Reading and questions

1.Read the attached articles. (Managing Logistics Outsourcing and Logistics Learning Capability) After reading the article associated with this week’s post answer the following questions. Apart from the obvious reasons for outsourcing (cheap labor, loosely enforces laws etc.) what could a company and its employees possibly gain from the managing of resources outside of their domain? According to Chen, Tian, Ellinger & Daugherty (2010), do you think much research has been done on exploring the best practices surrounding outsourcing in China? Do you think they are correct in their assumption? 2.Attachment with questions


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Managing outsourcing relationships in Logistics
Assignment: Week 6 Topic Paper
Your Name
Class, Session, Term
Faculty Name
Question #1
Do you think that the model given for Logistics Learning Capability is sufficient enough to
explain how a company could handle its outsourced relationships?
Question #2
What are the four components of Logistic Learning Capability and how do they affect logistics
based sustainable competitive advantage?
Haozhe Chen
East Carolina University
Yu Tian
Sun Yat-Sen University, China
Alexander E. Ellinger
The University of Alabama
Patricia J. Daugherty
The University of Oklahoma
Acknowledgement: This study was funded by the National Natural Science Foundation of China (No. 70872117).
The U.S. third-party logistics (3PL) industry has experienced explosive growth in the last two decades
(Knemeyer and Murphy 2005) and the trend is expected to continue (Lieb 2008). However, extensive outsourcing of
logistical needs is not limited to the U.S. market. The rationale for choosing to outsource is somewhat universal, too.
As Lau and Zhang (2006) noted, economic, strategic, and environmental factors are the main drivers that motivate
organizations to outsource in developed, as well as in developing countries. Managers also realize they can develop
logistics competencies through third-party relationships, rather than by trying to develop the necessary expertise
internally (Halldorsson and Skjott-Larsen 2004). However, despite the tremendous growth in outsourcing, research
has identified buyer concerns and dissatisfaction with 3PL service provider performance (Langley et al. 2006; Lieb
and Bentz 2005). Thus, additional academic research on 3PL behavioral practices appears to be particularly
important in terms of helping managers develop sound strategies for logistics outsourcing.
While there has been a surge of interest and publications on the topic of 3PL’s in recent years, the academic
literature on this subject still appears to be disjointed and the area warrants greater attention (Maloni and Carter
2006; Selviaridis and Spring 2007). In their extensive review of 3PL studies published in leading journals,
Selviaridis and Spring (2007) identified key issues in the existing literature. First, over 70 % of the empirical studies
are purely descriptive. While descriptive research provides basic information about a phenomenon, it is not useful
for exploring relationships or other mechanisms in-depth. Second, 3PL studies have been weakly theorized with
69 % of the papers examined having no theoretical foundation. Without strong theory support, it is difficult to
generalize the research results to other contexts. Consequently, there are great opportunities for researchers to
expand the current knowledge base on this topic.
Because of the intensified internationalization of companies’ operations and marketing, it is also imperative for
researchers to study 3PL’s in international contexts. China represents a prime opportunity for doing so. China has
established itself as the world’s manufacturing center, as well as the largest emerging market, and greater numbers
of international companies are involved in logistics operations in China. However, current Chinese logistics systems
and infrastructure also pose challenges for international companies (Jiang, Frazier, and Heiser 2007; Jiang and Prater
2002). For example, managing logistics relationships may be more intricate and difficult to handle because national
culture can differ significantly across countries (Zhao et al. 2008). Thus, managers’ decisions regarding relationship
management and resource allocation reflect the culture of a country (Pegell, Katz, and Sheu 2005). It is therefore
critical to develop a sufficient understanding of the nature and role of national cultural differences in international
operations (Bendoly et al. 2006; Pegell, Katz, and Sheu 2005; Zhao et al. 2008). However, the extant 3PL literature
largely overlooks relational aspects of logistics outsourcing in China.
