A STUDY ON SUPPLY CHAIN VALUE-ADDED LOGISTICS BASED ON THE GREAT CHINESE MARKET

Transcription

1 58 International Journal of Electronic Business Management, Vol. 9, No. 1, pp (2011) A STUDY ON SUPPLY CHAIN VALUE-ADDED LOGISTICS BASED ON THE GREAT CHINESE MARKET Jie-Shin Lin 1* and Jerry J. R. Ou 2 1 Department of Public Policy and Management I-Shou Universty 2 Kaohsiung (84001), Taiwan Bureau of Energy Ministry of Economic Affairs Taipei (104), Taiwan ABSTRACT From a global perspective, the evolution process of Taiwan s economic and industrial development has been profoundly affected by globalization and regional economies. Transforming Taiwanese businesses from OEM to ODM meant not only strengthening the partnership with international companies, but also adding value through product-oriented innovation rather than process-oriented innovation. However, with the rapid development of China s economy, its domestic market has become one of the world s most valued emerging markets. Therefore, Taiwan enterprises should move closer to this market as well as the factors of production, create cross-strait cooperation, form part of the Chinese market, and develop integrated production and market management of supply chain innovation and value-added logistics capabilities. Keywords: Supply Chain, Value-added Logistics, Cross-strait, SAR * 1. INTRODUCTION From a global perspective, the evolutionary path of Taiwan s economic and industrial development has been profoundly affected by globalization and regional economies. Since the early days, Taiwanese enterprises have been doing foundry production for European and American firms, which is one ring of the new international division of labor system [9]. The globalization trend has become increasingly apparent since the late 1980 s. The development of global commodity and supply chains formed a new system of the global division of labor, replacing the original model of international division of labor. The era of Fordism and mass production ended, while small, diverse, customized and innovative product features became the new market trends. In 1991, the Taiwanese government issued Statute for Upgrading Industries to encourage Taiwanese enterprises toward R & D design by implementing policies such as tax breaks, developing industrial parks, establishing venture investment funds and offering other incentives. Transforming Taiwanese businesses from Original Equipment * Corresponding author: jslin@isu.edu.tw Manufacturing (OEM) to Original Design Manufacturing (ODM) meant not only strengthening the partnership with international companies, but also adding value through product-oriented innovation rather than process-oriented innovation. In addition, China has encouraged international companies to move their factories to its market and make use of its cheap land, abundant labor resources, tax incentives and other incentives. Step by step, China will become the world's factory in the global supply chain system. Moreover, the development of regional and international operation systems will empower Taiwanese enterprises with the capabilities of global layout and logistics management in order to maintain its competitive advantage. With the rapid development of China s economy, its domestic market has become one of the world s most valued emerging markets. Consequently, enterprises in Europe, the United States and Japan are strengthening their ties with China s enterprises. In addition, the influence of China s market will increase when the free trade agreement between China and the ASEAN countries is introduced in Continuous development of China market, integration of ASEAN markets and co-operation between markets in Europe, the United States and Japan will enable China to rise to more than simply the world's factory but also the world s marketplace in the global supply chain

2 J. S. Lin and J. J. R. Ou: A Study on Supply Chain Value-added Logistics Based on the Great Chinese Market 59 system. Given the changing role of China, Taiwanese enterprises are faced with opportunities and threats far greater than any other countries because of its close geographical proximity and shared culture and language. On the other hand, the differing views on each country s political status affect cooperation and development on both sides. Regardless, from a broader perspective, opportunities that accompany growth and change in China and the strengthening consensus on cross-strait economic co-operation not only bring a new industry development, but also create a new layout for multinational corporations in the Asia-Pacific region and therefore enhance the competitive advantage of Taiwan as the regional resource center. In this paper, we consider that by expanding cooperation on issues ranging from factors of production to cooperation in market operations in the cross-strait division of labor a Great China market can be created with the potential to strengthen Taiwan s position in becoming the world s headquarters for operations and attracting foreign companies to establish the headquarters for the Asia-Pacific regional operations in Taiwan. Taiwanese enterprises can also draw upon the experience and energy from China s operations to develop their own ability to offer a comprehensive and innovative supply chain that integrates production and market operations. In the following sections, we briefly review the concepts of globalization and regional economy and therefore raise issues relating to supply chain management and global logistics management. We introduce a proposed model of this Great Chinese supply chain value-added logistics (GCSCAL) with an example of cooperation between West Strait Economic Zone in China and Taiwanese enterprises. Some key elements and industry-related policy recommendations are provided. 