State of third party logistics providers in China
| Pages | 1322-1343 |
| DOI | https://doi.org/10.1108/IMDS-06-2014-0179 |
| Date | 07 October 2014 |
| Published date | 07 October 2014 |
| Author | Albert Wee Kwan Tan,Zhao Yifei,Dali Zhang,Olli-Pekka Hilmola |
| Subject Matter | Information & knowledge management,Information systems,Data management systems |
State of third party logistics
providers in China
Albert Wee Kwan Tan
Malaysia Institute of Supply Chain Innovation, Selangor, Malaysia
Zhao Yifei and Dali Zhang
Antai College of Economics and Management,
Shanghai Jiao Tong University, Shanghai, China, and
Olli-Pekka Hilmola
Department of Industrial Management,
Lappeenranta University of Technology, Kouvola, Finland
Abstract
Purpose – The purpose of this paper is to identify global trends in the third-party logistics (3PL)
industry, and with that to find out where the opportunities and challenges lie, what the critical success
factors are, and how companies can position themselves well in China. As there is currently very
limited knowledge about the 3PL industry in China, this study also intends to shed light in this area.
Design/methodology/approach – The study is conducted through focus group interviews with
senior executives of leading 3PL companies in China followed by a survey with 70 logistics companies.
Findings – The key strengths of the logistics industry in China include numerous factors such as
good connectivity and new infrastructure, while its main weaknesses are a shortage of qualified staff
and slow adoption of technologies. There are a number of concerns and issues raised, such as lack of
qualified staff, oversupply of warehousing space in China, competition from the influx offoreign 3PL
companies to China, and regulations on free trade zones, seaports and airports, all of which may have
policy implications.
Research limitations/implications – As most of the logistics companies in the study are located
and dominating in the Eastern and Southern China, it may be useful to conduct similar study in the
new emerging western and central regions of China for comparison.
Practical implications – Managers and investors will appreciate the challenges and opportunities
in logistics services in China and have a better insight into Chinese logistics development.
Originality/value – While China has been viewed as a cost effective place for manufactu ring, the
logistical costs in China are still very high as comp ared to other developed countries. This research
will highlight the key reasons for the high logistical cost in China.
Keywords China, SWOT, Supply chain, 3PL, Logistics industry
Paper type Research paper
1. Introduction
A third-party logistics (3PL) service is something more than just subcontracting or
outsourcing (Marasco, 2008). Typically, subcontracting or outsourcing covers one
product (or a family of products) or one function that is produced by an outside vendor.
In contrast, the functions performed by 3PL providers cut across multiple logistics
functions such as procurement, warehousing, and distribution. It could be argued that
3PL service is complete process, where number of functions are outsou rced, and
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0263-5577.htm
Industrial Management & Data
Systems
Vol. 114 No.9, 2014
pp. 1322-1343
rEmeraldGroup PublishingLimited
0263-5577
DOI 10.1108/IMDS-06-2014-0179
The authors would like to state sincere thanks for the companies, which participated and
contributed in this research work. This manuscript also significantly benefitted from the review
process of the journal, and authors hold gratitude for anonymous referees concerning their
remarks and improvement points.
1322
IMDS
114,9
operated by external body to gain synergies from scale and scope (Hilletofth and
Hilmola, 2010).
Without a doubt, the emergence of 3PL has become an important trend in logistical
management during the 2000s ( Jiang and Prater, 2002; Hong et al., 2004; Lau and
Zhang, 2006). While estimates vary concerning the size of 3PL, there is no doubt that
opportunities for 3PL services will continue to grow in China (Lau and Zhang, 2006;
Tian et al., 2008). One of the most recent survey research by Wang et al. (2012) showed
that the 3PL clients in China were particularly emphasizing to build the long-term
cooperative relationship with the 3PL providers. Also Wang and Chu (2012) confirm
that the trust from the clients will promote the loyalty of the 3PL providers, and help
the clients to integrating their supply chains.
While the factors driving the growth of 3PL are numerous, it is noted that declining
margins and a tougher competitive environment together with the recent positive
attitude toward outsourcing and focussing on core activities must be regarded as the
strongest drivers for the emergence of the 3PL industry. Wanget al. (2006) argue that in
Chinese environment differentiation strategy results in better performance , and
companies pursuing cost leadership are shifting toward differentiation strategy under
the pressure of intense competition. It should be noted that Chinese logistics market
has been normalizing recently to the level of other countries and this could be detected
from container handling growth in leading sea ports like Shanghai and Shenzhen
where handled amount have dropped down from the level of 40 percent p.a. to the area
of 0-10 percent p.a. (Yap and Lam, 2013).
In this study, we focusses on the emergence and development of the 3PL industry in
the Eastern and Southern China, which is the area most si gnificantly involved into the
globalization, high-technology usage, and supply chain outsourcing comp ared to the
other areas in China. It is set up to achieve thre e specific objectives as follows:
(1) To identify the global trends in 3PL, focussing in particular on those relating to
globalization, information technology (IT), and supply chain outsourcing, and
to find out how such trends are affecting 3PL companies in China.
(2) Arising from such trends, to ascertain where the opportunities and challenges
lie, what the critical success factors are, and how 3PL companies in China
should position themselves more competitively.
(3) To contribute further understanding of the 3PL industry in China by
researching on several key issues about the industry.
The 3PL industry in China is developing rapidly and is gaining an imp ortance
particularly in its eastern and western area. Such developmen tis strongly encouraged
by the government in China, which aims to develop the country into a premium
integrated transport and logistics hub with supply chain management competen ce to
strengthen her position in international trade, supp orting its manufacturing and
business hub. Chines e market is twofold (Jiang, 2013a): since 2006 inter national
logistics corporations have been able to act freely in the market, and they have used
acquisitions and greenfield establishment aggressively. However, on the other hand,
market consist numerous domestic logistics companies, which in gene ral could be
considered as small ones, having thin profit margins and low asset base. As main
feature in recent years in China has been the enlargement of operating area to Central
and Western districts as well as the emergence of foreign competition ( Jiang, 2013a).
Hong and Chin (2007) argue that 3PL location decisions in China are determined by
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Third party
logistics
providers
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