Supply Chain Management Logistics China Term Paper

  • Length: 15 pages
  • Subject: Business
  • Type: Term Paper
  • Paper: #45538386

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In addition, outsourcing is seen as one way of freeing HR professionals within the client organization from more mundane and time-consuming tasks so as to better concentrate on core competencies and provide a more consultative and strategic role (Cooke 186). Although the growth of HR outsourcing business has been dramatically facilitated by the introduction of innovations in information and communication technologies (ICT) throughout China in recent years, many companies also report an increasing use of e-HR in-house. For example, in some large Chinese organizations, employees are encouraged and even expected to use e-HR to update their personnel records as a cost-saving initiative (Cooke 186).

Based on the available evidence from secondary sources of data, the outsourcing of HR in general remains relatively limited in China; however, there are trends of the increasing use of external providers for their services such as recruitment and training (Cooke 186). According to the Watson Wyatt's Greater China e-HR survey of 268 firms in the region, a fundamental constraint to the further development of outsourcing and/or shared services of the HR function is simply the paucity of such options for outsourcing and shared services. Further, the Outsourcing in Asia-Pacific survey (conducted by the HR consulting firm, Hewitt Associates) found that many companies in China today remain unfamiliar with the processes and procedures of HR outsourcing or are unfamiliar with the important players in the market (Cooke 186). More importantly, perhaps, the author suggests that it may be difficult for companies in China to justify a decision to outsource a given function on the basis of potential cost reductions because administrative labor is still relatively inexpensive in China and it may actually cost more to outsource the function than to retain it in-house; in addition, the same survey also emphasizes that most outsourcing activities in China come from multinational corporations (MNCs) (Cooke 186).

According to Jones (2005), there has been a steady increase of investments by such MNCs in China in recent years, a process that has further fueled outsourcing opportunities both within and without China for these multinationals and their Chinese partners. "For much of the 1990s China was the second largest recipient of FDI worldwide after the United States.... From 1979 until 2000 China absorbed, on a cumulative basis, over $346 billion of FDI" (39). By sharp contrast, the author reports that, "In India, the amount of FDI was so small even after 1991 that it had little impact on overall growth. However, Indian diaspora may have been significantly directing outsourcing opportunities to their country of origin. The fast development of the it industry in Bangalore has been attributed to business linkages with Indians working in Silicon Valley" (Jones 39).

According to Van Den Bulcke, Esteves, and Zhang (2003), much of the FDI from MNCs that has taken place in China in recent years has had a direct impact on how outsourcing activities are being coordinated in different regions of the country. Because China is so vast geographically, these logistical considerations are not surprising; however, the concentration of various industries throughout the country is indicative of the need to better coordinate outsourcing activities in a more efficient way and the Chinese government recognized this need early on. In this regard, Van Den Bulcke and his colleagues (2003) report that, "The first major step of the liberalization process of inward FDI by the Chinese government was the launching of four Special Economic Zones in 1980 in two coastal provinces, that is, Guangdong and Fujian. These areas were chosen to take advantage of their favorable location, that is, their proximity to Hong Kong, good transportation links and close connections to Overseas Chinese business people" (22). In addition, other favorable considerations included specific administrative and fiscal regulations and the low labor costs (Van Den Bulcke et al. 22).

The factors that were mainly related to the geographical location and the specific administrative status of the zones allowed companies from the Asian newly industrializing economies to relocate their export their processing and assembly operations to China while continuing to depend on the transportation and communication facilities of Hong Kong; therefore, establishing outsourcing bases was clearly the most important objective of these companies with investment operations in China (Van Den Bulcke et al. 22). This type of investment typically involved the relocation, which was usually conducted in phases, of various labor-intensive production processes, such as textile manufacturing and electronics products assembly, in order to benefit from lower production costs in China; for different strategic reasons, a number of Western MNEs had also established an early presence in Special Economic Zones. "These Western pioneers in China came to the Special Economic Zones not to take advantage of the location-bound resources, as was the case for most Asian investors, but for 'testing the water', that is, learning about how to operate in the Chinese market and/or preparing for a long-term involvement" (Van Den Bulcke et al. 22).

Researchers for the Organisation for Economic Co-operation and Development (OECD) predict that China's immense domestic market will encourage further joint ventures by export-oriented foreign multinationals in the future that will provide a strong base for China's increasingly global reach. According to these authorities, "The pace of the trend towards higher-value-added, export-oriented production will depend, in part, on the level of success in addressing various organisational and transportation constraints" (Michalski et al. 11). For example, at the organisational level, the OECD notes that large-scale state-owned enterprises in China demonstrated very low outsourcing ratios for component procurement: just 11% in 1991. "In contrast," they advise, "outsourcing by rural township and village enterprises was over 39 per cent in the same year" (Michalski et al. 11). Likewise, "Manufacturing supply networks that reach into the hinterland may create a strong demand for intermediate goods, but the cost competitiveness of such a strategy will depend on China's capacity to upgrade its telecommunications and transportation networks" (Michalski et al. 11).

Rather than being regarded strictly as a potential outsourcing opportunity by European joint venturers, though, it is becoming increasingly clear that China represents a market unto itself for products and services from abroad, further accelerating the need for more efficient domestic outsourcing practices where they are available and practicable. In this regard, Van Den Bulcke and his colleagues report that, "The market orientation for semi-finished products is relatively different as compared to that for finished products. Among the surveyed EU companies that manufacture semi-finished products (N=68), one-fourth (in sales value) sold them to their Chinese partners, 4 per cent to other subsidiaries of the EU parent companies located in China and 44 per cent to other unrelated local companies" (120).

The figures shown in Table 1 below suggest that the EU companies are providing an important function by supplying inputs for their Chinese partners' companies; however, the linkages between EU subsidiaries and their European parent companies remain weak: just 17% of these products were exported to their parent companies for further processing and assembly (Van Den Bulcke et al., 2003). According to the authors, "This shows again that China is considered by EU companies as a market, rather than an outsourcing basis" (Van Den Bulcke 120).

Table 1.

Destination of sales of semi-finished products by surveyed EU subsidiaries in China (in percentage)

Sales in China's market

Chinese partner's companies in China

Foreign parent's companies in China

Other companies in China

Sales abroad

Parent's companies in foreign markets

Other unrelated companies in foreign markets

Source: Van Den Bulcke et al.120.

This synergistic effect, wherein the economic playing field becomes increasingly level of as a result of outsourcing between nations, has been one of the biggest sources of controversy as well. According to one proponent of this view of outsourcing:

think outsourcing is a growing phenomenon, but it's something that we should realize is probably a plus for the economy in the long run. We're very used to goods being produced abroad and being shipped here on ships or planes. What we are not used to is services being produced abroad and being sent here over the Internet or telephone wires. But does it matter from an economic standpoint whether values of items produced abroad come on planes and ships or over fiber-optic cables? Well, no, the economics is basically the same. (Taylor 367)

In fact, labor supply is widely regarded as being one of the main long-run sources of comparative advantage for Chinese industry. No matter how the future structure of demand shapes up, the OECD anticipates that China will continue to specialize in labor-intensive manufacturing; however, what remains unclear is how the structural rigidities that limit labor mobility and outsourcing to more remote, labor surplus regions will influence the development of local labor markets, particularly in the high-growth coastal regions. Moreover, the OECD concludes that, "Managerial and technological skills are expected to be at a premium. Strategic use of joint ventures, FDI and policy measures such…

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