China, the giant economy has dominated the news agenda recently just like their dominance in the manufacturing arena. Several proposed reforms have caught more attention than others, such as the relaxation of the one-child policy, now that China’s population is aging. However, business reforms carry tremendous implications that are likely to affect not just companies currently outsourcing to China, but also those who are competing with Chinese suppliers in the global supply chains on all continents. The global market generally has welcomed China’s reforms, albeit with guarded optimism although inherent conflicts of interests in of these reforms are readily apparent. Nonetheless, it is clear that the China has made the first move towards balancing the economy, which so far has been dominated by state-owned enterprises (SOEs). Bloomberg Businessweek notes: “On the one hand, China can’t continue growing the way it has, and indeed risks social and economic fracture if these reforms aren’t carried out. On the other hand, by pursuing these reforms the party is diluting its control in multiple ways”. From a business standpoint there is one clear message: everyone has to take the game to the next level in order to survive. For state-owned enterprises (SOEs), given the likely future of intense competition with private organisations, this implies an immediate need to make sure they stay on top by transforming their supply chains. Even though the 60-point reform plan still hints at government support to help SOEs maintain their dominance, SOEs have to take on greater responsibilities by giving back more to the government. Comparing the role of a supply chain in an organisation with a backbone of the human body, Vivek Sood – Managing Director of Global Supply Chain Group – added: “Amid this changing landscape for China, the structure, mobility and capacity to act have become more vital than ever. As such, an organisation’s entire ability to execute depends on their Supply Chain Capacity. Unfortunately, many SOEs continue to rely on twisted spines of convoluted supply chains.” Private companies welcome the reform as a sign of reduced state monopoly, but also admit that the low cost strategy has been a losing strategy for them in recent years. In fact, many Chinese manufacturers have invested in lean technologies to boost performance and profits. Some ambitious ones who are confident about their supply chain management have even bought Western brands such as the case of Lenovo buying IBM. Western players who have seen China as part of their business model may need to figure out the likelihood and intensity of impacts from these reforms on their global supply chains. They may either rejoice at the possibility of having more quality-focused suppliers, or find themselves in stiff competition from other local manufacturers. Vivek Sood, author of the widely acclaimed book “The 5-Star Business Network”, stressed: “Supply chain strategies will be good only when they are devised with due deliberation, taking into account all the factors that surround the key decisions incorporated into them. Policy reforms are welcome first steps – yet a lot of work needs to done for configuring the new business networks in order to bring the bacon home.” Click here to get first three chapters of the book The 5-STAR Business Network
November 21, 2013
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