2. SUPPLY CHAIN AND GLOBAL LOGISTICS MANAGEMENT 2.1 Globalization and Regional Economy In the era of the post-capitalist society, globalization and regionalization have become the main trends in the deconstruction and reorganization of the global community. For individual countries, the ability to embed into the globalization and economic regionalization trend, will ultimately determine their own economic development. To illustrate, Taiwan, effectively attracted a large flow of foreign investment from the United States, Japan and other countries by improving its own investment environment around the 1960 s and thus forming the so-called US-Taiwan-Japan Delta of Economic Development, which was the key that propelled Taiwan to enter the newly industrialized economies [16]. Since the 1980s, Taiwan s large flow of foreign (especially China and Southeast Asia) investment combined with the internal socio-economic changes in the environment caused the deterioration of the investment environment. This deterioration was also guided by the diversification of the global production system and the East Asian regional economic integration. As a result, it promoted Taiwan to a higher rank in the global economic system, and became a bridge that joins advanced capitalist economies and the new wave of emerging industrial economies [4]. In fact, the global economic system is a dynamic process whereby all countries or regional economies can be cooperative members as well as interactive competitors. The occurrence of changes in the status of any country is not a result limited by existing conditions and developmental trends, but can also change the overall relationship in turn. For example, the events of the past, including the accelerated growth of Taiwan since the emergence of the East Asian Four Little Dragons in the 1960 s and 1970 s, has impacted the development of Central and South American countries to a considerable degree. Another obvious example is that since China started its attempt to launch a reform policy in 1979, it has cast an enormous impact on not only global system but also the Asia regional development. Regional economic development refers to a type of cooperative network, which can integrate the cost-effectiveness and the operating efficiency of large-scale enterprises and the mode of response, flexibility, and entrepreneurial spirit of small-scale enterprises [12]. It also refers to some kind of resources that can be developed and cultivated, which can be regarded as a mode of operation, in order to enhance a firm s competitive advantage [1]. Shaping networks among firms is an important issue for regional economic development. Prevalent in the real society, the inter-enterprise organizations take countermeasures to enable prompt mutual exchange of both information and messages. Naturally, the organizations agglomerate in a limited area or in some type of relationship established by adjacent firms. This process occurs to reduce or share the impact of environmental changes. Firms that choose to cluster in their preferred locations form agglomeration economies. The special advantage triggered by the local factor markets in these areas, as well as the manufacturers and the local social networks, are also some of the reasons behind the formation of agglomeration economies. Moreover, agglomeration economies are not limited to the industrial network, such as agglomeration economies achieved through purchase methods or the establishment of special relations between government and business [13,15,20,26]. Other

3 60 International Journal of Electronic Business Management, Vol. 9, No. 1 (2011) situational factors include special time points, the status of each regional network member in other networks, the special resources they possess, the special conditions they face, the strategies employed, the results obtained, and so on. It is believed that competitive advantage comes from the geographically proximate firms or clusters, national or regional competitive advantage is due to the inter-industry interactions, regardless of the source of competitive advantage that is distinguished based on either the nation or the region [20]. Many studies indicate that the regional development does in fact help enterprises to strengthen their competitive advantage, deepen core competencies, and gain cost advantages of the experience curve, achieving the goal that would be unattainable by one single firm but possible with the power of clusters [3]. The more concentrated the link among the regional community members, the more powerful the link, and more extensive the level of reciprocity and coincidentally the more instrumental it is to the exchange of information, technology and experience among regional community members. Therefore, the construction of an industry network is conducive to the acquisition of strategic advantages [21]. 2.2 Supply Chain Management Supply chain management, SCM, a capability of mass production that attempts to link a firm s internal and external alliances, corporate partners, and related business functions, so that the supply chain becomes highly competitive and customer-oriented. Supply chain management is the on-going evolution of a type of management philosophy and while concentrating on developing innovative approaches, it involves synchronizing market products, services, and information, thereby creating a unique and individualized source of customer value [7,22]. SCM is about utilizing a series of efficient ways to integrate suppliers, manufacturers, warehouses, and shops, to ensure the right quantity of production and the delivery of the products at the right time to the right place. It is mainly to ensure service is at the level of customer satisfaction that minimizes the overall system cost. Supply-chain management also emphasizes the integration of the supply chain (Supply Chain, SC) members relationship development and the inter-enterprise process, in order to attain a competitive advantage [24]. Therefore, the ultimate spirit of supply chain management, through integrating resources and procedures of the supply chain members, is to create a higher supply chain value. The regional economies, with regards to the concept and ideas of supply chain management, should consider how to achieve top positions in the future economic development of the supply chain, to enable regional economies