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Page 1: Supply Chain Globally Integrated Supply Chain

IBM Institute for Business Value

IBM Global Business Services

Globally Integrated Supply ChainChina perspective

Supply Chain Management

Page 2: Supply Chain Globally Integrated Supply Chain

IBM Institute for Business ValueIBM Global Business Services, through the IBM Institute for Business Value,

develops fact-based strategic insights for senior business executives around

critical industry-specific and cross-industry issues. This executive brief is

based on an in-depth study by the Institute’s research team. It is part of an

ongoing commitment by IBM Global Business Services to provide analysis

and viewpoints that help companies realize business value. You may contact

the authors or send an e-mail to [email protected] for more information.

Our website:http://www.ibm.com/cn/services/bcs/iibv/

Page 3: Supply Chain Globally Integrated Supply Chain

Globally Integrated Supply ChainChina perspective

By Sean Ryu, Michelle Kam, Zhan Ying, Jiang Yi Wei, Yang Chao

Executive SummaryGlobalization has significantly changed the international market landscape. As a result, the traditional supply chain is evolving towards a Globally Integrated Supply Chain-one that operates as a more integrated, optimized and collaborative network across functions, geographies and business partners. Companies that globalize in this landscape face various external obstacles such as local market differences and protectionism, as well as internal hurdles such as organization structure and immature collaboration mechanism.

Multinational companies no longer position China as just a source of cheap manufacturing. Increasingly companies are relocating or opening research and development, procurement and other core functions to China. Moreover, China’s critical role in global supply chain has been increasingly recognized by multinational companies. However, due to underdeveloped supply chain infrastructure and a lag in core competency buildup in the supply chain, companies are facing a range of

CONTENTExecutive summary 01Globally integrated supply chain is a trend 03The road leading to the globally integrated supply chain is not “flat” 04Operating in China: opportunities and supply chain challenges 06Seek further growth in the global market 10Building up core competencies for a globally integrated supply chain 14Adapting the globally integrated supply chain to china specific challenges 15Conclusion 24

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� IBM Global Business Services

supply chain challenges in China: multiple layer distribution system with limited sales visibility; lag in real time information sharing; long logistics lead time and high logistics cost; shortage of qualified suppliers and inadequate supplier management.

China is becoming increasingly integrated into the global economy, through trade, foreign direct investment and cross-border M&A. China’s economic growth and integration into the global system has fostered an increase in Chinese companies that expanded their operation overseas, including production, sales and marketing, distribution and customer services. However, most Chinese companies are still in the early market entry stage of globalization and therefore face a number of supply chain challenges. These supply chain challenges include: low end product image, difficulty in understanding overseas markets, lack of management expertise in building up the logistics and distribution networks overseas, and complex post M&A supply chain global integration. All of these supply chain challenges are major obstacles which hinder the growth of both Chinese and multinational enterprises within and outside of China’s marketplace.

In order to capture growth in a globally connected world, we believe that building a “Globally Integrated Supply Chain” is fundamental to success. In order to successfully participate in a Globally Integrated Supply Chain, companies must

build up the following areas of core competencies: leveraging global assets for peak performance and effectiveness; differentiating capabilities for local markets; synchronizing supply and demand; incorporating sustainability in strategies and processes; managing risk with global partners and enabling collaboration and supply chain visibility.

Both multinationals operating in China as well as Chinese companies are facing various supply chain challenges and risks. To successfully integrate into the China supply chain and the global supply chain, companies need to implement specific actions to address China-specific challenges as well as build up core competencies targeted at operating in a Globally Integrated Supply Chain. These actions include, but are not limited to: taking a holistic view for improvement and optimizing the network; developing flexible and scalable operations; removing obstacles to collaboration; conducting a supply chain due diligence study prior to cross-border M&A; and proactively mitigating supply chain risks.

The ability of a company to successfully integrate the China supply chain with the global supply chain will decide whether they are going to win in the China and global marketplace. Companies should take early actions to set their supply chain improvement agenda, continuously prioritize it and align it with their global and business strategies.

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�Globally Integrated Supply Chain: China perspective

Globally Integrated Supply Chain is a Trend During the last two decades, “globalization” has significantly changed the world and contributed to its “flattening”. With the exponential growth in international trade and cross-border investments, companies are no longer focusing on individual country markets but the global market, just as Lee Scott, President and CEO of Wal-Mart Stores, said, “Wal-Mart’s marketplace is clearly the world.”1 In the meantime, the collaboration among different geographies and companies is significantly increasing. The increasing openness in business and system standards has enabled work to flow to place where it could be best done. In this highly connected world, traditional multinational companies are becoming more integrated globally. By doing so, they can explore the new opportunities globally and tap into new sources of growth with optimized global deployment of resources and workforce.

As companies globalize, they have to manage the much more complex cross-border logistics and distribution. As a result, supply chain in the traditional sense is stretched, and supply chain lead time prolonged. Moreover, companies face challenges in handling new business partners amid language and culture barriers, as well as in understanding customer preferences of unique local markets. Consequently, the costs of logistics, supply chain operation and product development for new markets are increasing significantly and profit margin is declining.

Companies are responding to the challenges by building supply chains which are globally integrated. In traditional supply chains, business partners and functional departments are isolated with little collaboration and information exchange. By contrast, Globally Integrated Supply Chains operate as integrated, optimized and collaborative networks across functions, geographies and business partners.(Figure 1) They fully leverage the competitive advantages in resource, technology and skillsets across different geographies. This new model brings extensive strategic collaboration among supply chain partners from customers to suppliers and service providers, as well as increased information sharing within organizations and across the entire business ecosystem. Firms, through collaboration with business partners, can more quickly identify and respond to new business opportunities around the world, be more flexible to address the specifics of local markets, and optimize their supply chains globally for cost and service improvement.

Globally Integrated Supply ChainChina perspective

“The ultimate competency of organization is supply chain design”

– Charles F. Fine, Clock speed

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� IBM Global Business Services

The Road Leading to the Globally Integrated Supply Chain is not “flat”Most companies have embarked on their globalization journeys, having set up procurement centers, manufacturing centers and research and development centers outside of their home countries to serve regional or even global markets. Yet, their supply chains are still far from being globally integrated due to various external obstacles such as local market differences and protectionism, as well as internal hurdles such as organization structure and immature collaboration mechanism.

