The growth of China’s domestic market (and the impact on Supply Chain Networks)

China’s industrial output grew by 16.1% in October compared with a year earlier, according to the National Bureau of Statistics -its annualized GDP growth for Q3 was 8.7%, compared to the large European nations who are barely out of the recession. France grew by 0.3% and Germany by 0.6% and let’s not mention the UK, which still is in a recession. I don’t want to be all doom and gloom; I am sure the UK will be out of its recession in Q4 and France, Germany and the other main EU brethren will strengthen their growth. But it does make you wonder what the future world economic balance will be like.

If there was a competition for” winner of a global recession”, China would surely be a pretty strong contender. Not only are its factories producing and its people buying, the Chinese government didn’t have to go into endless amount of debt to finance its economic stimulus package, which means that future growth will not be jeopardized by increases in taxation, as it is likely to be in the western world.

It will not have gone unnoticed that over the last 20 years China has become the workshop to the world and growth during this time has been mostly export driven. But this is changing; China’s new confidence and the drop in export demand has ensured that China is looking towards domestic demand as the main driver for future growth.

This means that the existing Supply Chain models of make-in-China and sell-in-Europe and US will have to be extended to include a stronger sell-in-china component. Some companies are already very active in china’s domestic market, but with the balance of future demand growth moving eastwards all organizations would do well to reanalyze existing and future supply chain investments. Companies will have to address the balance of their Supply Chain network to ensure the lowest Cost-to-Serve in the coming 5 to 10 years.

Amongst the solutions for this trend, one is already at our fingertips. For years organizations have been using advanced Network and Inventory optimization tools to model the impact of changes to their supply chains. From identification of synergies after mergers to implementation of postponement strategies, these tools and processes continue to play an essential role in optimizing supply chains. Now we should call upon these tools and processes once again to analyze the impact of a new opportunity; the growth of China’s domestic market.

All the best
Richard van der Meulen