to achieve future dominance and superiority [19]. There are four types of relationship models for the regional economies and supply chain: (1) includes a complete supply chain; (2) the main section of the supply chain; (3) deals only with part of the main section part of the chain section; (4) contains risks and pollutions that can easily cause catastrophes, which may eventually result in regional economic losses brought about by the chain section. Furthermore, the best choice for regional economic development is to select to construct part of the supply chain, which can integrate and lead the entire supply chain [25]. Under the tide of globalization and the layout strategy, supply chain management must also make appropriate adjustment and coordination to cope with the increasing competition and the challenges that arise from globalization. Since the 1990 s the supply chain system was bound to follow the changes in globalization and gradually adapt and adjust its content [14]. Furthermore, he pointed out that the argument of supply chain globalization mainly lies in the emphasis on the changes in information and process, as demonstrated in Table 1. Table 1: Trend of the global supply chain[14] From To Product storage Logistics Sales cover the forecast Reliability orientation Function orientation Process orientation Information follows the company (private) Information sharing among supply chains Large inventory space (point of sale) Sufficient stock of cost-orientation Stock push replenishment system Integration of the pull-push systems Fixed scheduling Dynamic scheduling Functional planning Integrated planning and reporting Paperwork Integration of EDI and action data On the one hand, international business continues to outsource manufacturing to countries and regions where conditions for production are better and cost is lower, on the other hand; it also continues to expand product sales to emerging markets where the purchasing power is gradually increasing. Consequently, broader coverage, deeper upstream and downstream operations emerge and more complex global supply chains develop. Additionally, globalization shifts the patterns of international competition, from between an individual enterprise and another individual enterprise, to a more challenging environment characterized by the competition era of supply chain against supply chain [11]. Thus, globalization of the supply chain is

4 J. S. Lin and J. J. R. Ou: A Study on Supply Chain Value-added Logistics Based on the Great Chinese Market 61 confronted with the uncertainty and complexity of a global distribution network. In the face of a globalizing business environment, enterprises, should have a complete plan with regards to globalizing supply chain management strategies,, such as establishing a global supply chain management system through e-commerce [5,18]. In relation to Taiwanese enterprises, the gradual emergence of regional economies along with language and cultural similarity will lead to tremendous learning effects for establishing a global supply chain. After taking the account of the direction of globalization in the face of the establishment of a global logistics system, firms can assess the cost effects in detail with logistical expertise and thus build a viable global logistics management system [6]. 2.3 Global Logistics Management In the competitive environment formed by globalization, economic liberalization has gradually lifted trade barriers between countries. Yet in order to cope with changes in market competition, the industry must take into account speed, efficiency, convenience, and other conditions in the operations of strategies. The industry thus needs to pay more attention to the vertical integrative relationship among upstream suppliers, midstream retailers, as well as downstream retail customers. Therefore, in the transformational process of the global industry, the internal and external management mechanism is also undergoing changes, and development and the needs of the logistics management systems are also gradually becoming an important core for all industries. The global logistics management (GLM) is a new wave in the field of management in the 21st century. The importance of its performance to national economic development is an indicator of firm success or failure as well as that of a nation s competitiveness. Under the wave of internationalization, globalization, and liberalization, the key factors of firm operations may include science and technology, manufacturing, marketing, logistics that is, how firms form strategic alliances with upstream and downstream firms, and how firms use sophisticated marketing management strategies and highly efficient logistics management models to maximize profits [23]. As the global economy has already transitioned from the national economy to the regional economy, it is heading towards the global economic system. Under this developmental trend, the production and sales must take into consideration the global market. Marcos & Barbalho (1998) pointed out that global logistics management refers to a corporation s overall operating activities including marketing, product design, customer service, production, procurement, logistics, suppliers and inventory in the global market. The core spirit can quickly respond to market changes and customer needs, while minimizing inventory cost, storage pressure, and risk, thereby creating a synergy of integrated business operations. Along with the firm s range of operations, the market activities will expand from being on a national scale to a specific country market scale, develop into international scale, and finally engage in global logistics management in coordination with the globalization of operations [8]. The evolution of global logistics management is divided into four phases. The first stage belongs to the partnerships among individuals, placing emphasis on establishing a good relationship with suppliers or distributors, with a relatively small number of individuals who are involved. Building and maintaining strong relationships are