Local market differencesDespite globalization, differences in economic development, culture, and demographics in different countries and markets remain, and cause

vastly differing consumer preferences. 45% of CEOs around the world considered “understanding customers in multiple territories” as the number one challenge to run a successful global business.2

In this highly diversified global market, products and supply chains can no longer be the simple “fit for all” global model which could be applied ubiquitously. Enterprises have to be closer to local markets to understand the local needs and customize products as well as their sales and distribution system and after-sale services accordingly. Ensuring a flexible supply chain to cater to local market requirements while preserving the high level of efficiency and global control of a Globally Integrated Supply Chain becomes a top imperative for most companies.

Figure 1. Globally Integrated Supply Chain

Source: IBM GBS

Customer order management

R&D / product design

Mfg.design / engineering

Logistics Manufacturing


Other partners Other 3rd parties

Outsourcing partners


OEMsCustomer alignment

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�Globally Integrated Supply Chain: China perspective

New protectionism Major importing countries have been increasingly imposing new protectionist measures against emerging economies including China and India. While tariffs have been reduced under WTO agreements, some countries have resorted to non-tariff measures such as anti-dumping, countervailing duties, technical standards and government procurement restrictions.

New protectionism measures present real barriers in an otherwise open market. It not only impacts the trade and economic growth of emerging markets but also hinders global supply chain integration. Global companies now need to incur extra costs, time and resources to address the trade barriers. More importantly, protectionism can prevent companies from achieving a most optimized global supply chain as its impacts must be incorporated into location decisions for sourcing, manufacturing and other supply chain functions.

Traditional organization structureThe traditional multinational organization is characterized by having many regional branches which are “replicas” of each other in terms of business activities and organization functions. Individual branches report directly to headquarters and are isolated from each other. For example, in terms of procurement, each country may source independently from its respective supplier base, and miss the opportunity to leverage the scale of the global company. On the other hand, some traditional multinationals tend to centralize select decisions in the headquarters, and keep certain functions which are viewed as more “strategic”, such as R&D, in their home countries.

However, in globalization, the traditional multinational structure will hinder global integration of the supply chain. First, the centralized planning and decision making result in process inefficiency which in turns leads to lack of agility and flexibility to respond to the fast changing demands in the local markets. Second, duplicate functions in each regional branch result in extraneous resources and prevent the optimal leverage of assets and skills. An exclusively in-house model also implies that non-core business activities are being performed in-house without leveraging the expertise and service of external partners. And last but not the least, layers of reporting mechanism hinder effective communication and collaboration among the different global locations, which are key to global supply chain integration.

Immature collaboration An effective Globally Integrated Supply Chain requires close collaboration among supply chain partners. However, many companies have not set up effective framework or mechanism to facilitate collaboration, nor have they developed sufficient trust among supply chain partners. In many cases, collaboration is project-based and lacks the long-term commitment of top management. Companies are also missing well defined agendas aimed to further deepen collaboration and measures to track the effectiveness of collaboration. More importantly, companies have yet to set up standardized data and processes as well as integrated IT infrastructure which are fundamental to effective collaboration.

“ Our supply chain planning is centralized in the headquarters and we do not have the flexibility to adjust production according to the changes of local market.”

– A multinational cell phone manufacturer

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� IBM Global Business Services

Operating in China: Opportunities and Supply Chain Challenges China’s economic growth has been phenomenal in the last two decades. China is increasingly positioned as a highly vigorous economic entity in the world and is integrating more tightly into the global economy. China has maintained impressive GDP growth at over 9% per annum in the last five years. In virtually all industries, the growth in China outpaces that of most developed countries. For example, China’s automotive market grew four times that of the global rate while retail consumer spending grew at three times the rate of the US.3

China: an attractive market and a critical component of global supply chainIncreasingly, China accounts for a significant share of global revenue, and in many cases China is a leading market of many multinational companies (MNC). Besides revenue contribution, many MNC’s also enjoy higher profit levels in China than in their respective home or other more mature markets. (Figure 2)

Figure 2.Profit levels in China and globally for selected multina-tionals, 2006

Source: Company annual reports, IBV analysis, 2006 AmCham Member Company Attitudes Survey










Net P


(% o

f rev








China is the top market for Nokia, whose revenue from China far surpassed that from the US, its second largest market, by ��% and 7�% in �00� and �00� respectively.� (Figure �)

Nokia 10 major markets, net sales, EURm 2006 2005

China �91� ��0�

USA �81� �7��

India �71� �0��

UK ���� ��0�

Germany �0�0 198�

Russia 1�18 1�10

Italy 1�9� 11�0

Spain 11�9 9��

Indonesia 10�9 7�7

Brazil 10�� �1�

Sources: 2006 Nokia financial report

China accounts for a significant share of many MNCs global revenue

Figure 3.

Volkswagen Group’s sales in China, at ��8,000 units in the first quarter in �008, exceeded that in Germany at ��1,000 units, making China the largest market in terms of sales volume.�

As ABB CEO and CFO Michel Demar stated, “ABB’s business in China hit a milestone last year and is now the largest within the group by most measures. China has been the most important market for ABB in all aspects.” In �007, ABB China accounted for 1�% of the Group’s total orders of $�� billion, ahead of Germany and the US.�

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7Globally Integrated Supply Chain: China perspective

China is without question an attractive market but also plays a critical role in the global supply chain. As of 2007, 480 of Fortune 500 companies had set up branches in China and more than 30 of them established their regional headquarters in China.7 Nearly 980 MNC’s established research and development centers in China.8 A recent study forecasts that China will overtake the US to become the world’s largest manufacturer by 2020.9 China’s importance as a procurement center has been increasingly recognized by MNC’s.

in sophistication. On top of the complexity to understand customer needs in a highly fragmented and dynamic market, companies in China must address a wide range of supply chain challenges. Furthermore, most companies’ tremendous business growths have not been accompanied by commensurate growths in their competency in supply chain management.

Highly fragmented market and multi-layered distribution network Due to the significant regional differences in economic development, demographics and culture, consumers from different provinces or cities in China show huge differences in terms of purchasing power, preferences and buying behavior. The highly fragmented consumer markets bring great challenges in customer understanding and hence product development and sales and marketing planning.

China has a complex distribution system where most products need to go through multiple layers of sales channel before reaching the end consumer. MNCs report that 22% of their revenues flow through three or more layers of sales channel for automotive products while the figure is 42% for consumer product groups.12 However, only 10% of MNCs have detailed sales visibility of individual retail stores and 36% of them have sales visibility at only the national distributor level.13 This has resulted in significant disconnect between manufacturers and distributors and retailers, leading to longer order cycle time, frequent stock outage, and poor forecasting and product cycle planning.

