Main Findings

This research reviewed current situation as well as future prospects of China's 3PL market applying the viewpoint of foreign companies operating in the industry. Moreover the analysis of market entry modes and competitive strategies has been conducted with focus of M&A activities of foreign multinationals. Moreover, recommendations for further growth strategies of 3PL providers are provided.

According to the research, the logistics industry as a whole has very good prospects and growth potential, with majority of expansion to occur in domestic market services. Main reasons for such growth distribution is the Chinese government policy targeting domestic market demand expansion, as well as slowing growth of international trade flows between China and the world. Moreover, current low efficiency of logistics implies huge growth potential for the industry that will be supported by big-scale development of transport related infrastructure. The tendency of logistics activities outsourcing is clearly visible as companies choose to focus on enhancing their core competences. Also rising competitive advantages of Chinese enterprises and, as a consequence, gradual globalization of their activities will be a huge market opportunity, particularly for foreign 3PL providers.

Acknowledging current and future importance of Chinese market majority of the key global players in the industry have entered China in 1980's and 1990's, long before the main period analyzed in the thesis. Due to government restrictions towards foreign entities they were operating mainly in form of joint-venture with local partners. Their main market focus was supporting foreign trade activities of both foreign and local companies.

72

According to the research M&A wave of multinational 3PL providers in China had been influenced by several key factors. Firstly, loosening of government policies enabled foreign companies to conduct business in China as a wholly owned enterprises instead of joint ventures with local partners. Therefore it allowed foreign enterprises to buy out their partners share. The main reason for such buyout wave were common arguments between the

associates. Since the management often had different views stemming from very diverse cultural backgrounds the cooperation wasn't always very smooth. Therefore foreign companies preferred to take things in their hands and gain ability to make decisions

independently, based solely on their own considerations. Since the majority of foreign players were much bigger in size then their Chinese cooperates, the deals were conducted as

acquisitions rather than mergers.

Another factor determining the popularity of M&A was its speed a particularly crucial factor when considering strategies in such fast growing markets as China. When the

restrictions were loosened, there were already many capable local players competing in the market. M&A was a method that enabled foreign companies to attain scale economy in a short period of time, instead of building up capabilities in house.

In spite of popularity of M&A, many of deals in the industry didn't bring expected results. Acquired companies either failed to create synergy with the parent enterprise, or the foreign players wrongly targeted low value added services in domestic market, where they weren't able to compete with local companies possessing various competitive advantages on the local market. Therefore, many M&A transactions ended in failure and in extreme cases foreign multinationals have decided to sell entities acquired before.

73 4.2 Recommendations

Several recommendations are made after analysis of foreign 3PL providers expansion in China:

Customer focus:

 Foreign multinationals should focus to serve customers whose logistics

operations are characterized with at least some level of sophistication, in the low value added market services local providers have

competitive advantages stemming from better understanding of Chinese business environment.

 In order to success in cost oriented customer segment the companies

should thoroughly analyze their supply chain cost structure and try to provide more effective solutions based on their know-how,

technological advantages. Inefficiency of logistics industry as a whole implies that there is a lot of room for improvement in this matter.

 Educate customers, emphasize added value creation and savings due to

implementation of more efficient logistics operations. Spending more money on logistics services can still provide big savings by decreasing inventory cycles and working capital needs.

 Closely cooperate with key customers, if necessary take part in joint-ventures responsible for forward integration of their logistics activities

Leverage complementors, suppliers and capabilities of parent company:

74

 Due to big fragmentation of the market foreign 3PL should act as

integrators, leveraging competences of local suppliers and complementors, providing complete supply chain solutions.

 Leverage economy of scale and focus on high value added services

such as multi-modal transport, supply chain management or international logistics.

 Improve efficiency by implementing know-how and management skills of parent company

 Pursue vertical integration with top performing complementors through

M&A, through purchasing minority stake multinationals can gain better access and first hand information from the market. Moreover they will also gain better position to persuade management of benefits brought by long term win - win cooperation.

 While conducting M&A foreign entrants should focus on the human

side of mergers. In Chinese business environment personal connections of key managers in the company are one of the key competences determining competitive advantage of a company. Therefore their remuneration should be closely bonded with company's results, providing strong incentives for better performance.

75

4.3 Research limitation and further research suggestions

Since not all data included in the research are the most recent one, some inconsistency may occur, especially during comparisons. Moreover, since the companies are unwilling to provide detailed data about their business to prevent their competitors from obtaining

confident information, many constrains occurred during the analysis of operations of selected 3PL provider operations.

Due to very specific Chinese social cultural environment a further analysis determining the methods that foreign enterprises apply to overcome its "foreignness"

disadvantages. The analysis should be made with special focus on Japanese entities since bad sentiment towards this country is still very common among common Chinese citizens.

76

77

References

Literature

1. Bennett Roger, Blythe Jim, (2002), International marketing strategy planning, market entry & implementation, 3rd Ed. Kogan Page, Ltd,

2. Dunning, J., & Lundan, S. (2008), Multinational Enterprises and the Global Economy . Cheltenham,UK: Edward Elgar Publishing Limited,

3. Grant, R. M. 2010. Contemporary Strategy Analysis (7 Ed.). Chichester: John Wiley

& Sons Ltd.

