Chinese 3PLs brace for competition

China's economy continues to grow at a 9-percent clip, and everyone wants in on the action. Foreign logistics companies are no exception.

As China opens its logistics market to foreigners this year, in line with its commitments to the World Trade Organization (WTO), foreign investors will likely swoop in and buy up some of the local players, said Wu Jiahuang, speaking at the Second Logistics Industry Development Annual Conference in Beijing in January. Wu, a researcher with the WTO's China Institute, believes foreign companies will be eager to acquire local Chinese companies to take advantage of their networks and infrastructure.

Chinese companies should brace for the competition, he warned. "It will be a crucial time for domestic companies, in particular the small and medium-sized private ones," he said, noting that compared with their foreign rivals, many Chinese logistics companies have higher costs and less efficient operations.

The China Logistics Association, an independent industry group, publicly downplays the threat, pointing out that small and medium-sized domestic companies enjoy some advantages over multinational titans. For example, the smaller players that focus on a particular region are likely to have steady customer relationships and high flexibility, says Xu Shouzhen, the association's secretary general. He suggests that the rivalry may even be good for the domestic companies. "Facing competition from overseas rivals, they are forced to learn, to improve [their] efficiency and become adapted to globalization," Xu says. If they can maintain their competitive edge, he believes, they will survive.

Xu may be right. China's logistics market is expected to reach $147.8 billion by 2010. If that estimate proves accurate, there may be room for everyone.