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Kerry Logistics — Paving the New Silk Road ASIAN CASE RESEARCH JOURNAL, VOL. 23, ISSUE 1, 153– XXXXXXXXXX) © 2019 by World Scientific Publishing Co. DOI: XXXXXXXXXX/S XXXXXXXXXX ACRJ This case was...

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Ke
y Logistics — Paving the New Silk Road
ASIAN CASE RESEARCH JOURNAL, VOL. 23, ISSUE 1, 153– XXXXXXXXXX)
© 2019 by World Scientific Publishing Co. DOI: XXXXXXXXXX/S XXXXXXXXXX
ACRJ
This case was prepared by
Dr. Ivy S. N. Chen of Hong
Kong Polytechnic Univer-
sity, Professor She
iff T. K.
Luk of Emlyon Business
School, France, and Dr.
Jinghui Tao of Nanjing
University of Finance and
Economics, as a basis for
classroom discussion rather
than to illustrate either effec-
tive or ineffective handling of
an administrative or business
situation.
Please send all co
espon-
dence to Dr. Ivy S. N. Chen,
Department of Management
and Marketing, Hong Kong
Polytechnic University, Hung
Hom, Kowloon, Hong Kong.
E-mail: XXXXXXXXXX
Ke
y Logistics — Paving the
New Silk Road
China’s third-party logistics (3PL) market was one of the
world’s largest, with 3PL revenues reaching US$166.7 billion
in XXXXXXXXXXOne of the major challenges the Chinese govern-
ment faced was how to improve efficiency and achieve sus-
tainable economic growth over the next decade. China needed
more efficient logistics systems to move production resources
quickly and at a reasonable cost. China’s logistics spending
was roughly equivalent to 14.5% of GDP, higher than that of
other developing countries like India (13%) and South Africa
(10.9%) and that of developed countries1.
Ke
y Logistics wanted a slice of China’s fast growing
express market. But as Edwardo Erni, Ke
y Logistics’ exec-
utive director and managing director of China and North
Asia noted, “The situation in the courier market is chaotic,
unregulated and in a cut throat price war.” Scale was needed
to dominate and express companies recently raced to get as
much capital as possible. On another front, China’s “One
Belt One Road” has opened up some opportunities that the
company had not previously considered. Ke
y Logistics
was wondering what capabilities were critical to the delivery
of customer value proposition and achieving differentiation?
How should the company expand and support its clients’
operations in China?
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dx.doi.org/10.1142/S XXXXXXXXXX
154 ACRJ

OVERVIEW OF THE DEVELOPMENT AND DRIVERS OF
CHINA’S LOGISTICS INDUSTRY
Statistics showed that the value of logistics in China grew
from RMB177 trillion in 2012 to RMB230 trillion in the first
11 months of 2017 (Table 1), spu
ed by rapid growth in
the economy and u
anization. The value of goods per unit
logistics cost was also increasing, indicating that more higher
value goods were ca
ied and this was somewhat related to
the upgrade in consumption and industrial transformation.
Table 1. Total Value of Logistics and Growth Rate 2012–2018.
Year XXXXXXXXXX XXXXXXXXXXmths) 2018E
Total value of logistics
(RMB trillion XXXXXXXXXX XXXXXXXXXX
Growth rate 26% 12% 8% 3% 5% 7% (est’d) 7%
Source: Statista, China Daily (Ref. 2).
Growth in logistics demand was driven by a number of
factors3:
1) E-commerce volume
China was the world’s largest online retail market, with retail
sales reaching RMB5,156 billion in 2016. Retail sales of phys-
ical goods was RMB4,194 billion, increasing 25.6% YOY, and
accounted for 12.6% of total retail sales of consumer goods.4
To compete with e-commerce retailers, traditional retail giants
like Gome and Suning had opened their own e-commerce
stores and/or established their own logistics platforms.
The online market was rapidly expanding from the
coastal cities to lower-tier cities and counties in inland areas.
Shoppers in lower-tier cities (Tiers 3 and below) spent more
than those in higher-tier cities (Tiers 1 and 2). Shoppers in
lower-tier cities spent an average RMB5,628 online in 2012,
while their counterparts in higher-tier cities (Tiers 1 and 2)
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KERRY LOGISTICS — PAVING THE NEW SILK ROAD 155

