006). To take advantage of its immense market potential, many multinational enterprises have entered the market and China has become a major recipient of foreign investments in the world.
China's logistics industry has entered a stage of fast growth. There exist tremendous opportunities as well as intense competition, especially since China entered the World Trade Organization (WTO) in 2001. The average annual growth rate of the logistics industry in China was 22.2 percent, and logistics expenditures accounted for about 21.8 percent of the GDP between 1992 and 2004 (Wang et al. 2006). The logistics industry reported an annual growth rate of 31 percent in 1999, 35 percent in 2000, 55 percent in 2001, and was expected to continue to expand quickly in the near future (Bolton and Wei 2003).
There are three sorts of players in the market in terms of their ownership (i.e., state-owned, private, and foreign logistics companies). Under a centrally planned economy, only state-owned logistics providers were allowed to enter the market, which offered transportation and warehousing services, but rarely performed value-added and other logistics activities. In 1978, the government reformed the logistics industry through establishing a new commodity circulation system. In this system, state-owned enterprises played a leading role, while private companies were encouraged to engage in some logistics activities. Some restrictions to foreign logistics investments were not removed until China entered the WTO in 2001. Most restrictions to foreign investments were removed at the end of 2005. The promising market potential has encouraged many foreign companies to enter the market, including some leading logistics service providers, such as UPS, FedEx, and DHL (Hong et al., 2004).
In light of the increasing interest in both third-party logistics (3PL) providers and China as an emerging player in the world economy, an understanding and assessment of China's logistics service providers is appropriate and timely. However, little research has been done on the Chinese logistics from the providers' perspective to date. This research attempts to enrich the literature by examining the industry structure, current status, and future prospects of the Chinese logistics. We also attempt to identify the differences between various providers (i.e., state-owned, private, and foreign logistics companies), and factors that contribute to profitability as well as the use of advanced information technology. Some suggestions are given for logistics managers and policy makers in the end.
LITERATURE REVIEW
Logistics in China
Some articles have investigated the Chinese logistics from various perspectives. Many multinational enterprises find it difficult to implement coherent strategies due to poor transportation (Speece and Kawahara 1995). Carter et al. (1997) find several shortcomings of local logistics providers, especially their undependable services and unresponsiveness to customers' needs. Normally, young foreign companies cannot achieve high levels of local purchasing, and managers have to develop both technological and management expertise in their local suppliers (Zhang and Keith 2001). Luk (1996) reviews a series of distribution reform activities and finds that some problems, such as regional differences, still exist and deter the development of Chinese logistics industry. Jiang and Prater (2002) conclude that although there are some barriers to logistics development, three factors (i.e., booming economy, entering the WTO, and e-commerce) provide opportunities for the Chinese logistics service providers. Hong et al. (2004) examine the Chinese manufacturers' usage of outside logistics services and find that there is an increasing trend for firms to outsource logistics services. Major dissatisfaction is caused by rate level, poor on-time delivery performance, and limited service offerings.
Considerable research has been done concerning strategic decisions of logistics providers in China. For instance, Wang et al. (2006) examine strategic postures of 3PL providers in China. They find that differentiation strategy users perform better, and companies pursuing cost leadership are shifting towards differentiation strategy under the pressure of intense competition. Hong and Chin (2006) study location decisions of foreign logistics providers in China based on a census database. They find that the location decisions are determined by market size, labor cost and quality, transport conditions, and government policies. In addition, foreign logistics firms tend to cluster in cities with a large number of existing logistics providers, confirming the existence of logistics agglomeration.
Third-Party Logistics Providers
Many studies have been done on logistics providers in the United States. Leahy et al. (1995) find that the typical U.S. third-party logistics provider is relatively young. Over 50 percent entered the industry since 1985, and many firms provide a wide range of value-added services. Murphy and Poist (2000) compare user and provider perspectives on third-party logistics in the U.S. They note a mismatch between the 3PL services offered and used, but a high agreement between 3PL providers and users regarding the key factors in successful third-party relationships. Lieb and his colleagues have studied third-party logistics providers in the U.S. or North America (Lieb and Randall 1999; Lieb and...
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