November 01, 2006

Sales and Distribution in China

Chinese Buying Behavior and Supply Chain Design

Does the uniqueness of Chinese culture and society imply that buyer behaviors are also very different from the rest of the world? How does buyer behavior in China influence the design of demand driven supply chains?

There is no shortage of supply chain and logistics seminars in China, with practically at least 1 such event per day in Shanghai alone, not to mention Beijing, Guangzhou, Chengdu, etc. At such events one can gain insight into the mentality of government planners as well as logistics and supply chain professionals in China.

The recent CSCMP event in Shanghai is a good example. Discussions mainly centered on assets, infrastructure, capacity utilization, etc. Little focus was placed on the demand side of the equation. Currently, the majority companies in China believe they need to operate in a single ‘lean’fashion.

However, as John Gattorna mentioned to me, a mistaken view of many companies is that they assume all customers act as one in a 'lean' buying behaviour. John argues that by looking at the work on national/country values/cultural differences undertaken by Hofstede, the very different ways of doing things and country values developed over 3 Millennium of civilization in China will simply change the mix of already identified buying behaviours (for a given product category). In other words, John believes no fundamentally new behaviour will emerge. Instead, behaviorial logics can be grouped in 4 general categories. More details are provided in his PADI framework.

Therefore, "foreign companies operating in China who understand this will leapfrog many companies in the West and align their supply chains with the structure that their customers exhibit in the China market". (Gattorna, 2006)

Companies selling in the China market need to conduct a detailed analysis of the buying behavior of their target customers, followed by an assessment of how the behaviors can be segmented according to different supply chain service strategies.

Considering the fact that many foreign companies are both sourcing for export as well as selling in the domestic market, further investigation is needed into how the global supply chain strategy can integrate the service strategies of the domestic market with the service strategies of the overseas market for China sourced products. Are there synergies which can be gained? What form of integration is needed? What are the advantages of applying this framework on a local as well as global basis?