Strategic Analysis of 3PL Markets in the Chinese Automotive Sector: Industry

Strategic Analysis of 3PL Markets in the Chinese Automotive Sector

Published Date: November 2006

Published By: Frost & Sullivan

Page Count: 127

Order Code: R1-5237

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Description

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Research Overview

This Frost & Sullivan research service entitled Strategic Analysis of 3PL Markets in the Chinese Automotive Sector provides a comprehensive overview of this market, including an analysis of the various segments of the automotive sector and their respective logistical needs. It also provides an in-depth analysis of key market drivers, restraints, and trends that are impacting the 3PL market in the automotive sector. In this research service, Frost & Sullivan's research analyst Keow Soon Hiong thoroughly examines the following segments in the automotive sector: multinational companies, domestic major companies, and domestic small companies.

Market Sectors

Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:

By Service Provider Type:

International 3PL
Domestic major 3PL
Domestic small 3PL

By Customer Constellation:

Multinational automotive companies
Domestic major automotive companies
Domestic small companies
Unorganized companies

Technologies

The following technologies are covered in this research:

Logistics: The management of goods flow in a company either done in-house by a company or by outsourcing to a service provider (could be a professional or an unorganized service provider). For a typical product manufacturing company, this includes the functions enabling the storage and movement of goods as well as related information from the point of origin of a raw material to the point of consumption of the product. It also includes the reverse flow of goods and information (i.e. return goods flow). The standard functions included in logistics are transportation, warehousing, freight forwarding, information management (MIS), and other value-added functions.
Third-party Logistics (3PL): This refers to the logistics functions outsourced (in part or fully) to a professional service provider, through a contract. Services such as courier and express parcel, which are provided more on a one-time basis, are not accounted as part of 3PL. Services such as pure transportation of goods (by any mode) are also not accounted as part of 3PL.

Market Overview

Lack of Adequate Logistics Infrastructure in Automotive Sector Opens up Huge Opportunities for 3PL Service Providers

Increasing sales and ongoing efforts of vehicle manufacturers to reduce their production costs have made the Chinese automotive sector a high-potential, high-growth market for third-party logistics (3PL). This dynamic industry sector is a major contributor to China’s overall growth, but has neither a well-developed logistics infrastructure nor adequate knowledge of efficient practices in logistics. This has created considerable difficulties not only in effectively targeting domestic markets, but also in capitalizing on growing export opportunities. "To address this challenge, the Chinese automotive sector is increasingly opting for the services of 3PL providers," remarks Keow Soon Hiong, the analyst of this research service. "The Government is also contributing to this growth by improving existing logistics infrastructure, and encouraging investments by multinational logistics service providers."

While uptake of 3PL services has already reached significant levels among multinational automotive companies, the pace of adoption has been relatively slow among the domestic companies but is expected to increase to a great extent as awareness of the benefits of 3PL grows. Positive perceptions of 3PL and its associated benefits such as enhanced efficiency and reduced costs present an encouraging market scenario for service providers. However, stiff price competition from smaller and unorganized participants is likely to pose a major challenge to the organized ones, both global and local. Tackling this challenge could call for organized service providers to offer more attractive pricing as well as develop expertise in dealing with multiple jurisdictions. This is likely to help them expand their presence in the automotive sector.

Government Focus on Building Sophisticated Infrastructure Drives Further Growth

Valued at US$10.45 billion in 2005, the 3PL market in the Chinese automotive sector is expected to grow from strength to strength to reach US$59.91 billion in 2012. This projected growth can largely be attributed to massive infrastructural development in China, with more than 80.0 percent of investment set aside to develop a highly integrated network of highways, railways, airports, and roads. As part of this huge exercise, the Chinese Government has plans to build 34 highways in 30 years, covering a total length of 85,000 kilometers, as well as various high-tech logistics parks and distribution centers. These centers are likely to be located in cities such as Guangzhou, Shenzhen Beijing, Shanghai, Tianjin, Wuhan, Chongqing, and Dalian, and will offer facilities such as freight management, warehousing, and inter-modal services. Plans are also underway to computerize these parks and link them throughout the country.

"The Chinese Government has given consistently high importance to the logistics sector through the steady development of related infrastructure in the country such as state-of-the-art logistics parks," says Keow Soon Hiong. "This is likely to make professional logistics services such as 3PL affordable for the majority of automotive companies, thus resulting in accelerated adoption of these services."

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