Sourcing, manufacturing and distribution in China are becoming facts of life for an increasing number of manufacturing-based multinational companies (MNCs). However, it is difficult for some MNCs to understand how supply chain integration can be achieved in China given the country’s different political, economic and cultural environment. As such, it will be useful to take a more inside-out perspective in examining the situation.

Today, supply chain integration cannot be a success if it is detached from e-commerce & B2B technologies. China is no exception. Therefore, to understand supply chain integration in the PRC one must start from knowing China’s B2B e-Commerce environment. There are a number of interesting questions about B2B e-commerce and supply chain integration in China:

What is the Chinese government’s role in driving B2B e-commerce and supply chain integration?

Why is it that overseas supply chain integration solutions sometimes don’t work in China?

What technology is used in China for supply chain integration?

The government’s role in driving B2B e-commerce and supply chain integration is in these three areas: legislative, directive and supportive.

The government’s legislative role can be seen in the passing of legislation to create an environment for supply chain integration technologies. China’s Digital Signature Law, which became officially effective April 1, 2005, is one good example. Similar to the Digital Signature & Electronic Authentication Law (SEAL) passed in the USA in 1998, it makes the Digital Signature legally binding as a signature and company stamp.

This is a major milestone in the development of e-commerce in China. It also marks the take-up of supply chain digitization for the legitimacy for digitally signed electronic messages.

As far as its directive role is concerned, the government is taking steps to speed up the adoption of e-commerce technologies in supply chain integration.

An example is the release of a document by the State Council in January 2005 named “Suggestions to expedite the development of e-commerce? The document called for the expediting of e-commerce in China to improve public policies and regulations, credit services, digital certification, standardisation, online payment and settlement, and modern logistics.

Since then the respective government departments as well as public organisations and industry associations are working aggressively to organise awareness and educational activities, or implementation projects, to drive adoption of e-commerce technologies in enterprises for supply chain and logistics integration.

In the past few years, we saw many state-owned enterprises moving towards foreign joint-venture companies or eventual public listings. Therefore the effectiveness of the government’s directive actions has been reduced, despite the fact that it can still direct state-owned enterprises via the National Asset Commission.

On the other hand, the PRC government is starting to play a more supportive role towards enterprises. This can be seen in possible funding or support for strategic projects via the National Development & Reform Commission (like setting up of public platforms for supply chain integration, specially with SMEs).

Importantly, it can be seen that the environment of adopting e-commerce technologies for supply chain integration is improving. However, it should be noted that the government’s influence will mostly stay in the top management level of the enterprises. Knowledge and skill at the operational level are still relatively insufficient to deliver successful Supply China Integration projects.

The second question many MNCs ask is why overseas supply chain integration solutions don’t necessarily work in China. In the US, most if not all supply chain solutions focus on realizing Return on Investment (ROI) to the buyers, or original equipment manufacturers (OEMs), through driving cost savings from the supply chain.

e-sourcing solutions is a typical example. There are various e-sourcing solutions from eBidding, eRFQ to eAuction which all aim at identifying the most cost competitive suppliers for the buyers and driving down sourcing costs. If MNCs try to implement these solutions in China, they will very soon realize that there are more non-monetary factors like product quality, transportation cost and after-sales services that they must consider besides pure cost comparisons. When these factors are taken into consideration, there are really too few instead of too many suppliers and therefore encouraging online competition is not necessarily effective.

That said, for those Chinese OEMs dealing with a group of already very low-cost domestic suppliers, there is no need for buy-side supply chain solutions. In fact, their pain point is more on the sell-side. In contrast to their U.S. counterparts chasing sourcing and production cost savings, they are more interested in deploying solutions to generate more sales opportunities, specially in the international market.

The success of Alibaba or Global Sources illustrate that sell-side solutions are in much greater demand in China than the buy-side solutions that are more familiar to overseas MNCs.