necessary for reducing costs, and finally providing good quality will be necessary to generate high inventory turnover. The second phase belongs to the logistics management phase, emphasizing the implementation of control from the starting point to the consumer's flow of information and logistics. The number of participating individuals, which was originally fairly small, expands to include suppliers, distributors, consumer point, and so on. From production to services, all supply chain members focus on the logistical operations of raw materials to finished products to distribution. Due to the attention that supply chain individuals pay to information flow and logistics management, they can reduce prices, improve quality and inventory [2]. The third stage is about supply chain management, emphasizing the reshaping of business processes with speed and flexibility. Participating members include all members of the supply chain, from suppliers to consumers. This stage considers that all the members should be related from the processing of raw materials right through to end-users. Efficient business processes can increase the response, speed, quality, delivery and flexibility of customer service. Therefore, it is best to involve all supply chain members in management. The fourth stage enters the scope of globalization, which is global logistics cooperation. Its focus is on the integration of cross-border, cross-organizational activities, participants including all members from domestic suppliers to foreign end-users [10]. Furthermore, there is an increasing importance on the collaboration between domestic suppliers and foreign customers. The formation of alliances can be beneficial due to the capacity for mutual learning, as well as a reduction in costs and an increase in profits. The creation of knowledge can result in a win-win situation, reducing the risk of global operations and co-creating a market niche.

5 62 International Journal of Electronic Business Management, Vol. 9, No. 1 (2011) 3. SUPPLY-VALUE-ADDED LOGISTICS MODEL In recent years, information technology has narrowed the gap in communication. In order to reduce the cost of raw materials, the majority of firms engage in the operations of international procurement. Multinational enterprises, in pursuit of comparative advantages, use national advantage to adopt the production model of the international division of labor and resource sharing, forming corporate manufacturing, logistics, marketing and other activities, which are located in different countries. Domestic companies have always been internationally known for their manufacturing capacity, including textiles, electronics and footwear manufacturing. In the early mode of operation, small and medium enterprises used the effective link between upstream and downstream. With low labor costs as their competitive advantage, they quickly entered the foundry industry. However, under the global division of labor structure, they face a significant challenge in both operations and management. Currently multinationals all stress the importance of supply chain management and an effective global logistics system. During the early stages, Taiwanese companies were the Original Equipment Manufacturers (OEMs) for companies in Europe, United States and Japan. In 1991, the Government issued Statute for Upgrading Industries to encourage Taiwanese enterprises towards R & D design by implementing policies such as tax breaks, developing industrial parks, establishing venture investment funds and offering other incentives. Transforming Taiwanese businesses from OEM to Original Design Manufacturing (ODM) meant not only strengthening the partnership with international companies but also adding value through product-oriented innovation rather than process-oriented innovation. See Figure 1. Figure 1: Development of upgrading industry With the rapid development of China s economy, its domestic market has become one of the world s most valued emerging markets. Therefore, the enterprises in Europe, the United States and Japan are strengthening their ties with China s enterprises. Consequently, China has become world's factory in the global supply chain system. Furthermore, the influence of China s market will increase when the free trade agreement between China and the ASEAN countries is introduced in Under the development of the Great Chinese Economic Zone (GCEZ), Taiwanese enterprises have to consider a world layout strategy including: transforming China into a new stage in the development of Taiwan's enterprises, strengthening Taiwan s competitive advantage in becoming a centre of regional resource, cooperating with demand from both economic zones in China and Taiwanese enterprises and creating a new layout of multinational corporations in the Asia-Pacific region. Overall, it involves modeling a system of industrial division based on cross-strait industries and supply chain valued-added world layout. In fact, enterprises tend to make investment decisions based on two factors - markets and resources. Given the huge market demand and abundant production resources in China, the main growth momentum of the Great Chinese market will be China-based. According to the cross-strait economic policy, new business investments in Taiwan should make it easier for Taiwan to access China s market and production resources. Taiwan s market, together with China s market, will become the Great Chinese market as it substitutes trading for direct investment. Taiwan will continue to provide different value-added logistical capabilities to the Great Chinese market through its supply chain logistics. A survey was conducted using a sample of 16 associations and 20 companies regarding close to market and close to production factors in the cross-strait industrial policy and demand for business investments. The results showed that a close relationship exists between these factors. The close to market policy aims to help businesses expand in Chinese/ASEAN markets and also meets their demands for close to production factors. This situation indicates that a