Strategies and methodologies of virtual organization implementationfor small and medium-sized enterprises in China

In the age of globalization and a highly competitive environment with shorter product life cycles, more customized needs and more uncertainties in markets, the traditional advantages of small and mediumsized enterprises (SMEs) have been reduced significantly. Many SMEs find it increasingly difficult to respond to the market demands due to their limited competencies in many respects including access to advanced technology, employee training, facilities, innovation, etc. To compete effectively in such an environment, there is an urgent need for SMEs to come together and create virtual organizations and integrate their own core competences across the boundary of enterprises. This will enable them to compete with their counterparts as a group rather than as single enterprises. In practice, however, many SMEs, particularly in developing countries, are not capable of forming virtual enterprises on a worldwide basis due to the operational costs as well as infrastructure issues. As a first step towards agile manufacturing, a regional virtual organization whose members are located within a certain area will be a reasonable and practical choice for SMEs. Furthermore, it will be much easier to build virtual organization based on current cooperation among local SMEs. In this paper, two types of virtual organizations, vertical integrated virtual organization (VIVO) and horizontal integrated virtual organization (HIVO) are proposed based on two typical ways of enterprise cooperation, central satellite structure and enterprise cluster.