Global Supply Chain: The International Economic Cooperation, A New Pattern

Since 90s of the 20th century, the world economy has experienced two distinct trends:economy globalization and new economy. The former has been enabling economic resources to move in the whole world freely on a large scale, and the latter has brought much more intensive economic competition and more rapid economic growth. Against the worldwide economy globalization, the newly appeared supply chain and supply chain management (SCM) are not unfamiliar concepts. Like other commonly used English abbreviations, they appear frequently in the Chinese newspapers and periodicals. In fact their new and trial practice started by the multinational corporations has began to been on the stage in China with her start of processing trade. However, it is not well recognized by the people what the effects of the adoption of global supply chain management strategy are on the international trade, world economy and on China today. Guided by the global SCM strategy, more and more multinational corporations or international firms set up their supply chains worldwide, utilizing the global resources and making other countries the layout of their global management strategy. The global supply chain under SCM is not a mere result from the change of management ideology, but it exerts great influences on international specialization, international trade and the economic development. The global supply chain is becoming so common an economic phenomenon that its lack or absence will make it impossible either for the developed countries to maintain competitive advantage or for the developing countries to bring about industrialization and economic development. Therefore, a study of the influence of global supply chain on international economics has a great theoretical and practical significance. Opening to the outside world is China's basic policy. The government has been pushing the processing trade sector with great efforts to readjust and upgrade the processing structure. After China's entry into WTO, more and more multinational corporations have increased their investment in China and that China will become the world manufacture base has become the talk of people. The 16th session of Central Committee of the Chinese Communist Party has declared to encourage overseas investment and multinational enterprises. It goes without saying that global management involves and goes hand in hand with global supply chain. Against such a setting, the author of this article has chosen the present topic for his research project in the hope of providing theoretical basis for China's countermeasures to global supply chain. First, the article begins with a sketchy analysis of global supply chain and supply chain management. Under the background of economy globalization, SCM has changed from a mere management ideology to enterprises'developing strategy, because of increasingly intensive global competition with new features and the policy adopted by both the developed and the developing countries to encourage processing trade. The change itself has resulted in the appearance and development of global supply chain. The necessary conditions to the global supply chain thus is being made possible by the complexity of products, the large scale decrease of transportation and communication cost, especially the development from the inter-industry specialization and inter-product specialization to intra-product specialization caused by technical progress and revolution provide. Global supply chain enables enterprises to decrease transaction cost, avoid benefit losses cased by noncooperativegame behavior of individual enterprise and to make full use of outer resource advantages of other member firms of the chain, hence to sharpen the enterprise's competitiveness. Second, the article examines the issue of global supply chain in the context of a conventional trade framework amended to allow production to be disaggregated into its constituent activities, ie. comparative advantage theory, economy of scale theory and competitive advantage theory and discusses their relationships and the development of global supply chain to the international trade theory. Within the global chain, as production are possibly decomposable into different component stages which possess varying factor intensities, there would be grounds for pushing specialization beyond the level of products to their constituent parts or activities. The more capital-intensive components will be made in the capital-abundant countries and the labor-intensive in the labor-abundant, therefore, global supply chain makes better use of comparative advantage. Enterprises become the subject of specialization instead of countries in the standard model and their first consideration is profit seeking, not only comparative advantage utilization. In addition to capital and labor, factors include technology and invisible resources. The key enterprise in the chain can make use of resource advantage in any country and the factor-abundant country is no longer the only beneficiary of its rich resources. The intra-product specialization in the supply chain also gives some explanations for the Leontief Paradox. Different component stages may have different best output scale and the intra-product specialization allows the supply chain to maximize the economies of scale. Besides, the global supply chain can obtain morebenefits from the economies of scale. As for the final product, every member enterprise makes uses of other members'economies of scale and we can call this external economies of scale. Because of the highly shared information and close cooperation within the chain under SCM, the abilities of decision making, market influencing of the global supply chain will be greatly improved and obtains the economies of scale of management. As a visual integrated enterprise, the supply chain can reduce transaction cost without decreasing the managers returns as the enterprise boundary of each member shrinks though that of the chain as a whole may enlarge. In other words, the supply chain obtains economies of scale by means of integration. With the publication of Michael E. Porter's works, especially with the appearance of "The Competitive Advantage of Nations", the competitive advantage theory has got more and more attention all over the world and has had a great influence upon people's ideology. Global supply chain under SCM can maintain and upgrading its competitiveness. It is easier for the chain to lower production cost because the better use of comparative advantage and the economies of scale. It is also easier for the chain to adopt the product differentiation strategy because it is able to know the needs of customers more exactly at a lower cost and to provide better and more stable services with quick responses. Besides, when forming the global supply chain, the key enterprise of the chain could make full use of competitive advantage of nation by choosing the enterprise of that nation as chain members. Furthermore, the global supply chain management emphasizes that enterprise should compete in its key business and direct its attention into its core competitiveness. The core competitiveness of enterprises is the basis of forming the chain and once the chain established, it enables the member enterprises to further sharpen their core competitiveness.