strong supply chain is significant when it comes to entering the China market given its strength as the world's factory and the world s marketplace. Therefore, it will be important to consider supply and demand factors in Taiwan and China in order to create a cross-strait industrial win-win situation. However, in order to attract global investments in Taiwan, the benefit of easy access to production facilities in China should be highlighted. In addition, the advantages of supply chain logistical services should also be highlighted so that international enterprises will make Taiwan their main base in the Great Chinese supply chain while using China s resources to maximize production efficiency. Figure 2 shows the supply chain value-added logistics model. In face of the China s policy of substitutes trading for direct investment, Taiwanese enterprises have to consider an investment layout of close to market and close to production factors. In the Great Chinese market, there is a potential for cross-strait cooperation to occur in both production

6 J. S. Lin and J. J. R. Ou: A Study on Supply Chain Value-added Logistics Based on the Great Chinese Market 63 factors and market operation. Taiwanese enterprises can also take advantage of the opportunity to be the core of this supply chain value-added layout system and therefore supply diverse value-added layouts. As a result, Taiwan enterprises can develop world layout and logistics management capacities, to maintain the competitive advantage. Figure 2: Supply chain value-added logistics model 4. LOGISTICS VALUE-ADDED MODELS The West Strait Economic Zone in China includes Fujian, Zhejiang, Jiangxi and Guangdong provinces, with development centers in the five main cities of Fuzhou, Xiamen, Shantou, Cyuanjhou, and Wenzhou. In this economic zone, the north bears the Yangtze River Delta, the south bears the Pearl River Delta, serving the development of an integrated channel for the public in central and western China, an important base for advanced manufacturing in the east coast. In the West Strait Economic Zone, it is anticipated that the development of local industries will be promoted through cooperation with Taiwan. However, Taiwanese enterprises view the economic zone as lacking in local industry capabilities and consumption capacities. Therefore, specific business opportunities should be developed to attract investment. Following this, a feasible strategy is to conduct negotiation on SAR to SAR (Special Administrative Region) cooperation projects, for example, export tax rebates, foreign currency control relaxation, convenient custom declarations and port operations etc. In addition, the equality of preferential measures should be considered as part of the industrial division to achieve a win-win situation. Otherwise, the investment will be redirected to areas that offer more preferential measures, resulting in unequal development between areas. Therefore, when expanding in China, it is important for Taiwanese enterprises to adopt strategies related to close to production factors as this is the key to creating a win-win situation. Figure 3 shows a SAR to SAR cooperation between Taiwan and the West Strait Economic Zone in China. Figure 3: SAR to SAR cooperation From the viewpoint of close to market strategy, enterprises hope to expand into China and ASEAN markets by various negotiated projects. These negotiated projects are divided into two components one is related to Taiwan and the other to the China. In China, these projects include export tax rebates, value-added tax concessions etc. As an example, the effectiveness of using export tax rebate to attract Taiwanese enterprises to the West Strait economic zone, can make up for the insufficiency of local industry clusters. Moreover, with foreign currency control relaxation, funding from China can be returned back to Taiwan to consolidate the function of Taiwan's operational headquarters and make funding more flexible. In addition, there are many uncertain factors and artificial factors in Chinese customs. Therefore, a convenient customs

7 64 International Journal of Electronic Business Management, Vol. 9, No. 1 (2011) declaration and port operations can solve the negotiation problem with China s customs. Another problem is that goods unloaded and processed in Taiwan by foreign companies cannot be exported to China. By relaxing the restrictions on foreign ships transferring goods across strait, the importance of Taiwan as the gate for entering into the China market is upgraded. Provided that China can relax the restrictions imposed on purchasing raw materials and equipment outside China, enterprises will be able to conduct production division and expand markets according to the demand layout in the current supply system and combine local suppliers. In Taiwan, enterprises are concerned that the restrictions on the China s products will ultimately restrict cross-strait industrial investment. If the Taiwanese government can relax the restriction on China s products, it can increase the degree of freedom in the logistics industry between Taiwan and China. Effectively, this will help enterprises give priority to investment in Taiwan. Moreover, to permit the China s R & D personnel and their families to work in Taiwan could balance the technicians of the two countries. This openness helps to maintain core technological capabilities in Taiwan. In addition, with investment cooperation between two countries, their partnerships will be strengthened and to make it easier for Taiwan enterprises entering the China market. In fact, these negotiated projects will have differing demands due to different levels of development across the industries. To illustrate, consider the tool machine industry. These negotiated projects for China will be tariff concessions, direct shipping, relaxing the restriction of at most 1/3 production value can be used to purchase raw material and equipment outside China, relaxing foreign currency control, export tax rebates, easy come and stay for the people. For Taiwan, These negotiated projects will be