Depending on their positioning, companies can follow certain strategies to become a global supply chain integrator. For companies already globally sourcing or manufacturing for export out of China, the primary goal should be to gain additional scale benefits by capturing sales opportunities in the Chinese market itself. The key success factors in this case are differentiation, flexible business models, and third-party contract manufacturing.

A good example would be Wal-Mart, whose sourcing from China will reportedly reach US$30 billion in 2008. Wal-Mart’s China sales were substantially below this figure at the time of the study, yet Wal-Mart is rapidly adding new stores in China. Another example would be Home Depot, a major U.S. retailer of building products. Although its acquisition of China’s Homeway which was intended to grow Home Depot’s share in the China Market, is fairly recent, it has been sourcing large volumes of products from China for a long time, whether directly or through its legions of suppliers.

For companies that have high volumes of sales but limited production capacity in China, the main objective must be to fully leverage China as a low-cost country and to feed global delivery networks outside of China. The key success factors in this case are choosing the right ownership model, developing a cost-advantage supply network through comprehensive footprint modeling, and deploying proactive risk-management practices across the entire implementation and relocation phrases in China.

Many of the global luxury vehicle manufacturers, pushed by local content rules and pulled by rapid sales growth with increasingly affluent consumers, are undergoing this process. BMW and Merced-Benz both have aggressive footprint expansion plans in the mainland China market. Mercedes-Benz recently announced the establishment of operations in India in what would initially appear to be a sourcing-centric operation, but which has the potential to add sales capabilities and grow into a global supply chain integrator as India’s demand for luxury-class vehicles grows.

Extract from Booz Allen Hamilton – Integrating China into your Global Supply Chain

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