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A supply chain configuration model for reassessing global manufacturing in China

George Q. Huang (Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Hong Kong, Hong Kong)
Abraham Zhang (Division of Infrastructure Systems and Maritime Studies, School of Civil and Environmental Engineering, Nanyang Technological University, Singapore)
Xiaming Liu (Department of Management, School of Business, Economics and Informatics, Birkbeck College, University of London, London, UK)

Journal of Manufacturing Technology Management

ISSN: 1741-038X

Article publication date: 31 May 2013

1463

Abstract

Purpose

Global manufacturers have faced unprecedented cost pressures in China because of Chinese currency appreciation, rising labour costs, higher oil prices and reduced value‐added tax rebates. This paper aims to reassess the decision of operating global manufacturing facilities in China.

Design/methodology/approach

A mixed integer programming model is developed for a typical global manufacturing supply chain that includes production in the Pearl River Delta region and trade in Hong Kong. A case study with a footwear product is used to illustrate model application and present detailed analyses.

Findings

The modelling results affirm the need of relocating labour‐intensive production that mainly competes on low costs. Nevertheless, coastal China offers considerable benefits from industrial clustering and a logistics advantage in comparison with inland China and Asian countries where labour costs are still relatively low. Hong Kong remains a robust location choice for trade operations because of its favourable tax policies.

Practical implications

Retaining production in China faces high risks from Chinese currency appreciation, while relocation to lower‐cost Asian countries is more vulnerable to risks from high oil prices. An intermediate trade operation in Hong Kong can be used to hedge against risks from unfavourable tax policy changes at manufacturing locations.

Originality/value

China has risen to an important position in global manufacturing because of its cost advantages. This paper analyzes the new phenomenon of dramatically increasing cost pressures in China. It develops a first‐of‐its‐kind supply chain configuration model for the popular front‐shop‐back‐factory business model in China.

Keywords

Citation

Huang, G.Q., Zhang, A. and Liu, X. (2013), "A supply chain configuration model for reassessing global manufacturing in China", Journal of Manufacturing Technology Management, Vol. 24 No. 5, pp. 669-687. https://doi.org/10.1108/17410381311327963

Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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