RESULTADOS Y DISCUSIÓN

As mentioned at the first Chapter, the objectives of this study are as follows:

1. To understand the current situation of Chinese domestic 3PL providers

2. To discover the competitive strategies pursued by the Chinese 3PL providers

6.3 CONCLUSIONS

6.3.1 Current Situations of Chinese 3PL Providers General Situations

Under the booming economic environment, the studied Chinese 3PL companies have achieved significant progress in different aspects. As the case study companies were chosen from the list of 2005 top 100 logistics companies in China, they can be recognized as the most developed 3PL providers in Chinese 3PL industry.

The developing histories of the companies revealed that they started their business from 1990s to 2000s, and all the three companies were originated from different service areas. Among them, one was a railway transportation agent, one started its business from a shuttle bus company, and another one was an e-business company

135 originally. With different background the companies have developed themselves into advanced 3PL companies in the country. In the last three years, all the case study companies have achieved constant increase in their sales, which shows the increasing trend in the 3PL industry in China.

Currently, all the case study companies have established effective distribution networks across the country. Business offices, branches, and logistics facilities have been set up in all the main cities, a great number of the provincial cities, and some of the small cities and counties in China. To move goods between different business points, the companies have invested in and owned a range of vehicles to support their logistics operations. In addition to self-owned logistics resources, the companies have the ability to integrate some under agreement third-party resources into their physical distribution systems.

As a critical part of logistics system, information technology systems have been introduced into the logistics networks of the participating companies. All the IT systems currently adopted comprise the general information technologies used in logistics management, and advanced techniques such as RFID system has been equipped in two of the three companies. The 3PL companies have the capability to combined different IT techniques into special platforms to meet their practical needs.

With the distribution networks and information systems, the case study companies have been able to provide a full range of logistics services, from basic logistics services, to value-added services, and to supply chain solution services. The basic logistics services the case study companies are providing include: transportation, warehousing, distribution, order processing, inventory management, and services of international air and sea freight agent. The value-add services and supply chain solution service provided include: sorting and sequencing, tagging and labelling, on demand packing and repacking, quality management, cross-docking, just-in-time delivery, and merge-in-transit delivery.

136 The case study companies are providing logistics services not only to Chinese domestic firms but also international companies in China. In their customer bases, there are about 50% of the customers are international companies or companies from outside China. This means the services provided by the case study companies have been accepted by both Chinese and foreign firms. Currently, most contracts between the companies and their customers are 1 to 3 years long, and some of the contracts are 3 to 5 years long. Within the contracts, main issues of service level agreement have been clearly detailed and mentioned.

Competitive Situation

The study reveals that the competition in Chinese 3PL industry is fierce, chaotic, unfair, and even illegal. This may be closely related to the business environment in China. With the development of the logistics industry, more and more 3Pl companies are involved in the competition, especially more foreign competitors have entered the competition after China joined the WTO.

Historically formed local protectionism and persistent bureaucracy are the roots of the unfair and illegal competition, and traditional Chinese culture causes complex relationships between business entities. In today’s Chinese logistics market, bidding has been identified as the main means for the 3PL companies to gain business. In most circumstances, bidding is only a pure price competition, especially the bidding invited by customers who like using bidding as a tool to stimulate price competition. However, the biddings organized by those mature customers are more attractive to the case study companies. This is because what concerns the mature customers is not the lowest price, but the overall cost reduction.

In the current situation, Chinese domestic 3PL providers have been considered as the main competitors by the case study companies. In comparison to foreign 3PL providers, Chinese domestic 3PL providers are considered more competitive within

137 the present Chinese market. First, the Chinese domestic 3PL providers have made great progress, and they are familiar with advanced logistics concepts, new technologies and new management skills. Second, the Chinese domestic 3PL providers have relatively effective distribution networks in China. Third, the domestic 3PL providers, rooted in the Chinese culture, are more competitive within current Chinese business environment. For example, they have strong relations with local or central government.

Compared with Chinese 3PL providers, foreign 3PL providers have been found more competitive when serving international businesses, in other words, they have advantages in coping with multinational customers. Within the same market segment providing services for international companies in China, the case study companies have felt more pressure from those foreign competitors. In the competition, the foreign 3PL providers have advantages in not only management but also service and cost. Meanwhile, those who currently do not consider foreign 3PL as their main competitor believe that with the development of logistics industry in China, foreign 3PL providers would be more competitive in the future.

6.3.2 Competitive Strategy Pursued By Chinese Domestic 3PL providers

All the case study companies have their own market segment that is focusing on providing logistics services for those medium- and large-sized companies who have the similar business concepts. Within the selected market segments, the Chinese 3PL companies are pursuing both cost and service leadership. In other words, the 3PL companies are competing through cost and service advantages. To achieve competitive advantages, all the case study 3PL companies have put great effort in the following aspects.

All the case study companies have chosen developing effective distribution networks as their primary strategy. All the three companies have clearly strategies and have

138 implemented similar strategies in developing physical logistics network. Firstly, all the case study companies focus on developing country-wide distribution network that can meet different logistics requirements of customers from different industries. Secondly, all network development strategies comprise logistics base strategy, main line transportation strategy, and regional distribution strategy. Thirdly, all the physical networks have developed from coastal areas toward inland regions on the basis of customer business requirements and the shifting of government’s developing policy. Finally, some Chinese 3PL providers have taken the advantages of capital investment and government restrictions into their strategy of network development. For instance, Total Logistics in this study has been involved in the development of public logistics facilities, through which the company has expanded the service range and reinforced the capability of its physical network.

Adopting and developing IT systems have been identified as another important competitive strategy pursued by the case study companies. The participating 3PL companies have recognized the importance of information technology in logistics success and have introduced a variety of of information technological systems into their logistics operation. While having adopted similar basic functional information technologies, all the case study companies have developed different platform or overall IT systems based on respective requirements. This reveals that the Chinese 3PL companies have the capability to differentiate themselves from their competitors through IT capability.

Establishing long-term partnerships with customers also has been identified as a competitive strategy adopted by the participating 3PL companies. All the case study companies have shown great willingness to set up close and long-term relationships with their main customers. Such long-term partnerships have resulted in deeper understanding, easy communication, obvious mutual benefits, and successful logistics outsourcing. The successful 3PL partner relationships heavily rely on developing business compatibility, open communication, and mutual commitment.

139 In conclusion, the objectives of the current study have been achieved. To some extent, the research results have provided the researcher with clearly understanding of the current situation of the Chinese 3PL providers, especially the situation those advanced Chinese 3PL providers are facing. The research results reveal that the 3PL industry in China has developed significantly. The perception of logistics concept is more mature than ever before, and some Chinese 3PL providers have possessed the necessary capabilities to compete with those foreign competitors in China.