Considering these research voids and opportunities, the current study was undertaken to gain greater insight into
relational aspects of logistics outsourcing by examining the resource-collaboration-performance linkage within a
Chinese context. A conceptual model based on the resource-based view (RBV) of the firm is proposed that identifies
three human capital resources and explains their relationships with 3PL-buyer collaboration, as well as the
connection between collaboration and buyer firms’ logistics performance. The research assesses both internal and
external human capital resources. Specifically, resources related to managerial talent (as represented by top
management championship for logistics at the buying firm and the customer service expertise of 3PL provider
employees) are examined. In addition, Guanxi, a concept dealing with personal connections or relationships that is
unique to the Chinese business environment, is included as a human capital resource because of its relevancy to
logistics outsourcing in China. Guanxi will be discussed in greater detail later. Finally, previous research has
supported a relationship between collaboration and performance (Sanders and Premus 2005; Stank, Keller, and
Daugherty 2001) and this linkage will be further evaluated within the Chinese 3PL setting.
The next section provides an overview of the literature on logistics outsourcing in China. This is followed by
the introduction of our conceptual model and associated hypotheses. The research methodology is then described
along with presentation of the results. Finally, implications of the research findings are discussed along with
research limitations and recommendations for future research.
With gross domestic product increasing by approximately 10 % per annum, China was projected to become the
number one global exporter in 2008 (Langley et al. 2007). The logistics sector is viewed as a key facilitator of
Chinese commerce. In recent years, the Chinese government has designated logistics as a strategic industry and has
invested heavily in improving the infrastructure with multi-modal transportation networks, port upgrades, and largescale storage and distribution facilities (Lau and Zhang 2006). In addition, restrictions on foreign firms providing
logistics services have been reduced as China develops into a major logistics hub in Asia, and the Chinese logistics
industry moves towards a “free market mode” (Hong, Chin, and Liu 2004). State-owned, private, and foreign
logistics service providers compete for market share as more firms doing business in China outsource their logistics
activities (Lai, Zhao, and Wang 2006; Zhou et al. 2008). The Chinese 3PL market is expected to more than double
its 1999 revenue of US $55.8 billion to reach US $120.8 billion by 2010 (Trunick 2005). CSCMP’s Global
Perspectives provides a comprehensive review of the logistics industry in China (Wang 2006).
Logistics outsourcing is the use of external companies (3PL’s) to perform some or all logistics activities that
traditionally have been performed within an organization (Wang et al. 2006). Although the 3PL industry in China is
growing fast, it is still relatively new, and the learning curve for both users and providers is steep (Langley et al.
2006). Hong, Chin, and Liu (2004) suggest that China’s logistics industry is “still in its infancy” and that it is “quite
different” from logistics industries in developed countries. Perhaps the most notable difference is that achieving cost
effective performance is significantly more difficult for 3PL companies operating in China than for logistics service
providers in developed countries.
In China, total logistics expenditure as a percentage of gross domestic product is more than twice that in many
developed countries (Goh and Ling 2003; Rodrigues, Bowersox, and Calantone 2005). In a recent survey, seven out
of ten China-based 3PL respondents reported declining operational efficiency (Zhou et al. 2008). The relatively low
level of operational efficiency experienced by China-based 3PL’s is largely a function of the “slow adaptation of
state-owned enterprise into market-based economy” (Zhou et al. 2008, p. 262). Inadequate transportation and
information technology infrastructures, local protection regulations and bureaucracy, shortage of quality logistics
managers, and lack of awareness of the logistics concept, are all identified as serious barriers to the development of
the 3PL industry in China that are not as prevalent in developed countries’ logistics industries (Hong, Chin, and Liu
2004; Lau and Zhang 2006). Failure to realize cost effective performance is also attributable to the shortage of
capable service providers in China (Langley et al. 2006; Wang et al. 2006; Zhou et al. 2008).