Coca Cola, world’s largest beverage producer, sources 98% of its raw materials from China. As of year-end �00�, Sony Ericsson had 1�0 suppliers in China and total procurement from China exceeded �� billion RMB (USD �.�� billion).10 Peter Carlson, VP of Procurement at Sony Ericsson, announced that, in the near future, �0% of its global procurement will be from China. For products selling in China, 80% of raw materials will be sourced locally.11

As China is quickly becoming a highly important supply base and manufacturing location and at the same time one of the largest consumer markets, it is necessary to build up a much more responsive and effective supply chain from raw materials to manufacturing to the end market at optimal cost.

Supply chain challenges in ChinaIn contrast to the economic “hyper-growth”, the supply chain infrastructure, supporting services and supply chain partners in China lag

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8 IBM Global Business Services

Limited information sharingInformation sharing is key to effective collaboration and achieving integration across different supply chain functions and among supply chain partners. Within a company, this entails the sharing of information on the status of product R&D, raw materials procurement, production line allocation and logistics cycle, whereas across the supply chain, information shared include price, order details, product specifications, inventory levels and customer profiles.

Many enterprises in China have not realized the importance of information sharing. Chinese companies lag in terms of real time information sharing, with only 12% of companies having widely adopted real time information sharing, far behind their counterparts in North America (60%), EU (70%) and India (50%). (Figure 4) Also, many enterprises remain highly reliant on paper-based records. For the few who have digitized information, they have not yet established consistent processes to guide the proper data input and information management, nor have they integrated

different information systems across functional departments or with their business partners. A lack of collaboration culture and trust among supply chain partners, and an immature data exchange infrastructure, are also barriers to information sharing. The challenges are exacerbated by the higher requirements of a global supply chain, as the global information sharing platform will need to accommodate differences in time, language, currency and other standards and practices across countries.

Without adequate and timely information sharing, supply chain improvement initiatives such as proactive procurement, just-in-time delivery and replenishment, and on-demand forecasting and flexible market-based adjustment present real implementation challenges.

Long logistics lead time and high logistics cost Limited by the underdeveloped transportation infrastructure and immature logistics and distribution networks, companies have been faced with much longer logistics lead time in China. A recent survey

Figure 4.Limited information sharing between business partners in China

Source: 2007 China Value Chain Study, 2005 Global Value Chain Study, IBM IBV

64% 36%

To what extent has "Real-time" information sharing been adopted at your site?

(Percent respondents)

24%12% 14%


Somewhat adoptedWidely adopted Not adopted

To what extent has "Real-time" information sharing been widely adopted ?

(Percent respondents)

�0% �0% �0% 80%

North America





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9Globally Integrated Supply Chain: China perspective

finds that the average order cycle time for over half of the companies in China is over 20 days, four times more than the 0 to 5 days for companies in most developed countries.14 (Figure 5)

The lengthy logistics lead time has indirectly resulted in the high inventory cost for companies in China, as higher inventory levels are used to mitigate the risk of delivery delay. In 2006, China’s logistics costs amounted to 6 trillion RMB (18.3% of GDP), double of that in Western countries, which was only 10% of GDP.15 The enormous logistics and inventory costs have largely offset the cost saving from procurement. This potentially threatens China’s competitiveness as a sourcing and manufacturing base, especially as prices of raw materials, land and labor in China have been rising rapidly.

However, many companies do not have the capability to optimize their logistics network design, nor are they able to employ the services of third party logistics service providers (3PL).

Though 3PLs could effectively reduce the cost of logistics and enhance efficiency, only 18% of companies in China use such service, compared to 58% in US and 76% in Europe, according to a 2005 survey.16 This is mainly due to the highly underdeveloped state of the logistics industry. With only 13% of 3PLs having more than 500 employees and the top 10 3PLs account for no more than 13% of market share in 2005, the industry is fragmented with no apparent, mature players.17 Moreover, only 5% of 3PLs have adopted international standards in water and highway transportation, 20% adopted international standards in railway transportation, and there is not yet any nation-wide standard for 3PLs.18

Qualified suppliers shortage Despite the fact that China is becoming an important procurement centre, many MNCs (34% of respondents surveyed) believe finding qualified suppliers to be the most serious challenge in procurement operation.19

Figure 5. Order cycle time in China is longer than in other countries

Source: 2007 China Value Chain Study , IBM IBV

0 - � days � - 10 days 11 - �0 days > �0 days

For primary products, what is the average customer order cycle time in days? (Percent respondents)


ent r








0%India North America Europe Japan Australia/NZ Taiwan




























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10 IBM Global Business Services

However, faced with the shortage of qualified suppliers, few companies are aware of the importance of developing long-term, strategic partnerships with suppliers and conducting strategic supplier management. Many of them do not have supplier differentiation and key supplier identification, but rather keep switching suppliers based on price. This does not contribute to suppliers’ capability enhancement but will eventually break the sustainability of supply chain. Incidentally, it is a positive trend that some companies are starting to consider offering investment and technology support to suppliers in order to enhance their capability in quality control, production procedure and production line improvement.

Seek Further Growth in the Global MarketChinese companies extending their supply chains overseasChina has become increasingly integrated into the global economy, not only through export but through foreign direct investments, including cross-border M&As. Many Chinese companies have

In the �007 United Nations Industrial Development summit, VDA (German Association of the Automotive Industry) China President Wolfgang R. Wagner reported that among FAW, BMW and Benz’s China suppliers, only ��% were A-level suppliers and the rest were B or C-level suppliers. The evaluation was based on how well suppliers met the quality manage-ment standards, i.e., meeting more than 91% of the standards begotten an A-level classification, 8�% to 91% B level, and below 8�% C level.�0

expanded their operations overseas, including production, sales and marketing, distribution and customer services.

Between 2001 and 2006, overseas direct investment by Chinese companies more than doubled, reaching 16.1 billion USD in 2006. Between 1994 and 2006, cross-border M&As by Chinese companies amounted to 28.1 billion USD, with average transaction size increasing by fifteen-fold.21

Lenovo, China’s largest personal computer manufacturer, acquired IBM’s PC division in 2004, thereby achieving 13 billion USD in annual sales and becoming the third largest personal computer manufacturer in the world. Two years after the acquisition, Lenovo’s 2006 revenue grew 10 percent (from 2005) to 14.6 billion USD, while its PC sales volume increased by 12%, exceeding the 10% average market growth.22

However, most Chinese enterprises are at the early market entry stage of globalization (Figure 6) and will need to establish the necessary infrastructure and acquire the appropriate expertise for market penetration and managing their global operations. In particular, they face a number of supply chain challenges in their globalization journey.