tariff concessions, direct shipping and easy come and stay for the people. However, different industrial divisions will exist between China and Taiwan in different markets. In the European, USA and Japanese markets, Taiwan can specialize in precision machining and machine assembling and China can specialize in general components such as cast iron etc. In the China market, Taiwan and China must setup standards and collaborative R&D. Taiwan can specialize in precision machining and key components and China can specialize in general components and machine assembling. In the ASEAN market, Taiwan can specialize in precision machining and key components and China can specialize in machine assembling and general components. Another example is the manufacture of recycled precious metal. Taiwan should cooperate with China in relaxing restrictions on imported products, reuse notice for imported products and foreign currency control. In Europe and USA markets, Taiwanese enterprises can transform into the center for reuse materials processing and manufacture of recycled precious metal. The China s enterprises will specialize in compounded materials and the manufacture of strengthening plastics. In the close to product factors strategy, Taiwanese enterprises are to utilize the full resources and vast markets in China to promote themselves as the main body of supply chain value-added logistics. In addition, the China government promotes the development of the West Strait economic zone to attract investment from Taiwan's enterprises in order to increase local development. In such a situation, cross-strait industrial division structure is a very important strategic indicator for Taiwan. The scale of Taiwan's economy is smaller than that of China. Therefore, these core strategies are critical for Taiwan in order for it to maintain its competitive advantage in the cross-strait industrial division. While the competitiveness of supply chain is the key, promotion of cross-strait industrial divisions is an important strategy with reference to the supply and demand between China and Taiwan. Therefore, under the supply chain logistics value-added model, enterprises must have a capacity to expand China and ASEAN markets i.e. close to the market, whilst simultaneously developing their ability of easily accessing product factors i.e. proximity to product factors. Nevertheless, there are different strategies for industrial divisions between China and Taiwan. As a result, there are different logistics value-added modes. Figure 4 illustrates four types of logistics. First, in manufacturing logistics mode, its characteristics involve conducting cross-strait work division based on automated processes (advanced processes) and labor processes (labor-intensive processes) and to create an R&D design platform of modular innovative products. See for Figure 5. In the trend of micromation products (light, thin, short and small), for example, it is important to have collaborative development between big brands and therefore setup a R&D design platform of modular innovative products, with modular core technology and modular components and modular production process. This can enable production cooperation between Taiwan as the automated manufacturing center and China as the labor processes center. As a result, the final product can be assembled and shipped globally according to customers specification. The key success factors include facilitating the movement of people, measures for R&D and staff training scholarships, offset expenditures on R&D and staff training, sale tax reduction and increase foreign labor quota.

8 J. S. Lin and J. J. R. Ou: A Study on Supply Chain Value-added Logistics Based on the Great Chinese Market 65 Figure 4: Logistics value-added modes between Taiwan and China Figure 5: Manufacture logistics mode The feature in the distribution logistics mode is to conduct cross-strait work division for product distribution processes that comply with both customized and standardized products. Taiwanese enterprises are to specialize in customized products. This is illustrated in the example of the sanitary industry. Taiwanese enterprises can develop to be the headquarters for a worldwide operational alliance s of sanitary products. This requires taking measures for R&D and staff training scholarships, offset expenditures on R&D and staff training and therefore upgrading processing, warehousing and transshipment capacities to customized products processing. With this objective, Taiwanese enterprises can have a worldwide layout and operate in Europe, USA and China markets. In this mode, China s enterprises will specialize in producing standard products and Taiwanese enterprises are to replenish orders according to market demand. This distribution logistics mode is shown in Figure 6. In the reverse logistics mode, it is to conduct cross-strait industrial division for electronic products, returned by end-users that comply with the manufacturing center for recycled precious metal and the reverse logistics center. Therefore, China s enterprises can develop to be the reverse logistics center, specializing in importing reusable electronics products returned by end-user, for example, circuit boards, IC, LCD panels, etc. Taiwanese enterprises specialize in manufacturing key upstream materials, for example, refining and recycling of all kinds of precious metals, manufacture of special precious metal chemicals, and the manufacture of various metal target material. These products will supply to the process of electroplating, printed circuit boards, lead frames, LCD, LED semiconductor packaging, and solar batteries. See for Figure 7. In the integrated logistics model (Figure 8), it is to provide a professional well-rounded logistics to support enterprises and solving problems. Enterprises can develop to be headquarters for a fourth party logistics alliance and support logistics and financial engineering diagnosis, innovation logistics business mode, certification testing, picking and packing, joint distribution center, and sea and land logistics center.