Recent studies also contend that intense competition in the Chinese logistics industry is forcing many 3PL’s to
reconsider their value propositions to clients (Lai, Zhao, and Wang 2006; Wang et al. 2006). According to Lau and
Zhang (2006), outsourcing will become “one of the most effective business strategies for organizations in China to
achieve cost effective performance and long-term success” (p. 790). However, the approaches that China-based
3PL’s will take to achieve performance improvements are unclear, because most of the extant research on logistics
outsourcing in China focuses on the type of activities outsourced and the reasons for (and benefits of) outsourcing
decisions. Hong, Chin, and Liu (2004, p. 17) note that “little is known about the characteristics of logistics
outsourcing as it has been evolving in China’s transitional economy.” A more recent survey of China-based 3PL’s
(Hong and Liu 2007) provides an indication of the industry’s future aspirations. Although only 20 % of respondent
companies reported that they currently offer value-added services, many more indicated that they plan to make
integrated logistics services available to customers within the next three years.
Integrated logistics services are commonly associated with collaborative supply chain processes, whereby 3PL’s
and their customers leverage informational and relational resources to improve performance. However, although
several empirical studies demonstrate that information technology positively influences China-based 3PL firms’
financial performance (Wang, Lai, and Zhao 2008) and competitive advantage (Lai, Zhao, and Wang 2006),
relatively little is known about how China-based logistics providers manage internal and external human capital
resources to improve collaboration and performance.
The lack of research on the influence of managing human capital resources in China’s logistics industry is
somewhat surprising. Langley et al.’s (2006) survey of China-based 3PL users observes that operations management
in China “heavily focuses on relations between individuals,” while researchers consistently highlight the criticality
of understanding and leveraging Guanxi in China’s unique commercial environment (Handfield and McCormack
2005; Jiang and Prater 2002). Previous studies have also shown that relational performance is a strong predictor of
operational and cost performance in the 3PL industry (Stank et al. 2003), and that different levels of relationships
between logistics providers and customers are worth the extra costs and efforts incurred (Knemeyer, Corsi, and
Murphy 2003). Thus, in response to calls for more studies that explore best practices for outsourcing in China (Lau
and Zhang 2006; Maloni and Carter 2006), we next present the theoretical foundations for our study and propose
hypotheses that examine the management of logistics outsourcing relationships in China.
Drawing upon the resource based view (RBV) of the firm, the conceptual model in Figure 1 presents a
framework of human capital resources as antecedents to buyer-3PL collaboration, that in turn enhances buying firm
logistics performance. RBV posits that firms compete on the basis of unique corporate resources (Barney 1991;
Conner 1991; Wernerfelt 1984). Firm resources can be tangible or intangible (Hall 1992) and they may have been
developed inside the firm or acquired in the market. According to Barney (1991), strategic resources that are rare,
inimitable, non-substitutable, and valuable, can contribute to the development of distinctive capabilities and
competitive advantage. More specifically, leveraging resources or capabilities that create value and are rare among
competing firms fosters at least temporary competitive advantage through superior performance. If the resources or
capabilities are also challenging for competitors to imitate, and alternative resources are not readily obtainable, the
competitive advantage can be persistent (Ellinger et al. 2008; Peteraf 1993).
RBV theory has particular relevance to strategic logistics research (Olavarrieta and Ellinger 1997). While many
different types of value chain-related resources can be influential (Porter 1985), researchers maintain that human
capital resources are strategically important because they are the most likely to contribute to competitive advantage
(Grant 1991; Hitt et al. 2006; Huselid 1995). Similarly, logistics and supply chain management researchers contend
that human inputs are vital to the management of supply chain performance (Ellinger et al. 2008; Richey, Daugherty,
and Roath 2007; Scarbrough 2000). Thus, the current research identifies three types of human capital resources in
the logistics outsourcing context—top management championship, 3PL employee customer service expertise, and
Guanxi, and examines their impacts on buyer-3PL collaboration and logistics performance. Since many researchers
regard supply chain collaboration as a differentiating capability (Bowersox, Closs, and Stank 1999; Day 1994; Stank,
Keller, and Daugherty 2001), collaboration with a 3PL provider can also be viewed as a particular type of critical
supply chain capability for buying firms.
Buying Firm
Top Mgt.