spent RMB4,700 during the same period. There was still tre-
mendous potential for e-commerce growth in lower tier cities.
Lower-tier cities still had 160 million consumers who used
online services but have not yet begun to shop online. That
number was nearly the same as the number of shoppers in
high-tier cities. Cu
ently, 89% of internet users in high-tier
cities already shopped online.5 Post-80s and post-90s con-
sumers were the main users of mobile internet. E-shopping
festivals like Singles’ Day and popular digital payments like
Alipay and WeChat pay have also contributed to high growth
in e-commerce. Thus, major e-commerce platforms were
investing heavily to acquire customers and to build logistics
networks in low-tier cities.
Many lower-tier cities and counties were remotely sit-
uated across the country, with dispersed populations. For
many online retailers, it was costly to extend their distribu-
tion networks to lower tier cities. To fulfil orders across the
country, online retailers may rely on their own logistics facili-
ties and trucking teams to serve key cities and for the remote
areas, they would outsource their logistics services to logistics
service providers (LSPs) and express delivery companies.
Another rapidly developing e-commerce market was
cross-border purchases by consumers (“Haitao”, meaning
overseas Taobao). According to China Internet Watch, cross-
order retail imports market was expected to reach RMB511
illion in 2018, with an increase of over 25% YOY and exceed
RMB620 billion in XXXXXXXXXXNearly one-fifth of the digital con-
sumers McKinsey surveyed in 2016 purchased some goods
from vendors outside China. These shoppers bought items
that were either too expensive or too scarce at domestic
vendors.5 The buyers entrusted logistics companies to handle
the transportation, customs clearance and delivery for them
in China. Thus, the rapid growth of the Haitao market, sup-
ported by increase in spending power and rise in demand for
quality products, led to the rise in demand for reliable logis-
tics a
angements for products purchased overseas. As few
companies had extensive international and domestic logistics
networks and relations with major retailers overseas, this rep-
esented a huge market that was up for grabs.
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156 ACRJ

2) Manufacturers relocating production, stimulating supply
chain services
Increasing labour and production costs in key coastal areas
(Pearl River Delta and Yangtze River Delta) prompted many
manufacturers to relocate their factories to lower-tier cities
inland. Enterprises like Foxconn, Flextronics, Dell, HP and
Pfizer had established new plants or relocated coastal facili-
ties. Manufactured goods now had to be ca
ied over longer
distances to reach the ports for export. Hence, demand for
integrated logistics management increased. Some manufac-
turers who relocated outsourced their logistics activities in
lower-tier cities to regional LSPs, which had the local know-
how and closer ties with local regulatory authorities and
customs. Often, these local LSPs could not provide services
up to the manufacturers’ requirements. As such, many manu-
facturers scheduled extra buffer times for production and dis-
tribution. However, some regional LSPs capable of fulfilling
sophisticated production logistics demands had emerged. A
number were logistics spin-offs from large-scale manufac-
turing groups and these now played an increasingly impor-
tant role in the production logistics segment.
3) Increase in companies outsourcing
Traditionally, Chinese companies managed their product dis-
tribution in-house, mostly due to high volumes (making it
cost efficient), the lack of quality LSPs and the underdevel-
opment of logistics information systems. However, in recent
years, manufacturers and retailers had become increasingly
aware of the importance of an efficient logistics network. The
increase in competition, driven by e-commerce growth and
the rise in demand for timely deliveries, had driven demand
for efficient logistics a
angements. The emergence of larger
and more professional 3PL companies offering more compre-
hensive services made it even more efficient and cost-effective
for enterprises to outsource their logistics requirements rather
than handling them in-house. It was estimated that 20–30%
of the companies in China outsourced their logistics require-
ments to 3PL providers.3
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Answered Same Day Jun 04, 2021 BEX5601 Monash University

