To Build or Not to Build: The Real Estate Dilemma and the Rapid Rise of China’s Cold Chain Industry

This case has been written to illustrate the pros and cons of asset-light and asset-heavy strategies. China has seen a rise in the use of asset-heavy strategies over the last few years, particularly with heavy asset users. By using financial tools such as sale and leaseback, fund management business models, and capital recycling, users can build asset-heavy real estate and capture lucrative real estate development profits. The users can then lighten the balance sheet by employing various financial techniques, thus achieving the economic benefit of the asset-heavy strategy while eventually enjoying the lower financial burden and higher flexibility of the asset-light strategy. This real industry case focuses on cold chain logistics real estate (refrigerated warehouses), which is developing in a similar manner to that of the ambient logistics real estate sector over the last 20 years. The company’s name has been disguised for confidentiality purposes and the shipment data has been randomly re-generated, but it retains its overall statistics profile for greater realism. The case is written primarily for corporate strategy discussions, but the strong quantitative element also allows it to be used as an operations management network optimisation case as well.

There are three main learning objectives: provide an appropriate context in which asset-light and asset-heavy strategies can be discussed, illustrate how a hybrid model of asset-light and asset-heavy strategies can be deployed and how numerical analysis can help ensure the implementation of appropriate strategies, and demonstrate why real estate development has become a highly attractive adjacent growth strategy for Chinese firms after they achieve success in their core business.

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