Free Essay on Supply Chain Adaptation to China

Contingency theory

According to the theory, there is no better way to lead, organize or make effective decisions for a company. The theory stipulates that optimal course depends upon the external and internal situations experienced by the organization. The theory postulates that a contingent leader makes a decision depending on the situation. A contingent leader applies the right leadership style based on the situation facing the organization. Contingent theory demands that a leader accurately analyses the situation and considers all the dominant factors before making the decision. A contingent leader initiates a leadership structure that correctly solves problems affecting the firm (Liao, Marsillac, Johnson & Liao, 2011). Organizations require careful management to adapt to the different environments since they are open systems. The theory also stipulates that there is no single perfect approach for organizing a company. The method indicates that the appropriate approach only depends on the environment and task experienced by the firm. Every organization must aim at achieving good fits and favourable alignments by creating a concerned team of management. Contingency theory also posits that different organization species exist based on the type of environment. A leader must adequately relate to all the team members to understand the challenges of the organization and to formulate a practical decision that primarily seeks to solve the current decision. A decision is only right and appropriate if it finally solves a situation that affects the productivity and performance of the company.

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Economic cluster theory

Economic cluster theory is a theory of economics. It involves the concentration of industries in a given region. According to the theory, the concentration of different industries in a particular region results in several socioeconomic advantages. Industries only cluster in a locality due to the unchanging nature of the customer base. Clustering of industries in a region also results in steady income for the people and businesses. Firms also experience low costs because of stable supplier's presence. The theory also postulates that co-location of industries in a given locality is not a cluster if associated with economic benefits such as increased productivity, prolific innovation and if it is impossible to demonstrate the presence of externalities.

A strong cluster of industries also attracts more firms into the area. A cluster is capable of achieving higher productivity and more innovation (Jean, Sinkovics & Hiebaum, 2014). Path dependency is also a key aspect of the economic cluster theory. According to the theory, a definite feedback cluster location is fundamental for the economic growth of the region. The intensity of the cluster increases with the entry of new firms. Firms depend on each other to produce. Other firms act as the source of raw materials for some firms. Some firms also act as the market for the goods produced by other companies. A cluster of firms would likely attract more firms in the region. The growth of the incumbent firms also depends on the intensity of the cluster. It supports the further economic growth of the locality. If it achieves a critical mass, the path dependency changes from positive to negative. Competition and congestion also slow down the cluster if not adequately managed. The cluster remains positive only under the proper regulation of competition and congestion levels.

Main Aspects and Stages of the Supply Chain Adaptation to China

Supply chain adaptation in China includes aspects that enable firms to operate and maximize their production. Effective supply chain adaptation in China also enables the firms to maximize profits and acquire sustainability. Market entry preparation is one of the main aspects. It involves the strategies used by the firm to access China market. Other primary aspects include entry into China, establishing automotive plants and justification for an entry for suppliers. Supply chain adaptation in China occurs in three different stages. Initial growth stage is the first stage of supply chain adaptation in China. Initial growth stage is where the company's production capacity increases from 0 to 50, 000. At this stage, the company focuses on the creation of effective relationships with the available local suppliers in China. The company mainly builds a relationship with suppliers with no product knowledge. Developing active involvement with the suppliers at this stage enables the firm to meet the production goals. It allows the firm to maximize its production. Developing the supplier relationships at this stage also allows the firm to achieve the future goals of the company (Liao et al., 2011). The future of the company depends on how active the firm starts in the market. An active market entry enables the firm to access the customers. The initial stage also determines how to access the market and acquires loyalty of the customers through the quality of production. Customer's loyalty mainly depends on the first impression they receive from dealing with the firm. Provision of quality, accessible and affordable goods to the customers satisfy the customer has needs and enables the firm to achieve sustainability in the new market.

The second stage refers to secondary growth stage. The secondary growth stage is where the company's production increases from 50,000 to 120,000. It is the stage where the suppliers start to analyze the impact of the relationship with the company. The company continues to engage the suppliers as it expands to new markets. Suppliers also evaluate the advantages of market entry by the firms. They also assess the transportation and investment costs associated with the process. Stability and continuing growth is the last stage if supply chain adaptation in China. At this stage, the company's levels of production increase from 120,000 to 250,000. The company's growth level attracts other suppliers and forecasts stability. The company can increase the prices at this stage and have an enormous and loyal group of customers. At this stage, the firm focuses on expansion and surplus production of goods and services.

Primary Factors Affecting the Decisions of Each Supplier's Entry to China

The main factors that affect the decisions of each supplier's entry to China include the production costs, proximity to the market and local technical and human resources. Production costs affect the level of profit and price for the suppliers. It determines the profit maximization ratio for the suppliers. It also defines the competitiveness of the supplier in the market. Proximity to the market also influences the supplier's decision to enter the Chinese market. Suppliers who are closer to the market use fewer transport costs as compared to those who are far from the market (Zhu, Feng & Choi, 2017). They charge different prices for their goods and services making the competition extremely difficult for suppliers who are far from the market. Local technical and human resources also determine the interaction between the suppliers and the companies. It identifies the changes in the labour market and the consumption patterns. Logistics is also a financial issue that affects the decision of each supplier's entry into China.

References

Jean, R. J., Sinkovics, R. R., & Hiebaum, T. P. (2014). The effects of supplier involvement and knowledge protection on product innovation in customer-supplier relationships: A study of global automotive suppliers in China. Journal of Product Innovation Management, 31(1), 98-113.

Liao, K., Marsillac, E., Johnson, E., & Liao, Y. (2011). Global supply chain adaptations to improve financial performance: Supply base establishment and logistics integration. Journal of Manufacturing Technology Management, 22(2), 204-222.

Zhu, Q., Feng, Y., & Choi, S. B. (2017). The role of customer relational governance in environmental and economic performance improvement through green supply chain management. Journal of Cleaner Production, 155, 46-53.