9 66 International Journal of Electronic Business Management, Vol. 9, No. 1 (2011) Figure 6: Distribution logistics mode Figure 7: Reverse logistics mode Figure 8: Integrated logistics mode Source: Ruizhi global consultation company 5. CONCLUSION When Taiwanese companies transitioned from OEM to ODM, it not only strengthened partnerships with international companies, but also caused value-added business processes to upgrade from value-added process innovation to value-added product innovation. Furthermore, when China opened its market and implemented reform designed to encourage exports, Taiwanese enterprises should have taken advantage of the cheap land, cheap labor and abundant resources, tax incentives and other measures available in China. By moving factories to China, it can prompt China to gradually fulfill the role as the world's factory in the global supply chain system. On the other hand, the full implementation of free trade agreements will also increase the influence of the China market. As for the future and the objective of sustainably developing the China market,

10 J. S. Lin and J. J. R. Ou: A Study on Supply Chain Value-added Logistics Based on the Great Chinese Market 67 coupled with the integration of ASEAN markets and co-operation with European, American, and Japanese markets, China will not only become the world s factory in the global supply chain system, but also become the world s dominant market. Therefore, Taiwanese enterprises should move closer to the market as well as the factors of production, create cross-strait cooperation, form a Great China market, and develop integrated production and market management of supply chain innovation and value-added logistics capabilities. This paper proposed four types of value-added models of logistics: manufacturing, distribution, reverse logistics, and integrated logistics. Subsequently, this paper analyzed their key factors and recommended relevant industrial policies, such as establishing the special administrative region model of trade and economic operations, providing an internationally competitive business environment, unifying administrative convenience measures and improving infrastructure and multi-functions. These recommendations aim to make Taiwanese enterprises more sustainable in its competitive advantage of innovative and value-added logistics supply chain in the Great China market. REFERENCES 1. Aldrich, H., Elam, A. and Reese, P. R., 1997, Strong ties, weak ties, and strangers: Do women business owners differ from men in their use of networking to obtain assistance?, London: Routledge. 2. Carter, J. R. and Ferrin, B. G., 1995, The impact of transportation costs on supply chain management, Journal of Business Logistics, Vol. 16, No. 1, pp Chiang, P. K., 2003, The challenge and impact to Taiwan from economic globalization, Parliament Monthly, Vol. 31, No. 11, pp Chou, T. L., 2000, Cross-strait, globalization and the structure image for Taiwan economy, Theory and Policy, Vol. 14, No. 4, pp Clark, K. B. and Fujimoto, T., 1990, The Power of Product Integrity, Harvard Business Review. 6. Cooper, M. C., Lambert, D. M. and Pagh, J. D.,1997, Supply chain management: More than a new name for logistics, International Journal of Logistics Management, Vol. 8, No. 1, pp Ellram, L. M., 1991, Supply-chain management: The industrial organization perspective, International Journal of Physical Distribution and Logistics Management. Vol. 21, No. 1, pp Francas, D., 2008, Transfer pricing, taxation and capacity planning in international manufacturing networks, In: W. Kersten, T. Blecker & H. Flaming, Global Logistics Management: Sustainability, Quality and Risks, Erich Schmidt Verlag. 9. Forbel, F., Heinrichs, J. and Kreye, O., 1980, The New International Division of Lobour, Cambridge: Cambridge University Press. 