[photopress:logistics_China2.jpg,full,alignright]Booz Allen says very firmly that the implications for the supply chain clear — even more so than in Western markets, companies operating in China must have different supply chains to meet the needs of groups of individual product-markets.
Edward Tse in a recent issue of Booz Allen’s Strategy + Business magazine wrote:
‘In working with multinational companies that enter China, either to manufacture goods or to sell to Chinese markets, we can almost always tell which ones will succeed and which will probably fail.
‘Too often, Western companies think they can profit in China by simply focusing on the largest and most well-known metro areas such as Beijing, Shanghai, or Guangzhou. But today that is unlikely to be enough.’
Companies frequently must set up distribution ‘into second-, third-, or even fourth-tier cities. Doing this is not as easy as, say, expanding beyond New York and Chicago to Buffalo and Peoria. As you move into China’s second-, third-, and fourth-tier markets, you’ll find a steep drop-off in infrastructure, channels, management sophistication, and disposable income.’
Procter & Gamble is already doing that and setting up very different supply chain capable of physically delivering products effectively to these more remote markets – and at a cost to make and deliver at even lower levels than is required for the first tier cities.
Tse notes that until just a decade ago, most milk outside the largest cities was consumed in powdered form, as production and distribution systems could not get regular milk safely to consumers.
But as the supply chain solved that problem, Chinese milk demand exploded — allowing a few companies to profit handsomely and continue to enjoy high growth rates. (Our illustration may not be directly associated with logistics but it is the on the opening page of the Procter & Gamble site and is dashed attractive.)
Source: SupplyChain Digest