Solution

Nishtha answered on Jun 11 2021
130 Votes
Running Head: CASE STUDY ANALYSIS                            1
CASE STUDY ANALYSIS                                    3

CASE STUDY ANALYSIS
KERRY LOGISTIC-PAVING NEW SILK ROUTE
Student’s Name:____________
Student Identification Number:__________________
Workshop Day and Time: _____________
Table of Contents
1. PEST Analysis    3
2. Problem Statement    5
3. Problem Analysis    6
4. Identification of the Solution to the Problem    7
5. Evaluation of the Solutions to the Problem    8
6. Recommended Course of Action    9
References    11
1. PEST Analysis
It is a tool or a framework use to analysis and monitors the macro environment (external environment) that influences the organisation. It stands for political, Economic, Socio-cultural, Technological, Legal analysis (Alava & Mu, 2018).
Political environment analysis
China’s government made huge investment for the modernisation of the logistic supply. Reorganisation at both logistic and transport level happened. Various ministerial department of china like civil aviation, state postal bureau and ministry of communication work together to
ing better changes and new development plans for the logistic development.
The government initiated various policies related to tariff cuts and 50 % tax deductions for land intended for warehouse use (Ke
y Logistics, 2020). The trucking cost had reduced with deduction of around 3 to 5 % in seventeen provinces in china. The procedure of projects approval, cargo handling, financing and investment has simplified to encourage more logistic activities and easy movement. However, implementation and execution part is still a big challenge for the organisations.
Economic environment analysis
The economic development in china is uneven for the organisation. The main transportation includes waterways, roadways, railways and airways. China’s ambitious new foreign and economic policy, which is one belt one road. It is a development strategy to connect China with Central Asia, Europe and Indo-Pacific countries. The key sectors, which would get benefit from this economic policy, are energy and infrastructure, tourism and logistic industry. This policy is an opportunity for Ke
y logistic as expand its business in new market.
This economic policy will give long-term success to country’s economy and organisations (Ke
y Logistics, 2020). This Chinese economic model of growth had been investment led. It has led to excess capacity. This excess capacity will be channelising effectively and many ventures organisation and Ke
y logistic would have chance to enter into newer markets for its export. The main issue is not all the countries are agreeing building this co
idor and creating ba
iers in the implementation of this economic policy (Liu, 2017).
Socio-economic environment analysis
It refers to the societal beliefs and culture doing that affect the operation of the organisation. Preference for male children, with deep cultural roots, has skewed the percentage of male to female children dangerously. However, the one-child policy has been substantially relaxed in rural areas and though sex-selective abortion outlawed and physicians are fo
idden from disclosing the gender of a foetus to parents, the gender balance does not appear to have improved.
It may well be that social ills such as increased criminality will arise when large unma
ied male populations. This made gender inequality problem in Ke
y Logistics. In addition with there is ethnic tensions have boiled over in years in China's Tibetan Autonomous Region; it creates problems to many logistic and trading organisation (Peele, 2019).
Technological environment analysis
Technology modification such as internet of things, big data and cloud computing offer huge opportunities to Ke
y Logistics. It merged Internet of Things (IOT) tracking technology with the distributed ledger. This helped get an even clearer picture of every step of the shipping process and determine where and when problems occur. By using IOT with block chain, organisation can determine if a certain truck on the route performed hard
aking, when that happened in transit and which driver was responsible for it.
These technological changes totally revolutionised the logistic sector of china. Smart contracts enforce compliance with the pre-agreed rules of a transaction, taking away much of the risk and uncertainty that the other party in a transaction will fail to fulfil an agreement. It makes whole contract process easy and increase transparency. Whereas there are still issues of compromised quality, unwa
anted cost escalation, delayed supply and so on would negatively affect the credibility as well as the business potential of this industry.
2. Problem Statement
Among all the problems above, the major problem that is considerable is economic policy of new Silk Road. It would make up the falling demand of domestic infrastructure and will benefit Ke
y logistic in a long run. China wants to...
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