10. Fynes, B. and Ennis, S., 1994, Beyond world class manufacturing: The case of microsoft ireland, Irish Marketing Review, Vol. 6, pp Lee, B. F., 2008, The challenge for competition between supply chain and supply chain, Supply Management Institute, Taiwan. 12. Goffee, R., and Scase, R., 1995, Corporate Realities: The Dynamics of Large and Small Organizations, London/Boston: International Thompson Business Press. 13. Herrigel, G., 1995, Industrial Constructions: The Sources of German Industrial Power. Cambridge Massachusetts: Cambridge University Press. 14. Hollis, J., 1996, Supply Chain Re-engineering: the Experience of Littlewoods Stores Ltd, Logistics Information Managemen, Vol. 9, No. 6, pp Lane, C. and Bachman, R., 1996, The social constitution of trust: Supplier relations in Britain and Germany, Organization Studies, Vol. 17, No. 3, pp Liu, J. Q., 1992, An Economic analysis for Taiwan after Taipei, the World. In Chinese. 17. Marcos and Barbalho, 1998, The globalization of logistics, Manufacturing Systems, Vol. 16, No. 2, pp Overby J. W. and Min S., 2001, International supply chain management in an Internet environment: A network-oriented approach to internationalization, International Marketing Review, Vol. 18, No. 4, pp Polenske, K. R., 2004, Competition, collaboration, and cooperation: An uneasy triangle in networks of firms and regions, Regional Studies, Vol. 38, No. 9, pp Porter, M. E., 1990, The Competitive Advantage of Nations, New York: Free Press. 21. Porter, M. E., 1996, What is strategy? Harvard Business Review, Vol. 74, pp Ross, D. F., 1997, Competing through Supply Chain Management: Creating Market-winning Strategies Through Supply Chain Partnerships, London: Chapman and Hall. 23. Sarkar M., Echambadi R. and Harrison J. S., 2001, Alliance entrepreneurship and firm market performance, Strategic Management Journal, Vol. 22, pp Scott, M., 1999, Finding strategies advantage through SCM, PPI, Vol. 41, No. 10, pp Wang, Z. T., 2006, Regional economy: Supply Chain Viewpoint(2). Retrieved April, 2009,

11 68 International Journal of Electronic Business Management, Vol. 9, No. 1 (2011) 47.html. 26. Whitley, R. and Kristensen, P. H., 1997, Governance at Work: The Social Regulation of Economic Relations, Oxford: Oxford University Press. ABOUT THE AUTHORS Jie-Shin Lin is the Chairman and associate professor of Department of Public Policy and Management at ISU, Taiwan. He is a member of the international Society of Computational Economics and is the Director of Centre for Research on Regional Governance and Development. He is also the Director of Centre for City Diplomacy and Global Governance. Currently Jie-Shin is concentrating on understanding the complexity of economic, management, social and political systems. He continues to work on issues of global, regional and city governance. Jerry J. R. Ou is the Director General of Bureau of Energy Ministry of Economic Affairs. He received Ph.D. in Engineering from Institute of Traffic and Transportation, National Chiao Tung University and was a Part-time associate professor at National Chiao Tung University. He was a Director of Export Procession Zone Administration and Department of Investment Services, Ministry of Economic Affairs, and Chief Secretary of Ministry of Economic Affairs. (Received September 2009, revised January 2010, accepted February 2010)

12 J. S. Lin and J. J. R. Ou: A Study on Supply Chain Value-added Logistics Based on the Great Chinese Market 69 大中華市場供應鏈加值運籌之研究 林皆興 * 歐嘉瑞義守大學公共政策與管理學系高雄市大樹區學城路一段 1 號 2 行政院經濟部能源局台北市復興北路 2 號 13 樓 1 摘要 從全球角度來看, 台灣經濟與產業發展的演變過程, 乃深受全球化與區域經濟體系的影響 台灣企業由 OEM 代工轉型為 ODM, 不僅強化與國際企業的夥伴關係, 亦使企業的附加價值得以從製程創新加值提升至產品創新加值 隨著大陸經濟快速發展, 所帶動的內需市場已成為全球企業最重視的新興市場之一 台灣企業需能從生產要素的合作關係, 擴展至市場經營的合作, 以兩岸的市場合作所創造出的大中華市場, 將可強化台灣成為全球的營運總部, 吸引外商來台設立布局亞太的區域營運總部 台灣企業亦可藉由在中國大陸這一塊世界市場的經營中, 累績經驗與量能, 從而發展整合生產與市場經營的全方位供應鏈創新加值運籌的能力 關鍵詞 : 供應鏈 加值運籌 兩岸 行政特區 (* 聯絡人 :jslin@isu.edu.tw)