Supply chain challenges for globalizing Chinese enter-prisesLow-end brand image Chinese products have long been associated with low-end images in terms of price and product quality. The long entrenched low-end perception places Chinese brands at an inferior position when competing with foreign established brands.

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11Globally Integrated Supply Chain: China perspective

Figure 6.Chinese enterprises reap bigger profit by extending global operation

Source: IBV analysis

OEM• Local sourcing;• Local manufacturing;• Export to overseas

distributor;• No brand ownership.

Extend of global operationLow


t mar




Export brand product• Local sourcing;• Local manufacturing;• Export to overseas

distributor;• Brand ownership.

Set up overseas S&D• Local sourcing;• Local manufacturing;• Global logistics• Overseas sales and

distribution network ownership;

• Brand ownership.

Global Integration• Global sourcing;• Global manufacturing;• Global logistics• Global sales and

distribution network;• Brand ownership• Global service delivery.

For a long time, the low-end market entry strategy was prevalent among Chinese companies entering into the global market, and even became an “inevitable choice” for them. The reason behind was obvious: as China enjoyed the lower costs of labor and raw material, it was easier for companies to compete on price in the overseas market.

However, cost advantages of Chinese enterprises are unlikely to sustain. Between 2005 and 2007, labor cost in the Pearl River Delta, among China’s largest export oriented manufacturing bases, increased by 20%.23 China is losing its low labor cost advantage to other emerging countries. Since 2004, American and European multinationals have been increasingly building manufacturing bases outside of China. Motorola, General Electric, Siemens, Intel, Kodak, Tetra Pak, Cisco, GE, Philips, Nokia, Ericsson

and many others have announced investments in India, Vietnam and other countries. The announced investments of these companies have exceeded 500 million USD.24

Besides the labor cost increase, since 2005, the rapid RMB appreciation against USD has added to Chinese companies’ challenges, by eroding the paper thin profit of many export-oriented Chinese players.

A strong brand is also critical in competing in the overseas market. However, most Chinese brands have poor recognition in the overseas market, not to mention that many Chinese companies are still at the OEM stage. This is due to the fact that most Chinese enterprises lack the necessary capabilities in product innovation and, as most have been exporters, have little first-hand information about the

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Figure 7.Chinese enterprises are less competitive in product innovation

Would you say your organization leads or follows your industry in innovating in Products, Services and Markets?

Source: IBM Global and China CEO study, 2006

Global China

Clear Innovation Leader

Fast Follower

Moves with Peers

Follows Peers

Follow long after Peers

Percentage Percentage








�0 �0 �0 �0 10 0 0 10 �0 �0 �0


end customer’s requirements. According to IBM’s 2006 Global CEO Study, a much lower percentage of CEOs of Chinese companies as compared to global respondents rated themselves as product/service innovation leaders in their respective industries. (Figure 7) Furthermore, Chinese companies are also relatively inexperienced in the building and marketing of global brands.

Difficulty in understanding the overseas marketsUnderstanding the overseas market is critical for the success of Chinese enterprises’ globalization efforts. It entails grasping an array of elements including overseas consumer needs, sales and distribution channels, market regulations, and the competitive landscape. A good understanding

of overseas consumer needs will enable Chinese enterprises to transcend price competition and offer differentiated products/services catering to these needs. Understanding overseas sales and distribution channels will facilitate the more effective and efficient access of target customers. Similarly, improved understanding of the market regulations can help mitigate compliance risks, and better understanding of the competitive landscape can allow companies to better position their markets/products and develop the winning strategies.

However, insightful identification of consumer needs is seen as the most significant challenge for globalizing Chinese enterprises. The fact is that it’s difficult for Chinese enterprises to understand

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consumer preferences in the overseas market due to culture barriers. Adding to the complication are the significant differences even within individual foreign markets, e.g., individual countries within the EU differ significantly from each other in terms of maturity, competitive landscape, tax levels, consumer preferences, culture, and trade regulations.

Lack of management expertise in building logistics and distribution networks overseasMost Chinese companies are in early stages of globalization and do not have sufficient management expertise on global operation. A survey of globalizing Chinese companies found that “talent shortage” was among the top concerns.25

Transforming from exporter to global operator, Chinese companies face primary supply chain challenges in the building and managing of logistics and distribution networks including physical networks, business processes, and IT infrastructure. Physical networks consist of overseas sales and distribution channels, storage, transportation and delivery facilities, manpower and service providers. Business processes refer to the activities which process and move the products along the supply chain and the controlling mechanism. The IT infrastructure facilitates management and control of the business processes.

Chinese enterprises face major barriers in establishing the overseas logistics and distribution networks. First, they don’t have sufficient market understanding to determine the best mix and

design of distribution channels and logistics networks. They are also challenged to identify and manage the appropriate channel partners. In terms of business process and IT infrastructure, Chinese enterprises have not developed standardized processes and IT infrastructure in their home country, let alone those required for managing a global operation. The culture differences and language barriers further exacerbate the issues. Last but not the least, they lack the needed resources with the right expertise to develop the overseas logistic and distribution networks.

Complex post M&A supply chain global integration Many Chinese companies choose to globalize through M&As. However, the cross border M&A is a double edged sword which speeds up globalization on one hand and, brings about complex post-M&A integration issues, including supply chain issues, on the other.

Parties involved in M&As have their respective, differing supply chain physical networks, business processes and IT systems. The supply chain of two given parties may not fit into each other’s business model. The new merged entity may suffer from post-M&A “supply chain syndrome”, which is characterized by inconsistent distribution networks, disparate logistics operations, disconnected information systems and insufficient resources, causing a series of problems such as longer lead-times, higher inventory costs, lower order fill-rates, disgruntled employees and less satisfied customers.

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Making it worse, post M&A, many Chinese companies choose to focus on business growth while putting post-M&A integration at a lower priority. As a result, postponing supply chain integration leads to higher levels of uncertainty as supply chains gain complexity commensurate with business growth.

While business integration is unquestionably critical to reaping the synergy M&A, it’s also important to ensure that the integration process will not adversely impact the supply chain operation. After all, supply chain performance does have the power to “make” or “break” the efficiency and growth objectives sought from the M&A.

