There’s Global Sourcing, and then there is Strategic Sourcing

As the world only gets flatter and flatter and smaller and smaller, the watchword in this era of globalization is sourcing. In this global race to profit from the advantages that global sourcing has to offer – enhanced effectiveness, increased flexibility, improved operating performances, reduced investments, market access, and reduced costs (1) – China, with its low costs of labor and raw materials, has emerged as the premier industrial frontier. Coupled with an astounding economic expansion rate of 8% per year (2), the question today is how can you afford not to
do business in China? However, despite such appealing benefits, this is not to say that navigating the waters of global sourcing, let alone China Inc., is easy.

Many companies are abruptly realizing the hidden costs associated with sourcing internationally, mainly differences in culture and time zones – both of which can reduce the flexibility and diminish the effectiveness (3) that these companies sought in the first place. News bytes featuring naive entrepreneurs who have blindly ventured into China hoping to cipher from its well of low-cost resources only to emerge disgruntled abound. How then can a company reap the benefits that a country like China can offer without succumbing to such pitfalls? The answer therein lies in strategic sourcing, and in a business environment such as China’s, strategy means having an inside man. As Diane Long, head of Adidas’s China sourcing, states, “China sourcing must be managed from China . . . and not even from Hong Kong buying offices, which are too far from the Chinese factories and the information they need.” (4)  For smaller to mid-sized companies, having a reliable sourcing agent in China is essential in order to take full advantage of China’s low-cost production and to ensure an output of high-quality products.

A reliable sourcing agent in China automatically sets aside the disadvantages of differences in time – as the agent is already based in China, effectively monitoring production ceases to be a real concern. What then of the serious difficulties that arise from differences in culture? Studies, for example, show that Asian people compared to Western people may say yes to indicate that they are listening, which in itself does not indicate whether they understand or that they are giving a positive answer, and furthermore, they may also hesitate to say that they do not understand or give bad news such as problems or defects in product quality. (5)  This is where a number of Westerner expatriates in China have found their niche as sourcing agents. Such agents have only the best to offer – low-cost production, increased flexibility, and so on – without sacrificing effective communication.

Written by Jessica Lee

(1) Fredriksson, Ana and Patrik Jonsson. (2009). Assessing consequences of low-cost country sourcing in China. International Journal of Physical Distribution & Logistics Management, 13(3), 227 – 249.

(2) Foroohar, Rana. (2009). Six myths about China. Newsweek, CLIV(17), 30 – 35.

(3) Fredriksson, Ana and Patrik Jonsson (2009).

(4) Hexter, Jimmy and Jonathan Woetzer. (4 August, 2008). Getting More from China Sourcing.

(5) Fredriksson, Ana and Patrik Jonsson (2009).

Written by Jessica