On 3 February 2016, Dr Gendao Li, a senior lecturer in supply chain management from the University of Northumbria presented his research entitled 'Centralisation vs. decentralisation: the strategic organisational structure choice in the presence of a dominant supplier'.

Dr Li’s research is motivated by the practice in Chinese auto industry. The key components such as engine and gearbox in auto industry were heavily dependent on powerful foreign suppliers before, while such a situation is changing because the Chinese government is supporting domestic automakers to conduct indigenous innovation.

Now, some Chinese automakers can produce all key components by themselves, although these components are prone to be valued by customers as being somewhat inferior or less worthy. Thus, the manufacturer must deliberate on how to manage the expanded organization consisting of competing product divisions. The research examines the quintessential organisational structure decision – the centralisation versus decentralisation choice – from the perspective of the manufacturer.

It finds that the manufacturer may encroach on the supplier even if producing one unit low-end component costs more than producing one unit high-end component. The supplier should strategically price to deter or accommodate downstream encroachment contingent on the manufacturer’s organisational structure decision. If the unit cost of low-end components is high enough, product-based decentralization is preferred to centralization due to the supplier’s lower wholesale price. Furthermore, the research finds that the manufacturer’s strategic decentralization always hurts the supplier, always benefits the customers, and could benefit or hurt the entire supply chain under certain conditions.

Dr Li’s presentation attracted over 20 staff and students who raised many interesting questions for discussion at the end of the presentation.