Building up Core Competencies for a Globally Integrated Supply ChainAs mentioned at the beginning of this report, building a "Globally Integrated Supply Chain" is fundamental to the success in this closely connected, yet highly competitive global marketplace with rapidly changing customer demand and significant local differences. To become part of the Globally Integrated Supply Chain, companies must build up core competencies in following areas:

Leveraging global assets to optimize performance and maximize effectivenessCompanies need to take advantage of the differences in cost, resources, capabilities, regulations and infrastructure in different countries and regions. They should design the best mix of their global assets and continuously update

the mix as business environment changes. They should locate specific supply chain functions and processes to fit in various locations, and optimize networks to achieve the best flow of products, information, money and human resources.

Differentiating capabilities for local markets Globalization results in commoditization of products and services, but differences in local markets require market segmentation be coupled with differentiation in products and services, this is the only way to beat competition. Differentiation requires companies to develop and leverage a global network of supply chain partners, enabling them to deliver customized solutions.

Synchronizing supply and demandAs the supply chain becomes longer and more complex, suppliers and customers need to synchronize supply and demand to ensure continuous availability of products at minimal costs. Suppliers should be able to collaborate with customers to develop effective and continuous demand planning, forecasting and replenishment programs, and conduct inventory planning and deployment at customer sites. On the other hand, customers should be able to share real time electronic data of demand and inventory with their suppliers.

Incorporating sustainability in strategies and processesCompanies operating in a Globally Integrated Supply Chain are subject to different environmental regulations and expectations from supply chain partners in various markets. At the same time, a Globally Integrated Supply Chain inevitably increases

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environmental impact due to increased requirements from global logistic operations. To meet stakeholders’ requirements, companies should carry out appropriate environmental practices in each step on their supply chain. They should also leverage assets at different locations to achieve the trade-off between environmental impact and supply chain objectives in cost, quality and responsiveness.

Managing risk with global partnersAs companies expand their global reach, they are exposed to increasing risks from the diversified and sophisticated marketplace. To identify the risks as early as possible is the first step companies take to prevent and mitigate risk impacts. Outsourcing can be an effective strategy, while advanced IT tools and streamlined processes can also facilitate risk mitigation and prevention.

Enabling collaboration and supply chain visibilityCompanies need to share information such as sales, order details, product specifications, inventory in order to respond to changing local market and customer requirements fast; mobilize and redeploy global assets quickly; synchronize supply and demand flexibly, and make right decisions timely. The objective of information sharing is to ensure end-to-end visibility on supply chain so that all parties can collaboratively manage supply chain performance across all functions and countries. Advanced IT tools and streamlined processes again play an important role in helping companies achieve the objective.

Adapting the Globally Integrated Supply Chain to China Specific ChallengesAs discussed earlier, both multinationals operating in China and Chinese globalizing companies are facing various supply chain challenges and risks. To successfully integrate their China supply chain with their global supply chain, companies need to develop China-specific strategies and implement China-specific solutions on top of building up core competencies for a Globally Integrated Supply Chain.

Leading companies have utilized advanced software applications to control and manage their supply chain. A typical application system consists of three modules: demand hub, supply hub and logistics hub, which are all built into one single portal. The system gathers, processes, analyzes, and displays real-time data, providing companies with visibility and control over inventory, demand, order fulfillment, and transportation. Through consolidating and synchronizing data from the three modules, the system creates a “virtual” supply chain environment in which it generates optimal simula-tion results to help companies make strategic decisions on exception management, risk mitigation, inventory planning and asset deployment; and enables web-based collaboration with supply chain partners. The applica-tion not only brings about higher supply chain efficiency and customer retention, but also results in significant cost savings.��

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production cycle is; on the downstream part, they should concentrate on distribution and delivery, finding out what the sales channels are, and how much the total landed costs are, and so on. Surprisingly, many business executives have very limited knowledge about their supply chain in China. Without such knowledge, should supply chain issues take place, they do not know where to begin with, not even to mention finding the root causes.

Second, they should establish Chief Supply Chain Officer’s (CSO) position in their organizations, (noting that most Chinese companies or even leading multinationals do not have a dedicated CSO or any equivalent position). To a large extend, executives limited knowledge on supply chain is due to the role of supply chain has been traditionally downplayed, resulting in not enough A CSO can act as a focal point to enable and encourage communication within the organization, because the CSO not only cascades business decisions from the top but also escalates supply chain issues onto the Boardroom agenda. Through such an organization structure, supply chain issues will be reviewed in a holistic way, hence handled and resolved in a timely manner.

Develop flexible and scalable operationsA globally integrated supply chain would improve efficiency and enable fast response. In China, however, an overly integrated supply chain might actually prevent companies from responding timely and effectively to local differences arising from China’s huge yet highly fragmented and constantly changing market. Thus injecting local features into their supply chain would benefit companies by allowing them to be more flexible to local differences, such as customer preferences, distribution channels and infrastructural conditions.

Take a holistic view for improvement and optimize the networkThe challenges facing companies operating in China are interrelated with each other. To tackle the myriads of problems and issues correctly and efficiently, companies in China should take a holistic view on their supply chain, because single issue handling often distracts their focus and blinds their judgment on the root cause. However, taking

A leading retailer in China frequently received defective products in its stores. It considered this a manufacturer issue and imposed penalties against its manufacturers. However, the defective product issue kept recurring while its relationship with manufacturers worsened because of the penalties. Only when the retailer began to examine its entire supply chain did it find the root cause of the problem, being poor handling during delivery. The retailer then replaced its transportation provider and imple-mented track and trace technology to monitor shipment status en route. As a result, defective rate reduced signifi-cantly from 10% to �%, leading to more cost-savings and increased order fill rate.�7

a holistic view does not necessarily mean initiating a holistic change on the supply chain. The purpose of looking at the supply chain holistically is to be able to narrow down and locate the specific issues, thus resolving them as correctly and completely as possible.

To form a holistic view on their supply chain, companies should obtain two prerequisites.

First, they need to understand what composes their China supply chain. On the upstream part, they should focus on procurement and production, knowing who their suppliers are and how long the

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17Globally Integrated Supply Chain: China perspective

Companies operating in China should also customize their supply chain strategies for different parts of China which are at different stages of economic and infrastructural development. (Figure 8)

Prosperous China, the most affluent and industrialized part of China (typically tier 1 cities such as Beijing, Shanghai, Guangzhou and Tianjin), where transport infrastructure such as rail, air, port, and road are better developed, and consumers are better educated and conscious of quality, price and speed. Companies operating in this segment should focus on overall supply chain efficiency and logistics network optimization to ensure quick response to customer demand. Lead-time, total landed cost and order fill rate should be the key performance indicators of their supply chain.

