BUS606: Operations and Supply Chain Management

According to Digital analytics firm eMarketer, an improving export business, higher employment and wages as well as rising e-commerce and cross-border sales across Asia-Pacific, North America and Western Europe were all factors in driving retail spending. Thus, the location of omnichannel shoppers is determined by multi-criteria that support online and offline trade development. The factors for such decisions are mainly related to the economic benefits of both enterprises and mentioned in earlier research (Panova and Hilmola, 2018): (1) National economic; (2) Industrial; (3) Logistical; (4) Economical; and (5) Regulative.

Many sub-factors influence the location decision. Their relevance depends on the scope of the location problems (whether it is viewed from international, national, statewide or communitywide level). From the international level, factors such as the access to the natural resources, provision of labour forces, foreign exchange rate, business climate, components of the multiplier effect, inflation level, duties and taxes are essential. If the scope of location problem is narrower, then the factors like property tax incentive, government regulations, transport tariffs, the selling price of goods, and business climate on local basis play a role. Authors stress that the development of technical infrastructure and regulatory frameworks stimulate e-commerce growth.

The research of critical e-commerce factors in France by Colla and Lapoule revealed that an integrated multichannel approach for online business requires more differentiated logistical system and improved customer relations marketing. The number of internet users in less developed provinces was considered as a constraint for e-commerce growth. Meanwhile, Internet usage is beginning to increase outside of the wealthy and educated urban elite as more people go online in China. The overall trend of the expected growth of middle- and upper-income categories to some 190 million by 2020 from 17 million in 2010 makes the whole market attractive for foreign direct investments. Unlike a few decades ago when low-cost production attracted companies to enter the market, nowadays, the consumption forecast opens up new opportunities due to triple growth of Chinese economy during 2000 to 2010. So as to identify the most attractive region for the investors in China, 15 factors were chosen (Fig. 2) for the general choice algorithm.

Fig. 2 Factors taken into general choice algorithm

In support of e-commerce enterprise location in China, governmental regulations trigger the business activity at local level in many regions. In particular, the government of China develops comprehensive cross-border e-commerce zones. These zones are designated exclusively for the development of cross-border e-commerce industry, as they target preferential tax policies and streamlined customs clearance procedures. Such zones have been developed in three stages, starting from zone Hangzhou, home to the e-commerce giant Alibaba that was established in 2015 (first phase). The latest, third phase, which was announced recently, in July 2018 foresees the creation of the additional 22 zones). Thus, according to Acolink.com, in China, 35 cross-border e-commerce zones will be developed. Their location in regard to 22 Chinese provinces, as well as to five Autonomous Regions (Inner Mongolia, Guangxi, Tibet, Ningxia, and Xinjiang) and four Chinese municipalities (Beijing, Shanghai, Tianjin, and Chongqing), which are under the direct administration of central government, has been summarized in Table 1. Additionally, at this table, the "E-commerce development plan" in Xinjiang is depicted. According to Hongfei, this plan was designed to facilitate exports to the Middle East and East Asia. Hongfei also noted that Guangxi Province promoted cooperation between China and Vietnam through E-commerce trade and cooperation. Heilongjiang Province listed the Suifenhe border economic cooperation zone as a base of cross-border e-commerce development and focused on opening cross-border trade with Russia. Recent news also mentioned about the creation of free trade zone in Luoyang in addition to already established zone in Zhengzhou.

Table 1 Provinces of China with cross-border comprehensive e-commerce zones (number of zones in each province)

The availability and closeness to these zones is essential in terms of logistics processes. Specifically, the bonded warehouse model can be used for the delivery of the products to final clients from abroad. Investors may set up a warehouse within their respective e-commerce zone. Goods will then be transported and stored temporarily within the warehouse under the Customs supervision, before they are delivered to domestic customers. In this case, the delivery time can be reduced to 5 days, compared to the direct shipping model that requires 7–30 days for delivery. The reason for long deliveries is that under the direct sale model, foreign manufacturers maintain warehouses in their home countries and send goods to customers after they have made orders online that involves a relatively more complicated customs clearance procedure. As can be seen from Table 1 and after a provided pair-wise comparison, the most preferred regions are Guangdong, Jiangsu, and Zhejiang while Qinghai and Shanxi regions are less prioritized by the criterion of e-commerce zones availability.