3PL Customer
Buying Firm
Top Management Championship
Too often, top management is unaware of the true value of supply chain operations and their potential
contributions to sustainable competitive advantage, and therefore, tends to assign them relatively low priorities
(Hammer 2004; Shapiro, Rangan, and Sviokla 2004). Nevertheless, a number of studies have examined how top
management support impacts firms’ supply chain practices (Gattorna 1992; Min and Mentzer 2004; Sohal, Ramsay,
and Samson 1993). In other studies, Wisner and Lewis (1997) also found top management support to be a critical
driver of quality improvement; Bardi, Raghunathan, and Bagchi (1994) suggested that top management support is
essential for developing an efficient logistics information system; and Ellinger, Keller, and Hansen (2006) identified
top management support as the key factor for internal collaboration. Unfortunately, even in more developed Western
countries, logistics still does not seem to be high on many top managers’ agendas and consequently, top
management is often not heavily involved in logistics outsourcing planning (Holter et al. 2008; van Laarhoven et al.
2000). Of direct relevance to this study, Gunasekaran and Ngai (2003) contend that lack of top management
involvement is a key barrier to developing appropriate logistics strategies in China.
The current research’s focus is on top management championship of outsourcing. Top management
championship is defined as a firm’s top executives’ belief in logistics outsourcing and their active involvement,
participation, and leadership in these outsourcing activities (Chatterjee, Grewal, and Sambamurthy 2002; Jarvenpaa
and Ives 1991). In their articulation of the notion of a logistics champion, Kallock and Artman (1986) maintain that
“a logistics champion can make a positive difference” (p.324), and that “those who have such a logistics champion
on board will reap powerful benefits—growth profits, competitive advantage, and true logistics excellence” (p.331).
Compared to the term “top management support,” championship conveys top management’s more active role and
emphasizes their proactive leadership in logistics outsourcing (Chatterjee, Grewal, and Sambamurthy 2002).
Based on Hall’s (1992) classification of tangible and intangible firm resources, top management championship
of logistics outsourcing can be viewed as a unique intangible firm resource. The criticality of this resource lies in the
fact that the importance placed upon logistics by senior management determines the relative allocation and
prioritization of other organizational resources to logistics outsourcing, and influences how logistics performs in
satisfying customer requirements (Novack, Rinehart, and Langley 1996).
As noted by Andraski (1998), external collaboration as well as internal collaboration “will only become reality
if driven by effective leadership” (p. 11). Similarly, Ireland and Bruce (2000) have suggested that the involvement
of top management is a necessary prerequisite to enable supply chain collaboration. In the logistics outsourcing
context, when top management offers the necessary championship, frequent information sharing and joint
operational planning of supply chain activities with 3PL providers are more likely to happen. When actively
involved in logistics outsourcing, top management is more likely to realize and understand the strategic and
operational importance of collaborating with 3PL providers. Therefore, the logistics department is likely to have
more authority to collaborate with 3PL providers and, if necessary, bring collaboration to a more intensive level
(Sandberg 2007). At the same time, other firm resources will be better aligned to facilitate collaborative activities.
Based on RBV, we therefore propose that:
H1: Buying firm top management championship of logistics outsourcing has a positive impact on
collaboration between the buying firm and its major 3PL provider.
3PL Customer Service Expertise
Probably the most important principle of RBV is that differences in resources are causally related to differences
in product or service attributes, and thus, to competitive advantages and differences in performance (Conner 1991;
Nelson 1991). While traditional RBV literature is centered on the firm’s internal resources, researchers now also
emphasize the importance of the external resources available to the firm through its networks (Gnyawali and
Madhavan 2001; Gulati 1999; McEvily and Marcus 2005; Zaheer and Bell 2005). The embeddedness of firms in
external relationship networks holds significant implications for capability development and performance
improvement (Gulati, Nohria, and Zaheer 2000). Therefore, in addition to examining top management championship
as an internal human capital resource, our study also proposes 3PL employee customer service expertise as a
potentially rare, inimitable, non-substitutable, and valuable external human capital resource that enhances
collaboration between buyer firms and their major 3PL’s.
3PL customer contact personnel play a critical role between the buying firm and the 3PL provider because they
are at the frontline where the inter-firm interactions occur (Ellinger et al. 2008). In addition, today’s logistics
outsourcing often involve …
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