Figure 8.Customizing supply chain strategy for different market segments(Illustrative only for reference)

Prosperous China Emerging China Rural China

Examples of Supply Chain Model

Supply ChainStrategy

● Focus on efficiency● Logistics network


● Focus on suppliermanagem ent & relationshipenhancement

● Focus on marketidentification anddevelopment

KPI Metrics

● Lead-time● Transportation &

inventory cost● Order fill rate

● Raw materials/product availability

● Production downtime

● Incremental revenue

Operation Model● Tightly integrated

supply chain● Flexible & decentralised

on top of integration● Outsourcing

Source: IBM Institute for Business Value, 2007

One of the world’s largest furniture retailers attributes its success in China to a very customer-centric and tightly integrated supply chain model. Knowing that customers, especially city dwellers, prefer to select, assemble and pick up furniture items by themselves, the company directs customers to shop in the retail stores instead of ordering online. All product items are trans-ported from factories directly to warehouses close to its stores, and orders are measured by item availability in the warehouse. To speed up delivery, the company uses its own dedicated fleet for home dispatch within the city. “Return Windows” are also set up in the stores to shorten customer wait time for returned items. Such an optimized distribution, replenishment and delivery model matches well with the company’s quick response strategy and greatly strengthens its customer intimacy.�8

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Emerging China, China’s key manufacturing base with fast growing consumption power (including the over 300 tier 2 to 5 cities including Nanjing, Shijiazhuang, Huizhou and Fushun respectively as example of each of the tiers). Accordingly, supply chain strategies should be geared toward ensuring continuous, uninterrupted flow of raw materials and semi-finished goods, improving plant productivity and getting products out of production sites to end market in a timely and efficient manner. Here, companies face challenges such as underdeveloped logistics infrastructure, which reduces response time and increases supply chain costs, and regionalism and local regulations, which hampers inter-provincial purchasing. To circumvent these challenges, manufacturers should develop more flexibility in their supply chain, for example, through adopting a combination of centrally and locally managed logistics operation.

Rural China, typically the inland provinces and cities, some of which could also attract companies because of their rich natural resources. Because of the geographical remoteness and poor infrastructure, it would be impractical to pursue supply chain integration in Rural China with the same speed and scale as in Prosperous and Emerging China. Instead, companies could consider leveraging inland logistics hubs that connect China’s inner landmass with its major trade corridors, and link them with the more integrated supply chain network in central and coastal China.

In order to cut costs, a major auto manufacturer in Henan province recently consolidated several of its regional distribution centers into one central distribution center and required its suppliers nationwide to deliver goods to this central distribution center. However, due to varying conditions of roads leading into the central distribution centre, as well as multiple local rules on tolls, weight limits and entry permits, many suppliers had difficulties making the journey to the central distribution center, which resulted in inventory shortfalls and production delays. In response, the company decided to supplement the centrally managed distribution model with several depots around the central distribution center and allow suppliers to deliver goods into the depots. This made it much easier for suppliers who could not truck goods to the central distribution center. Since these depots are of smaller size and scale, the gains from continuous flow of goods and increased productivity were able to offset the incremental cost of operating the depots.�0

Nanning city of Guangxi province is rapidly emerging as the gateway to both southern China and ASEAN countries. One French leading cement manufacturer who recently set up operations in Chongqing, Chengdu, Guizhou and Yunnan hopes to cash in on new infrastruc-ture development in Nanning. “Our strategy is in line with the government’s extensive expansion plans for the southwest region, under its “Go West” policy. By over-coming the logistics difficulties, we can serve the market wherever we want…”�1

In addition, in order to adapt to the fast changing market environment, companies should also build up their supply chain based on Service-Oriented Architecture (SOA) so that their supply chain will be able to accommodate new business processes and local features specific to China. (Figure 9)

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Remove obstacles to collaborationCollaboration with supply chain partners is among the top priorities in building a Globally Integrated Supply Chain. In China, however, the challenge lies not only in how to identify the right supply chain partners but also in how to work with them effectively to bring out and leverage their strengths in full while maximizing cost-savings.

First, companies should be committed to collaboration and building up strategic partnership with suppliers. This means developing relationship with suppliers beyond the transactional level. As suppliers in China are becoming more mature and capable, the degree of business inter-dependence has gone up. Consequently, companies should abandon the traditional adversarial view on

Figure 9.Develop flexible and scalable solutions through SOA

Scenario A Scenario B Scenario C Scenario D

Sales & Marketing





China Requirements

• Easily customized or localized

• Be componentized, but not too much integrated

• Able to outsource non-core processes

• Easily plug-in new businesses

Source: IBM Institute for Business Value, 2007

suppliers of being inferior and being unreliable. Instead, they should begin to look for areas where they could collaborate and supplement each other along the value chain.

Second, companies need to strengthen information sharing with their supply chain partners. Due to heavy reliance on manual processes and the lack of common IT interfaces, the extent and quality of information sharing in China is far from being satisfactory. A variety of tools could improve information sharing, ranging from simple mobile phone Short Messages Services (SMS) to sophisticated Enterprise Resource Planning (ERP) systems. However, for partners to adopt these tools, the systems and data protocols need to be user-friendly and offer clear benefits to both sides.

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According to the VP of Logistics of a leading American audio manufacturer in China, “It is easy to launch a customer-supplier relationship, it is more difficult to establish a strategic third-party logistics partnership...We treat our �PLs the same way as our own staff, include them in our daily production meetings, have them attend vendor workshops, and all these have a lot to do with our success.” The company has worked with a �PL to achieve significant cost savings in inbound logistics by consoli-dating shipments in free trade zones located between Hong Kong and Yantian in the Pearl River Delta.��

One of the world largest brewing companies success-fully convinced its 1�0 distributors in China to adopt web-based sales management system which helped their distributors reduce inventory by offering them more accurate delivery dates. To the brewing company, the detailed customer purchase information enabled them to target their marketing efforts more prudently.��

A high-end Chinese retailer in Beijing was facing chal-lenges to maintain market leadership in China, because it over-relied on manual processes, and its information system was built on multiple, disconnected networks, which prevented real time information tracking and intelligent business decision support. The result was high error rates and slow response, leading to low productivity and reduced competitiveness. In response, the retailer implemented a data sharing platform based on Service-Oriented Architecture that linked its ERP system with supply chain management applications, and rolled out the platform to its 1,800 plus domestic and international suppliers. By reducing order lead-time from �.� days to �.� hours, improving order acknowl-edgement rate from 80% to 99%, and cutting order error rate from 9% to 1%, the retailer transformed the way it does business with its partners. More stream-lined processes and increased information transparency helped the retailer make timely business decisions, thereby strengthened its competitiveness.��

Third, companies should develop strategic partnership with logistics specialists. The rapid de-regulation of China’s logistics industry has encouraged 3rd party logistics providers (3PLs) to redefine their role by offering comprehensive services from cargo delivery to shipment consolidation, warehousing, inventory management, order fulfillment, product tracking and other value-added services. Outsourcing logistics functions to 3PLs would result in improved delivery accuracy, simplified processes, reduced transportation costs and improved order fill rate.