Apart from the regulative preferences, it is essential to take into account the potential basic conditions for the developing of the online retail trade. For these reasons, total sales and purchases value of retail trade, as well as a number of corporate enterprises of retail trade and stock of retail trade across Chinese provinces have been analyzed by the pair-wise comparison. The total purchases value refer to the total value of purchases of commodities by enterprises (establishments) from other establishments or individuals (including direct import from abroad) for the purpose of re-selling, either with or without further processing of the commodities purchased. Sales value of retail trade refers to the value of commodities sold by the establishments to other establishments and individuals. The commodities include: (1) commodities sold to urban and rural residents and social groups for their consumption; (2) commodities sold to establishments in all industries for their production and operation, including commodities sold to wholesale and retail establishments for re-selling, with or without further processing; and (3) commodities for direct export to abroad.

In the analysis of basic conditions of retails trade among the Chinese provinces, an outstanding concentration of retail purchase, sales, and stock values can be noticed in four regions (Guangdong, Jiangsu, Shandong, and Shanghai; Table 2). The availability of stock values also may indicate the potential availability of warehousing capacity in these provinces. Large warehouses are necessary, if the deliveries are done over long distances. Well-developed transport infrastructure is also important as the main prerequisite for faster deliveries. Therefore, further on, the group of transport factors will be considered.

Table 4 Main indicators of Internet development
It should be noted that Table 5 presents data on the average annual wages of employed persons in urban units across Chinese regions for the year 2016. The highest level of wages was recorded in the Beijing, Shanghai, and Tianjin (that is why these locations have the lowest scores. The lowest wages are identified in Henan, Heilongjiang, and Shanxi that therefore received the highest scores, according to GCA (Table 5). The unemployment rates are low in Beijing, Gansu, Hubei and Hainan, consequently, these sites are the most favourable by this criterion, while by the labour productivity (Table 5), Tianjin, Inner Mongolia, Shandong, and Hunan can be named as leading ones in the country.

According to the final analysis, the rating of most beneficial regions for the development of e-commerce enterprise can be drawn. The list of ten preferable locations includes Guangdong, Jiangsu, Zhejiang, Shandong, Beijing, Henan, Fujian, Shanghai, Sichuan, and Hubei (Table 6). It should be noted that the three leading regions have the largest amount of e-commerce cross-border zones (four in Guangdong, three in Jiangsu and Zhejiang, Table 1). These are all located close to major container sea ports of the Pearl (e.g. Hong Kong, Shenzhen, and Guangzhou) and Yangtze River Delta (e.g. Shanghai, Ningbo, Suzhou, and Nanjing). However, fourth most beneficial region is Shandong, which is norther located as compared to the first three, and in their close proximity container sea ports are Qingdao, Lianyungang, and Tianjin. This again creates a challenge for currently dominating sea ports, they need to develop best connectivity e.g. with railway based container shuttles (or some other container sea port will do so as container sea ports among Chinese coastal line are numerous). Beijing (fifth) in turn is mostly connected to Tianjin sea port. Henan is sixth most attractive, and it is located at hinterlands (do note Sichuan in the ninth place). This again creates a challenge for currently dominating sea ports, they need to develop best connectivity e.g. with railway based container shuttles (or some other container sea port will do so as container sea ports among Chinese coastal line are numerous).

Based on the general choice algorithm (GCA) we tried to locate some e-commerce companies in the list of ten preferable locations to conduct interview to understand their supply chain network and their customer distribution. Eventually, two e-commerce companies located in Shanghai were willing to take part in this research.