Economies Of Scope, Supply Chain Aggregation Phenomena, And The "china Price"

With the integrated development of the world economy, China has increasingly become the so-called world factory, and the low prices (the China Price) make Chinese products be more and more competitive in the global market. Many scholars ascribed this phenomenon to labor cost, land cost, preferential policy and so on. In fact, for complicated electronic products, labor cost, land cost, and policy advantage count less than 30% in their sale prices. Recently some researchers pointed out that supply chain cluster should be viewed as an important alternative for explaining why China became the world factory and the China Price was observed. Then what is the nature of supply chain cluster? How do supply chains cluster? To answer these questions, Literature, from the perspective of scope economies, is sparse.Through a literature survey, this paper concludes that supply chain clusters can be essentially viewed as the outcome of functional clustering. Based on this, we employ the notion of scope economies to study the relationships among scope economies, supply chain cluster and the China Price. Finally, a case, Luen Thai Supply Chain City is analyzed to empirically support our findings. More specifically, the main conclusions are as follows.First, this paper gives an alternative theoretical explanation for the formulation of supply chain clusters and provides some empirical evidences to support the theoretical results. This paper builds a complete information static game model where two clients are to make make-or-buy decisions simultaneously and a complete information dynamic game model where two clients are to make make-or-buy decisions sequentially. For both games, we show that when scope economies are high enough, the Nash equilibrium and subgame perfect equilibrium respectively are the strategy profiles where both clients choose to buy. This implies the formulation of supply chain clusters. And further, the analysis of a case, Luen Thai supply chain city, empirically supports our conclusion that scope economies are an alternative account for supply chain clusters.Second, this paper explains the appearance of the China Price theoretically. When scope economies increase further to some critical value, the market prices in the case of supply chain cluster will be less than those in the case of independently self-making, and the equilibrium outputs in the case of supply chain cluster will be more than those in the case of independently self-making. This conclusion, to some degree, can explain the widely observed phenomenon of the China Price.The two conclusions above show that scope economy is an important factor to explain supply chain cluster and the phenomenon of China Price.