Understanding global supply chain
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What most people did not realize was how important the government is in the design and construction of the supply chain. Supply chains do not grow spontaneously. They grow and extend in geography because East Asian cities found it beneficial to attract specific industries through special development zones that reduce transaction costs, have superior infrastructure and also critical mass in cheap labor and talented management. Chinese supply chains prospered because of cheap labor, but also very high technical and managerial skills because of good university education.
Through competition between cities to attract industries, Chinese global supply chains became more efficient because city governments understood that they can increase the efficiency of the supply chain through not just superior infrastructure, but also reducing government intervention and bureaucratic costs that slow down the supply chain.
By ensuring that there is ample skilled labor supply, cutting down taxes and improving customs clearance, licensing and even inspection or enforcement action, they can improve efficiency of the supply chain so that both the private sector and public sector win.
For example, if it is critical that ex-factory, high quality products reach the airport and clear customs in 24 hours for direct airfreight to export markets, Chinese supply chains can beat most competitors because of superior delivery times.
The success of supply chains comes from the fact that products are rapidly designed, manufactured and delivered to the customer in style, quantity and quality that the market wants. Those supply chains that do not have enough customers cannot compete and simply die.
But in addition to supporting and encouraging the growth of private sector supply chains, I believe that there is increasing awareness that government services are also a supply chain, with the citizen as customer. The issue is how government services can be delivered to the citizen quickly and efficiently, with minimum transaction costs, high transparency and reliably.
The answer is in good feedback mechanisms that monitor what the citizens want. Clearly, Chongqing understood that what the citizen wants is good public security/less crime and also a better living environment.
The author is adjunct professor at Tsinghua University.
