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The ups and downs of global sourcing

While not without risks, China remains a viable choice for offshoring


May 16, 2012
by By Michael Power

MISSISSAUGA: When it comes to its role as an offshoring destination, China will continue to play a key role in international supply chains for some time to come, said Keith Carruthers, president of Strategic Sourcing International.

Carruthers made the comments during a panel discussion May 8 at Supply Chain Canada’s 45th Annual Conference and Trade Show. Carruthers, who is also board chair of PMAC and a 10-year veteran of doing business in China, said that Chinese quality is, for the most part, “exceptional.”

“That’s a strong word and I chose that very carefully,” Carruthers told the crowd.

The notion the country’s goods are low quality is largely a media fabrication, he noted. But there are risks apart from product quality. Purchasers must still be clear regarding what they need from a Chinese supplier, as well as ensure not to make assumptions based on cultural differences.

As for nearshoring in countries like Mexico or the US replacing offshoring to China, Carruthers stressed one method doesn’t have to entirely usurp the other. Effective global sourcing relies largely on mutual trust and good relationships, he said. Having local contacts in China is also helpful, as those contacts often understand local pricing and can advise whether suggested amounts are accurate, he added. Still, there will be changes in the Chinese landscape as markets move inland, Carruthers warned.

“China is not the magic pill,” he said.

There’s still value to sourcing in China, said Garland Chow, associate professor at the Saunder School of Business at the University of British Columbia. But that value continues to erode due to issues like exchange rates making Chinese money worth more, he added. China’s eastern coast—traditionally a sourcing hub—also gets hit with earthquakes, floods and typhoons.
Does that make sourcing from other regions like Southeast Asia a viable option? The weather is often worse in countries like Thailand, Chow noted, citing heavy flooding in that country last year. The region also tends to have lower productivity than China. Therefore, China would not be supplanted completely as a sourcing destination.

While nearshoring from countries like Mexico was an option, proximity had its risks, Chow said. Drug-related violence could pose a problem, while the country’s logistics system didn’t rank well.

“So firms that use China now will use it in the future,” Chow said.

But those firms must manage risk more than ever and develop flexible sourcing strategies. Following trends could pay off since the situation in countries like Viet Nam, Thailand and India could change rapidly, he said. As well, knowing what affects suppliers’ suppliers can give an organization a competitive advantage.

According to Eric Allard, director of logistics and customs GSC at Husky Injection Molding, having the right people in place increases success in global sourcing. Finding the right people is a challenge, he said, noting he used his vendors and other partners in the process.

“I really leverage the network of people I work with,” he said.