Page 268 - DMGT545_INTERNATIONAL_BUSINESS

Unit 14: International Production and Logistics Management

In practice, location decisions are seldom clear-cut. For example, it is not unusual for difference notes
in factor costs, technological factors, and product factors to point toward concentrated
manufacturing while a combination of trade barriers and volatile exchange rates points towards
decentralized manufacturing. For example, world automobile industry. Although the availability
of flexible manufacturing and cars’ relatively high value-to-weight ratios suggest concentrated
manufacturing, the combination of formal and informal trade barriers and the uncertainties of
the world’s current floating exchange rate regime have inhibited firms’ ability to pursue this
strategy. For these reasons, several automobile companies have established ‘top-to-bottom’
manufacturing operations in three major regional markets: Asia, North America and Western
Europe.

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Caselet Japanese firm in china (logistics Barriers to international
operations)

oreign Direct Investment (FDI) to China has increased rapidly in recent years.
In the 1990’s, many foreign firms shifted their manufacturing base to China to utilize
Fthe cheap labor costs. Since China joined the WTO in 2000, an increasing number
of foreign firms are entering China to take advantage of the business opportunities in the
potentially huge market. Japan is a leading country in investments in China, and the FDI
from Japan has increased from 137.7 billion Yen in 1998 to 670.0 billion Yen in 2008 (MOF,
2009). Joint Venture Enterprises (JVEs) and Foreign Investment Enterprises (FIEs) account
for about 90 percent of all FDI in 2008. Additionally, Japanese firms tried to establish
local suppliers instead of importing from home. Recent data shows that local supply has
increased to 50 percent from 10 percent in 1995 (JCIPO, 2007).
Subsequently, there has been a rise in the distribution of materials and products in local
markets. However, most of these firms encountered logistics problems in distributing their
products in China. The reason for this is the development of the Chinese logistics industry
has fallen behind the rapid economic growth and increased demand for distribution. As
a result, some Japanese firms have begun to establish efficient logistics networks in their
operations in China.

The Chinese government has begun to formulate logistics as a strategic industry and invested
heavily in improving infrastructure, such as nationwide multi-modal transportation
networks and large-scale logistics centers. The logistics barriers foreign firms encountered
in China have been changing, and some new challenges have become concerns for the
Japanese firms.
Logistics problems greatly affect the business operation and performance in a huge
developing market such as China. Foreign firms in different industries are establishing
effective logistics strategies in their operations in China due to the growing importance
of China’s economy. The continuous success of those firms in the Chinese market may
depend on how well they deal with the problems encountered there.
The entry of foreign firms to the Chinese market will certainly encourage the development
of the logistics industry, and will stimulate local logistics providers to learn and achieve
logistics efficiency and modernize the logistics industry. It is important to recognize the
challenges posed when entering the Chinese market and to anticipate how those issues
can be improved and shaped in the future. The present study has identified that quality;
cost and delayed delivery are seriously affected by logistics problems. Also, the logistics
flow within China is where most problems regarding logistics arise in the entire business
operation.

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