4. Hitt A. Michael, Harrison S. Jeffrey, & Ireland Duane R. (2001), Mergers and Acquisitions: A Guide to Creating Value for Stakeholders. New York: Oxford University Press,

5. Hoskisson Robert E, Michael A. Hitt, R. Duane Ireland, Jeffrey S. Harrison, (2007), Competing for advantage, Cengage Learning,

6. Johnson, Gerry & Scholes, Kevan, 2002. Exploring Corporate Strategy. Essex:

Pearson Education Limited,

7. Lipton, M. (2006), Merger Waves in the 19th, 20th and 21st Centuries. The Davies Lecture,

8. Porter, M. E. (2004), The Competitive Advantage: Creating and Sustaining Superior Performance. N.Y.: Free Press,

9. Yin, X. (2009). Studying on the Current Situation and Developing Tendency of China's Outflow FDI, pp. 63-67.

78 Articles

1. Alston, J. (1989). Wa, Guanxi, and Inwa: Managerial Principles in Japan, China, and Korea. Business Horizon, March, 26-31

2. Bacani, Cesar and Sima, Katherine Peavy ”The great buyout: M&A in China”, The Economist Intelligence Unit, 2006, pp. 6.

3. Brandenburg Adam and Nalebuff Bary, CO-OPETITION: A Revolutionary Mindset That Combines Competition and Cooperation 1998,

4. Dunning. , Explaining the international direct investment. In J. Dunning, & J. Black, International capital movements: papers of the fifth annual conference of the

International Economics Study Group, 1982, pp. 84-116.

5. Hout, Thomas, Michael E. Porter & Eileen Rudden. How global companies win out.

Harvard Business Review, 1982(60): pp.98-108.

6. Kim, W. Chan & Renee A. Mauborgne. Becoming an effective global competitor. The Journal of Business Strategy, 1988(1) pp. 33-37.

7. Kim, W. Chan, Peter Hwang & W.P. Burgers.. Global diversification strategy and corporate profit performance. Strategic Management Journal, January-February, 1989,10(1): pp. 45-57.

8. Li Dongguang, Tactics of Transnational Logistics Corporations in China and the Revelation, Liaocheng University, 2011.

9. Porter, Michael E. How competitive forces shape strategy. Harvard Business Review.

March-April 1979, pp. 137-145.

10. Porter, Michael E. The Five Competitive Forces That Shape Competition. Harvard Business Review. 2008, Jan pp. 9-93

11. Pye, L. Chinese Commercial Negotiating Style. 1982. Cambridge: Oelgeschlager, Gunnand Hain Inc.

12. Shimizu, K., Hitt, M. A., Vaidyanath, D., & Pisano, V. (2004, 07 24). Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future. Journal of International Management, pp. 307-353.

79

13. Wang Yu-nan, Research on Transnational logistics Corporation Mergers in China, Research Center for the International Business & Economics of Liaoning University of International Business & Economics, 2011.

14. Wu Yue, Liang Chen and Wen Wei- juan, The Effects of Foreign Capital’s Entrance into China’s Logistics Industry,Beijing Wuzi University, 2007.

15. Xuepin Cen, The Dynamics of the China Logistics Industry, Master Thesis at Massachusetts Institute of Technology 2005 p. 17.

16. Yuan Ping-hong, The Influence of Foreign M&A on the Private Logistics Enterprise of China, Logistics Sci - Tech, No. 8. 2009, Anhui University of Finance & Economics.

17. Yeung, I. Y. M. & Tung, R. L. (1996). Achieving Business Success in Confucian Societies: The Importance of Guanxi (Connections). Organisational Dynamics, 25(2):

54-65.

1. Caixin Online, China's Railway Minister Removed from Position, February 2011, found online at http://english.caixin.com/2011-02-14/100225416.html

2. China's 12th Five Year Plan: Transportation and Logistics, KPMG, April 2011, found online at

http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/Chi na-12th-Five-Year-Plan-Transportation-Logistics-201104.pdf

3. China's M&A Market Yielded a Burst of Growth in 2010, Private Equity Daily, found online at http://www.pedaily.cn/Item.aspx?id=205626

4. Dominic Regan, Taking control of global logistics, Manufacturing and Logistics, May 2007, found online at http://www.logisticsit.com/articles/2007/05/17/2805-taking-control-of-global

80

5. Doing business in China – M&A and due diligence”, Grant Thornton (2002), found online at http://www.gthk.com.hk/cgi

6. Fung Ka-yiu, Zhang Anming, Leung Chi-kin, Sebastian Japhet Law, The Air Cargo Industry in China: Implications of Globalization and WTO Accession, July 2005, found online at

http://www.baf.cuhk.edu.hk/research/aprc/activities/files/ChinaAirCargoJuly05.pdf

7. John D. Schulz, State of Logistics 2010: logistics costs fall 18.2 percent in 2010, found online at

http://www.logisticsmgmt.com/article/state_of_logistics_2010_logistics_costs_fall_18 .2_percent/

8. Life in the slow lane, The Economist, April 2011, found online at http://www.economist.com/node/18620944

9. Lilian Chan, Emerging Markets Propelling Air Cargo, Presentation to CNS, May 2011 found online at http://www.cnsc.net/events/Documents/Lilian-Chan.pdf

10. Li & Fung Research Centre, China Distribution & Trading, Issue 58, April 2009, found online at

http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue58.pdf 11. Li & Fung Research Centre, China's Logistics Industry Update, May 2011, found

online at http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue82.pdf 12. Peder Andersen, Rolling Stock: Locomotives and Rail Cars, United States

International Trade Commision, found online at http://www.usitc.gov/publications/332/ITS-08.pdf 13. Woodard and Wang , found online at

http://www.chinabusinessreview.com/public/0411/woodward.html

14. Yang Xiuyun & Yu Hong, China’s Airports: Recent Development and Future Challenges, May 2010, found online at http://www.eai.nus.edu.sg/BB526.pdf