Excerpt from: China Supply Chain and Logistics Strategy
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| August 16, 2005 | | Foreign Companies Registered in Free Trade Zones and Bonded Logistics Parks Can Conduct Domestic Trading and Distribution | The Ministry of Commerce and the General Customs Administration issued a circular (Shangzizi [2005] No.76) on July 13th 2005. According to the Circular, companies set up in free trade zones (FTZs) and bonded logistics parks (BLPs) can obtain trading rights or apply for distribution rights in China.
- Companies that obtain these rights can carry out trading activities with firms or individuals outside the FTZs/BLPs but within China territory (even with companies or individuals that do not have trading rights).
- Foreign companies who are successful at obtaining distribution rights can conduct distribution activities according to China law.
- Current Customs, tax, and foreign exchange policies pertaining to trading activities between FTZs/BLPs and non-FTZ areas will continue to apply.
Implications for Supply Chain Management in China
Due to the past restrictions on entering the domestic retail,
wholesale, and trading markets foreign companies had no choice but to
create complicated and inefficient supply chains involving layers of
middlemen with sub-optimal distribution capabilities. A fragmented
supply chain presents a massive challenge to management, with multiple
partners to manage and inconsistencies in terms of practices and
policies. From a cost perspective, the duplication of core supply chain
functions, such as sourcing and logistics, is also costly and
inefficient.
With the reduction of entry barriers, foreign companies still face
significant obstacles. The domestic logistics landscape is fragmented
and complex. Traditional distribution channels rely on distributors to
manage sales and logistics and most distributors only cover a small
territory.
Formulating a Supply Chain Strategy for Domestic
Distribution
With the new policy changes foreign companies will need to re-configure
their domestic distribution network and devise a strategy which will
ensure their success in the China market. It is important to analyze
the current network configuration and to determine strategic
alternatives:
- Where should we locate our inventory?
- How should we
manage logistics?
- Is it better to operate in a BLP or FTZ?
- How will
changes in demand effect the network?
- What are our options for
distributing domestically?
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