Working with 3PLs in China is more than just getting the best contract price; it involves more about developing collaborative relationship that would bring about mutual benefits and strategic value in the long-term such as being able to serve companies' global logistics needs while offering localized service excellence.

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Conduct supply chain due diligence study prior to cross-border M&A To overcome the post-merger “supply chain syndrome” described earlier, it is critical that the supply chains of the two merging companies quickly fit into the new entity’s strategy and business model. To facilitate supply chain integration, it is of utmost importance to include supply chain in the pre-merger due diligence study. The objective is to identify supply chain synergies, locate hidden supply chain issues, explore improvement opportunities and initiate integration planning for the supply chain of the new entity, so that the integrated supply chain will align with the new entity’s business model and strategic imperatives in advance rather than “after-the-fact”.This ensures that the supply chain is able to support the business operation of the new entity within the shortest possible transition time after the merger, thereby maximizing the value of the deal. It has proven than substantial cost savings have been generated through integrating supply chains of two companies.

Proactively mitigate supply chain risks in ChinaChina presents tremendous growth opportunities, but this vast, complex and fast changing market and the country's fast pace of globalization bring along various types of risks on companies' supply chain. Both companies operating in China and Chinese globalizing enterprises must be aware of and capable of managing the following major categories of risks. (Figure 10)

Geo-political risks – risks impacting China’s relation with its global trading partners. Typically includes protectionist measures targeting on China’s exports, embargoes on imports to China,

In a merger between two leading telecommunication companies, 70% of total cost savings were from supply chain; while in a merger between two computer giants, as much as $1 billion worth of savings were derived from supply chain integration.��

Figure 10.Supply chain risks are high in China

Geo-political Risks

Logistics Risks Customer Risks Supplier Risks Financial Risks

● Internationalrelations

● Civil instability● Unfair trade

policies● Market entry


● Poorinfrastructure

● Non-performancei.e. �PL

● Interruptionsi.e. naturalemergencies,strikes

● Understandingof needs

● Acceptabilityto China

● Quality● Lead-time● Order-fill rate● Satisfaction

i.e. word of mouth

● Quality● Capacity● Collaboration● Supplier


i.e. ability to


● Inflation● Import tariffs● Exchange rate● Freight costs

Source: IBM IBV analysis

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cancellation or delays of business licenses and project go-ahead in China, and approval of foreign direct investments in China.

Logistics and infrastructure risks – risks associated with China's logistics and other infrastructure, including under-developed transportation networks causing inaccessibility to markets; power supply shortage and failure causing interruptions of production; limited telecommunication coverage and poor IT network causing lack of visibility on shipment movements. All of these will impact the smoothness and efficiency of supply chain operation in China.

Customer risks – risks associated with customer default or insolvency on one extreme, and cancellation of orders by the customer or failure to retain the customer on the other. Suppliers of fashion, certain consumer electronics and products with short product life cycle also face additional risk of product obsolesces.

Supplier risks – risks related to insolvency or performance of suppliers and business partners. Many global manufacturers are concerned about risks associated with Chinese suppliers’ performance such as their ability to manage product quality, productivity and timely delivery, which exert heavy influence on the robustness of manufacturers’ supply chain in China.

Macroeconomic and financial risks – risks associated with economic parameters along the supply chain such as inflation rate, currency exchange rate, freight rates and interest rates. Following China’s accession into the WTO in 2001, these elements are more subject to global market dynamics. For example, Renminbi’s appreciation against the dollar has yielded savings on freight rate, but inflation within China has kept logistics costs high.

Each of the above risk categories could potentially trigger devastating effects on supply chain and the repercussion of a supply chain failure can be extraordinarily severe. As a matter of fact, companies’ ability to identify and manage supply chain risks has not kept up with their pace of supply chain extension in China. A case in point is the snow storm in Feb 2008 that hit central and southern China, causing power outage, transportation paralysis, shipment delays and production halt. The majority of Chinese manufacturers were ill prepared and suffered huge financial losses. Therefore, mitigating supply chain risks should become a strategic imperative for building a Globally Integrated Supply Chain in China.

Under the traditional reactive approach, risk mitigation in China is often carried out in ad-hoc manner which does not serve the purpose. This is because most Chinese companies do not really and fully understand their supply chain risk profile, thus resulting in underestimation of the risk impacts.

Under the proactive approach, the critical initiative is to understand what composes your supply chain and how complex and interconnected are the supply chain activities. By answering questions such as who your suppliers are; what types of risks are pertaining to your business and customers; what types of risks are controllable or not controllable; how likely their occurrences are; what the financial, operational, and logistical consequences are; many supply chain risks can be predicted, avoided and minimized. An increasing number of companies are realizing this and are committing more resources to risk assessment.

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According to an AMR study about supply chain risk management, approximately �0% of the 100 global companies surveyed considered logistics failure and supplier failure as the biggest potential threat; and about the same percentage of respondents also believed logistics failure and supplier failure are increasing in China.��

In order to proactively manage supply chain risks, companies can implement certain risk avoidance and mitigation measures. (Figure 11)

As supply chain integration is increasingly becoming global, so are the risks. For companies operating in China, we recommend that risk mitigation efforts should be focused on high probability and high impact risks, particularly risks associated with suppliers and logistics.

