Outsourcing to

China
Transportation and
Infrastructure Challenges During
Outsourcing Operations to China

D a te : 1 0 / 1 5 / 2 0 0 9
B h a vin G a n d h i
B h a vin . G a n d h i@ live . co m
M o rriso n U n ive rsity 1
 Contents
qInfrastructure challenges
qCost challenges
qElectricity problems
qCopyrights issue
qCommunication challenges
qTransportation challenges
qAir freight
qExpress packaging
qLogistics outsourcing
qRail
qRoads
qBureaucracy
qConclusion
qQuestions


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 Infrastructure
challenges
qOld belief about China’s outsourcing
qChanging landscape in China
qNext big wave
qChina’s increasing exports
qPressure on existing infrastructure

3
 Cost challenges
qWhat cost challenges? Isn’t China cheap?
qHow China can maintain its low pricing?
qExample: Metal stamping press

qChallenges for Managers

qBig start-up cost
qExample: IGT’s China office

qLonger time to establish outsourcing center

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 Electricity problems
qExposing company’s supply chain to
disruptions
qWhat happens in crunch time
qExample: Christmas time with 0.8 million Dell
Laptops to produce

qEconomy grew faster than power capacity

qInvestigate local energy situation
qPlan for supplemental generators
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 Copyrights issue
qLack of law enforcement
qCopycats capturing domestic market
qExample: Clone of iPhone

qMNCs should be careful about which

technologies they share
qOne might create its own competitor
qRole of Chinese Government

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 Communication
Challenges
qAsian say “Yes” to almost everything
qAsians are afraid of giving incomplete
answers
qProposed solutions
qFind out key people to interact with China’s
resources
qKnow how to avoid getting answer “Yes”
qAsk right questions while communicating with
them
qSet expectations so that, if problem occurs, they 7
 Transportation
challenges
qVarious challenges in China’s logistics
qCompanies forming joint logistics
partnership
qExample: BMW, Audi, Chrysler creating “coreteam”

qWestern firms (UPS and DHL) ramping up

qWestern Entrepreneurs filling the gaps
qEconomy continues to outstrip the growth
of logistics
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Transportation challenges
(contd..)
qAir freight
qRapid development
q2nd largest domestic air freight market after USA
qAirports expansion is the key

qExpress packaging
q40% compound annual growth
qParcel industry broke all the records
qWestern companies like UPS and FedEx jumping in

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Transportation challenges
(contd..)
qLogistics outsourcing
qGrowth in China’s third party logistics (3PL)
companies
qHeavy domination of state owned enterprises

qRail
qGeared to move people but not goods
qGovernment’s plan
qPrivatization may help
q

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Transportation challenges
(contd..)
qRoads
qBest network concentrated around coastal cities
qVast government investment but bias towards east
coastal areas
qInternal barriers imposed by government

qBureaucracy
qTransportation market is highly regulated in the world
qSlowly opening up to outside competition
qOther controls
q

11
 Conclusion
qGlobalization/outsourcing is the future
qDo your homework before thinking of
outsourcing
qEstablishing relationships with local
companies will help
qTransportation system is growing faster but
gaps still persist
q
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 Questions?

Contact Information:
Bhavin Gandhi
Bhavin.Gandhi@live.com
www.bhavingandhi.com

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