The hidden costs of automotive commodities procured from the People’s Republic of China

Boshoff, Oliza (Stellenbosch : Stellenbosch University, 2008-03)

Thesis (MComm)--Stellenbosch University, 2008.


ENGLISH ABSTRACT: Globalization has shifted to a level where market competition is tougher. Therefore, multinational companies focus on cutting cost along the company’s supply chain with heavy scrutiny on procurement. Developing countries have become very attractive from which to strategically procure commodities because of low cost labour, especially from the People’s Republic of China. The business complexity, ethics and current market situation in China are often too modestly emphasized. Yet, these elements have a significant impact on the sourcing decision because it indirectly influences the total landed cost of a commodity but is not taken into account. Therefore, the total landed cost on which sourcing decisions are made, does not reflect the actual total landed cost of a commodity. In many cases multinational companies sourcing from China do not realise the impact of the hidden cost involved and do not reach the expected cost savings as calculated. The purpose of this study is to explore why more attention must be paid to hidden cost when automotive commodities are procured from China. This, as well as the research methodology used in order to obtain the data, is explained in chapter one. Chapter two of this thesis illustrates the change in a company’s supply chain and discusses this in a global sourcing context. The sourcing commodity, which is the point of focus in this study, is automotive commodities sourced from China and is discussed in chapter three. Based on China’s increased presence in global sourcing of automotive commodities, chapter four focuses on China’s integration into the global supply chain. The influential factors that have an impact (hidden cost) on the actual landed cost of commodities sourced from China are described in chapter five and identified as guanxi, indirect business logistic obstacles, quality of goods and supply, management, the labour market and training, and Intellectual Property Rights (IPR). In chapter six the influential factors, as described in chapter five, are analysed through a case study of Daimler Chrysler China Limited. Chapter seven is a comparative study of Japan’s miracle economy from 1960-1980 and the current economic trends in China to determine whether it will be feasible to procure automotive commodities from China in the future with regards to the economic indicators.

AFRIKAANSE OPSOMMING: Globalisering het verskuif na ʼn vlak waar mark kompetisie meer gekonsentreerd is. Daarom fokus multinasionale maatskappye ernstig daarop om kostes langs die aanvoerketting van die maatskappy te verminder deur te konsentreer op die aanskaffingsproses. Ontwikkelende lande het uiters aanloklik geword as bestemming in die strategiese aanskaffingsproses van goedere weens lae arbeidskoste, veral vanaf Sjina. Tans word die besigheidskompleksiteit, etiek en die markkondisie in Sjina meestal onderbeklemtoon. Daarenteen het die faktore ‘n gewigtige impak op die aanskaffingsbesluit omdat dit die totale koste by aankoms indirek beïnvloed. Gevolglik reflekteer die totale koste by aankoms, waarop aanskaffigsbesluite gegrond word, nie die werklike koste van aankoms van goedere nie. In menige gevalle behaal multinasionale maatskappye nie die verwagte kostebesparing soos bereken vir goedere wat vanaf Sjina aangeskaf word nie omdat die multinasionale maatskappye onbewus is van die impak wat die versteekte koste op die totale koste by aankoms het. Die doel van hierdie studie is ‘n ondersoek na die redes waarom daar meer beklemtoning moet wees op versteekte koste wanneer goedere uit Sjina aangeskaf word. Dit, sowel as die navorsingmetodes wat gebruik is om die inligting vir die studie in te win en akkuraat deur te gee, word verduidelik in hoofstuk een. Hoofstuk twee bespreek die verandering in 'n maatskappy se aanvoerketting in ʼn globale aanskaffingskonteks. Hoofstuk drie fokus op redes vir Sjina se toenemende verteenwoordige rol in die globale aanskaffing van goedere en op die aanskaffing van motorvoertuigparte uit Sjina. Met betrekking tot die globale aanskaffing van goedere word die integrasie van Sjina in die globale aanskaffingsketting in hoofstuk vier bespreek. Die beïnvloedende faktore wat 'n impak (versteekte koste) op die werklike koste by aankoms van die motorvoertuigparte wat aangeskaf word vanaf Sjina het, word bespreek in hoofstuk vyf en geïdentifiseer as guanxi, indirekte besigheidslogistiek hindernisse, die kwaliteit van goedere en die aanskaffing daarvan, bestuur in Sjina, die Sjinese arbeidsmark en opleiding in die werksplek, en intellektuele eiendomsreg. In hoofstuk ses word die beïnvloedende faktore (soos bespreek in hoofstuk vyf) geanaliseer deur ʼn gevalle studie van Daimler Chrysler Sjina Beperk. Hoofstuk sewe is ʼn vergelykende studie tussen Japan se wonder ekonomie van 1960-1980 en die huidige ekonomiese tendens in Sjina om te bepaal hetsy dit moontlik sal wees om motorvoertuigparte aan te skaf vanaf Sjina in die toekoms met betrekking tot die ekonomiese indikatore.

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