Figure 11.Proactively mitigate supply chain risks in China

Geo-political Risks

Logistics Risks

Customer Risks

Supplier Risks

Financial Risks

• Prepare contingency plans and purchase insurance for supply chain events and interruptions in China

• Identify and develop multiple suppliers and partners in China

• Build information sharing and IT platform with Chinese partners and service providers

• Conduct due diligence study and early integration planning on supply chain prior to cross-border M&A

• Link supply chain with Integrated Product Development (IPD) processes

• Monitor China business environment and constantly adjust supply chain strategies

Source: IBM IBV analysis

A world leading Aerospace and Defense (A&D) company was able to mitigate supplier risk through “supplier mapping”. The company was experiencing an average of two supplier failures per year, each failure representing a financial loss of approximately $� million to the firm. The company implemented supplier mapping processes to assess supplier risks. The “mapping” processes involved identifying key suppliers, suppliers’ suppliers, critical components sourced, financial metrics (i.e. credit scores) and key performance indicators of suppliers (e.g. delivery performance, quality compliance rate, lead-time volatility). Based on the data, the company classified its suppliers into three categories, namely, okay, monitor, and act. As a result, even before the company purchased anything from any supplier; it would have already obtained a clear risk profile of a particular supplier, and with a risk mitiga-tion plan to ensure the integrity of product flow from that supplier. Through this approach, the A&D Company has been able to eliminate further supplier failures.�7

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ConclusionCompanies operating in China should realize that the success of supply chain integration both within China and around the globe will decide whether they will win China and the global market. For Chinese companies, it means that they must rigorously build and improve visibility, collaboration and flexibility across their entire supply chain, particularly to support their burgeoning reach to the overseas market. For multinationals, it means that they must tailor their global supply chain operation to the China market and accommodate local features that would improve efficiency and scalability. No "One-Size-Fit-All" supply chain will succeed.

Last but not the least, supply chain integration in China is a transformation process that takes years to accomplish. Both Chinese enterprises and multinationals should prioritize their supply chain integration upon market dynamics, operation maturity, organizational readiness, and align supply chain initiatives with both their global and China business strategies.

AuthorSean Ryu: Partner and Greater China leader of Supply Chain Management, IBM Global Business Services

Michelle Kam: Director for Institute for Business Value, China, IBM Global Business Services

Zhan Ying: Senior Consultant, Institute for Business Value, China, IBM Global Business Services

Jiang Yi Wei: Consultant, Institute for Business Value, China, IBM Global Business Services

Yang Chao: Managing Consultant, Supply Chain Management , IBM Global Business Services

A growing Chinese logistics provider used transporta-tion network design tools to model its distribution network, test various transportation routes, and perform frequent what-if analysis. The software also enabled the company to assess dependencies and connections between main routes and side routes, allowing them to configure the best itinerary for delivery and where to locate distribution centers and warehouses for a variety of customers through simula-tion. By continuously reassessing and remodeling its logistics network, the company was able to develop a clear understanding of the logistics risks across different regions in China, which helped them make strategic decisions on resource deployment to avoid and mitigate logistics risks. As a result, supply chain interruptions such as shipment delays, road accidents, delivery failures and inventory shortage have been avoided and reduced, and its customers have become more satisfied.�8

The key to minimize logistics risks lies in logistics network optimization. Leading companies have turned logistics network optimization into a continuous process of refinement and improvement. They have leveraged software tools such as transportation management suite and business process modeler to facilitate logistics network design and risk assessment.

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Acknowledgement Karen Butner: Institute for Business Value (IBV) Global SCM Leader, IBM Global Business Services

Dong Bae Park: Associate Partner of Supply Chain Management, IBM Global Business Services

Jae Cheon Lee: Senior Managing Consultant of Supply Chain Management, IBM Global Business Services

Shen Guo Xiong: Senior Managing Consultant of Supply Chain Management, IBM Global Business Services

Liu Wen: Senior Managing Consultant, Supply Chain Innovation Center, IBM Global Business Services

Fan Shun: Managing Consultant of Supply Chain Management, IBM Global Business Services

Shi Peng: Senior Managing Consultant, IBM Global Business Services

Xu Xu: Research Assistant, Institute for Business Value, China, IBM Global Business Services

About IBM Global Business ServicesWith consultants and professional experts in more than 170 countries, IBM Global Business Services provides clients with deep business process and industry expertise across 17 industries, using innovation to identify, create, and deliver value faster. We draw on the full breadth of IBM capabilities, standing behind our advice to help clients implement solutions designed to deliver business outcomes with far-reaching impact and sustainable results.

References1 Wal-Mart Stores, Inc.2006 Annual Report2 Economic Intelligence Unit, CEO Briefing-Corporate

priorities for 2007 and beyond, Participants:1006 global CEOs

3 AC Nielson, 2006; Chinese Association of Automotive Manufacturers (2006),

4 Nokia annual financial report, 2006, IBV analysis5 Shanghai Foreign Economic Relation & Trade

Commission, April 2008 6 China Daily, 14th March, 20087 China Investment Report, Ministry of Commerce of

People’s Republic of China, Department of Foreign Trade, January 2008

8 Ibid9 Financial Times, May 30th 2007, according to Global

insight study 10 Exchange rate: 31st Dec, 2006, Bank of China11 China Enterprise Confederation and China

Enterprise Directors Association, 200712 2006 IBM-EIU Survey of MNC’s in China; IBV China

analysis13 Ibid14 2007 China Value Chain Study, IBM IBV15 2006 China logistics development report, National

Development and Reform Commission; Ding Junfa, Executive Vice President of the China Federation of Logistics & Procurement, Speech in International Purchasing Forum in China, 2005

16 The 6th Survey Report on China Logistics Supply and Demand, China Association of Warehouse and Storage, 2005

17 Ibid18 Ailian Zhou, Xuhong Li, Haijun Mao, The

Logistics Standardization in China: Situation and Recommendation, Economics of Commerce and Trade, June 2007

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19 2006 IBM-EIU Survey of MNC’s in China; IBV China analysis

20 World Financial Report, Nov 200721 World Investment Report 2007, United Nations

Conference on Trade and Development22 Lenovo Annual Financial Report, 2006/200723 Bao, Ming Hua, deputy director of the

Macroeconomic Research Institute, China Renmin University, “China’s labor cost is gradually increasing, labor cost advantage will disappear in five years”

24 “The investment trends of ‘China +1’ strategy of multinationals enterprises” the Policy Research Office of the Ministry of Commerce, People’s Republic of China, April 2007

25 IBV and Fudan Globalization survey, 200526 IBM Global Business Services27 Ibid28 Ibid29 Winning in China’s Mass Market30 IBM Global Business Services31 China Supply Chain News, Issue CN-20 Jan 200732 IBM Institute of Business Value-Winning in China’s

Mass Market33 IBM Global Business Services34 Inbound Logistics, Jan 2006, Innovation: A Fresh

Eye on the Supply Chain 35 Harvard Business Review, Oct 2005-How Supply

Chains Drive M&A Success36 AMR Research-Strategies for Managing Supply

Chain Risk37 Ibid38 IBM Global Business Services