Building Value Chain Capabilities in China
Western companies for many years opted to locate part of their supply chain in China in order to cut costs and to establish a foothold in one of the world’s most alluring markets. For many, China has become a valuable – sometimes indispensable – part of their supply chain as well as a source of revenue growth.
These days, however, constraints on labour supply, a less accommodating policy environment and increasingly capable Chinese domestic competitors are forcing many companies to rethink the nature of their presence in China.
For those considering developing more complex technical capabilities internally (for the purposes of this article section called “offshoring”) or externally (termed “outsourcing”) in China, either in a bid for long-term success in the Chinese market, to leverage and develop an existing supply chain, or for both of those reasons, this article outlines a few considerations that can be crucial when increasing the complexity of operations in China.
Understanding Current Practices
Given the time and resources required to handle the additional complexities and ambiguities when locating part of your value chain in a Chinese setting, it can be helpful if the process is initiated with as much clarity as possible with regard to the relevant workflows in their current setting.
In most companies, some daily operational workflows remain un- or under-documented. This is sometimes simply because it takes time to write them down; and sometimes because the operational reality for certain groups or individuals is perceived to be at odds with the requirements they would be faced with, if workflows were to be set down in explicit documentation, rather than based on tacit acknowledgement. In other instances, official workflow procedures do exist, but for various – sometimes similar – reasons, daily work is undertaken in a way that does not comply with them.
Whatever the reasons for differences between procedural dictate and operational reality, understanding those reasons and (re)aligning documentation with practice is important. It ensures that procedurally unaddressed issues are not transplanted to an environment where the cost of informal workarounds are higher than at home, both with regard to the implementation of specific workflows, as well as the more general issue of building a culture of attention to detail, procedural or otherwise.
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Adapting to the Chinese Context
Ensuring that robustness of documentation translates into operational efficacy in your Chinese
organisation is likely to require attention to its particular needs with regard to capability-building, whether culturally determined or caused by other differences in its internal or external environment.
There are of course many ways of addressing such needs; for example by adjusting workflow documentation to local requirements, by decreasing workflow complexity, through on-the-job training or by building organisational culture. Most of these approaches will most probably constitute some part of the solution although the latter, of course, very rarely is a short-term endeavour.
Implementing increasingly complex workflows within a framework of both accountability and autonomy requires time in any offshore organisation – often more time than hoped for or even expected. The impact of differences in skill-levels, language and culture, time-zone differences and physical distance on knowledgeintensive communication and teamwork, and on the consumption of time during reiterative phases of design, engineering, testing and production implementation can be hard to gauge.
parts in Assortment
Total Quality Compliance
The most prudent approach to capability-building in a Chinese context (and presumably in many other places) is in most cases a gradual one. The tales of time and money squandered in a newly formed department or subsidiary tasked with responsibilities beyond the short-or medium-term reach of its capabilities are legion.
Other companies have opted to start capability-building by offshoring and/or outsourcing either fairly mature products or more straightforward workflows and only then started handing over responsibility for more complex tasks. In a recent study of the impact of offshoring and outsourcing on product development, one successful case had started by offshoring all production, then parts of production ramp-up, testing, refinement and detailed design, then outsourced all embedded IT, offshored parts of the system level design and finally outsourced all production.
Such a gradual approach to outsourcing and offshoring, although unlikely in itself to guarantee a successful outcome, in many cases certainly seems to be an important part of it.
Attention at Headquarters
Various companies have chosen different types of human resources to drive, facilitate and support the establishment of new capabilities in China. Some have drawn on talent within an existing Chinese organisation, others have dispatched or hired more or less transitional expatriate managers or engineers, or new Chinese staff with sufficient international experience, English skills and technical expertise.
Regardless of the human resources deployed in the Chinese organisation, however, the attention of management at headquarters is of paramount importance. This is for reasons of accountability, and to ensure that various stakeholders and sources of knowledge at home, and possibly at other sister companies, are given sufficient resources and encouragement for them to take constructive part in a dialogue that can facilitate capability-building informed by both existing know-how and Chinese particularities.