High Speed trains and productivity impact in China

An article in the New York Times, on September 23,2013, titled “Speedy Trains Transform China”, (http://www.nytimes.com/2013/09/24/business/global/high-speed-train-system-is-huge-success-for-china.html?_r=0) describes the impact of the trains that travel 186 miles/hour and connect 100 cities. For individual textile manufacturers, the fast access to customers enables quicker response to styles and thus order increases of 50%. For larger businesses, educated employees can locate in large cities and yet access production facilities in smaller towns, in addition to access to many more employees and customers, thus boosting productivity. The impact is a shift in traffic from air to rail and thus reduction in short haul air routes. Given such a significant impact of high speed rail, along with the associated lower pollution levels and fuel savings, how should companies plan location of their supply chains in China ? Will such access to inner cities enable wage increases in China to be held in check, by accessing more remote locations, without any significant logistics cost increases ?

5 Responses to High Speed trains and productivity impact in China

Yuntao Guo says:

September 24, 2013 at 2:43 pm

They can allocate their research facilities, marketing and sales department in large cities and production plants in the small cities in order to utilize the low cost labor. The fare is about 50% lower than the air fare, and the fast speed train indeed helps the companies and local economy of China.
The impact of high speed rail is also significant in EU nations and Japan, but there is very low probability of implement it in U.S. because of its low population density in majority part of the country.

Kalyani Patri says:

September 24, 2013 at 10:55 pm

As the high speed rail system drastically reduced the travel time, to exercise leverage companies can set up manufacturing facilities in cities where resources such as labor, land, taxes are significantly less when compared to large cities reducing their supply chain cost. Anticipating that transportation of goods in china also may improve significantly, even the central warehouses, if any, can be also located in the small cities to reduce inventory associated costs. Big cities where skilled labor is available can be used for research, product innovation and the like. On the other side, given the fact that the labor in the inner cities can now commute without much difficulty to big cities for better professional prospects there might be a need to increase the wages thus increasing the overhead costs.

Ashish Agrawal says:

September 27, 2013 at 7:34 pm

High speed trains will definitely change the existing supply chain structure. Although the availability of such trains sounds like a profitable deal as now companies will become more responsive and they may access the comparably cheap labour, land costs and tax benefits. Still there are many other aspects that companies need to think on, for reaping a long term benefits. Such as the availability of skilled labour in such areas, or how to incentivise them to prevent them from moving to big cities in search of big money as they now have better transportation to commute. How to reduce their primary transportation cost & secondary transportation cost. should they have to relocate their warehouses or should they have to charge premium prices as they are now more responsive to the customer demand. How to communicate the needs and pattern of the customer to these manufacturing facilities, effectively.

Abhishek Sengupta says:

September 27, 2013 at 9:14 pm

The access to the remote locations through the high speed rail service would benefit a company to a large extent since the company can relocate its manufacturing facilities to those locations at a lesser cost. But at the same time the companies need to make sure that there are skilled labourers available in those locations. There will be a definite surge in demand and due to this high speed rail network, the company would have a chance to increase its service level by fulfilling orders more frequently. There is now a possibility that demand can exceed supply and the company would require to increase the wages of the labour to retain them.

Irina Benedyk says:

October 2, 2013 at 1:23 pm

Infrastructure is always the best driver for economy. Every such train line bring a lot of advantages to the economy and society.
Business can locate plants and warehouses in more cheapest places without any risk to loose quality among their employees and still stay close to customers. It is also rise the completion among potential employees.
The last one is beneficial and for society as people from remote places can have th same opportunity in comparison with big city citizen. People can live in place with better ecology and cheaper expenses, and work at place with higher wages.
The high quality of infrastructure is a magnet for industry.