The advantage of sourcing in China

Over the last decade, "China" has become a widely accepted product purchase choices. Today, almost all walks of life have become an inevitable trend.

Recently, Ford announced it will purchase from suppliers in China about 10 billion dollars in auto parts plan. Wal-Mart's purchasing department was established in Shenzhen in order to purchase products directly from Chinese manufacturers. Philips Electronics China, 23 plants in total output value of more than 5 billion U.S. dollars, mostly for export. These companies and many other enterprises to China as a sourcing base for the cause is to save the cost of spare parts and finished products - but the significance of China's procurement operations would be much more than that. The ultimate goal is to get business cost advantage.

Of course, and in other business activities in developing markets, as business activities in China, there will be considerable risks and challenges. But our experience shows that enterprises can control and overcome these risks and challenges. In fact, the greatest risk is moving too slow. China already has in many industries the importance of global influence. Therefore, no action - or action lags behind its competitors in the business - will be at a competitive disadvantage being.

The five-level procurement advantages

With the cost of China's diversification strategy choices increased. In our experience, the advantages of sourcing in China were classified into five levels.

Level 1: test "temperature"

While many companies realize the importance of China, but has not yet taken any formal action in China. Some companies may buy some basic commodities from China, but it is tentative nature. However, such a timid little action is not entitled to any competitive advantage. These companies may gain from the mistakes and success of other companies to learn lessons. But not enough to offset the opportunity cost could pay.

Level 2: spare parts or finished products

Wal-Mart in 2001 from China to buy 103 billion dollars in goods, the year China accounted for 4% of total exports. Although Wal-Mart's outsourcing volume than almost any other multinational companies in China, but it reflects the most current business activities in China, large multinational companies purchasing patterns. For example, in 2002 the French retail giant Carrefour's purchasing volume in China reached 16 billion - 27% higher than in 2001. Whether 10 million or 100 million, most of the company's starting point is to strive for the lowest cost to buy or manufacture products in line with the basis of their standard or accessories.

The advantage of this level, as opposed to purchasing smaller competitors efforts, companies can get lower cost structure. In addition, suppliers with specific experience, as well as the overall supply of more broad-based understanding are also valuable. However, these advantages are easily lost. Competitors, apart from their resistance within the organization, no nothing to stop the ultimate savings equal the cost of competitors.

Level 3: the development of comprehensive procurement

Motorola plans to China in 2006 to achieve 10 billion U.S. dollars in the aggregate purchases and 100 billion dollars in annual output. At the same time in 2006 years ago, Motorola also plans to invest 10 billion U.S. dollars in China, including the construction of global R & D center in Beijing, and the recruitment of 5,000 researchers. This procurement strategy goes far beyond simple procurement of goods and accessories, but extends to product design and engineering services and talents of Fan Chou.

As the main supplier of solid relationship or attract the best designers and engineers are hard to copy other companies, the full range of procurement undoubtedly locked competitive advantage. Telecommunications equipment manufacturers in China to establish the most advanced R & D, they found that China can design and produce more higher value-added accessories, thereby reducing reliance on high cost to imports. Full-time procurement is also possible advantages, such as shortening product development cycle. A global manufacturing enterprise reform in China, recently found that if a factory is not only half the cost of other countries, but time has been shortened by half.

Level 4: implementation of the integration strategy in China

Not long ago, operating in China's global automotive manufacturers and their suppliers are the main considerations to serve the Chinese market. Now, their position has changed. They no longer only China as an important market for pure or simple export supply base, but more and more to China as a market and a combination of supply bases. Whether these companies or other enterprises operating in China need an integrated strategy for each product line of accessories that procurement is suitable for the production of the respective foreign markets in China and sell products.

The advantages of integration strategy of scale arising from the synergy, which may very substantial cost savings. Product design not only for the global market, but also for the local market. Meanwhile, also on the capacity for integrated planning: the size of plant to meet the no longer a single domestic or export demand, it has comprehensive realization of economies of scale, and the specifications meet the domestic and international requirements. If the competition in both areas at the same time, the policy may be certain advantages: Some observers believe that only the Chinese economy as an export processing base in China may encounter some difficult situation, because the Government thinks that these companies invested in China less than those levels enterprises in China as an important market.

Level 5: access to global advantage

While many companies talk about how low-cost procurement and operational integration of many other countries, but only a few companies actually accomplish something. For example, Toyota closely coordinated between the different parts of the manufacture and supply of assembly parts sourcing from Asia, the company can reduce cost and time delivery.

Cost structures and business models economic benefits of globalization are endless. Truly global business the competitive advantage derived from the minimum cost and ability to make full use of the best, this is a strong relationship between economies of scale and structural advantages. However, this advantage must be based on ability to achieve the difficult, competitors are also hard to imitate. The resulting benefits are even greater growth - at the local, regional and global levels, while business growth.

How to act

Advantage over the five-level procurement is not necessarily progressive: a company does not have to turn from the first level of development to the second, and then to the third level. Business strategy can sometimes cost-oriented strategy for the procurement of basic components became ambitious and comprehensive China strategy. Similarly, many have been carried out for many years in China market, sales of companies, now in a sense You Huidao procurement perspective and re-start the export production. Similar examples are Siemens, Lion Nathan, General Electric and several multinational OEMs.

So how should you begin to take action? In our experience, whether it is to start from scratch to establish procurement capacity in China to improve existing operations or to have to go through three important steps.

Today, multinational companies in China can buy almost anything. Then they should purchase it? To answer this problem and require the company to expeditiously enact a procurement program, Ranhou all market segments opportunities - including the potential supply of potential products and providers - and all the opportunities Jinxing reality Huokehangxing Shaixuan. In addition, the company must estimate the potential cost savings to achieve the necessary cost of the total cost of the supply chain, and then judge the potential benefits sufficient to offset the risk? Finally, because the market will continue to rapidly changing environment, the company needs to help the company build a constantly updated view of the management system of China.

Wal-Mart purchase directly from factories in China practice is a case worth considering. With its unparalleled capacity prices and the prices down, but also because it requires a relatively simple product, Wal-Mart supplier selection most of the work completed by the supplier themselves, let them provide detailed background information and samples. However, even so, more than 200 Wal-Mart still needed to complete the field test to verify the information and the implementation of the procurement decision-making tasks. For other companies, this task even more difficult. More complex products - in particular, to install the parts to other products - would require more detailed assessment must also be more contact with suppliers.

Opportunity Analysis

Infrastructure established

Design and procurement operations is a very difficult job, it means for the supplier, screening, assessing, monitoring, Zunshou, human rights, including assessment and risk management in all aspects of the development process and policies, but also means the establishment of a database to track vendor quotes; build professional capacity in line with China's national conditions; and to obtain and evaluate companies on the light, on-site assessment and capacity of key data suppliers. Finally, it means the world between different departments and operations in close contact and cooperation - this is a very difficult and requires careful work. Companies must establish a good system and team to make the right decisions quickly and implement them in order to achieve cost savings, lead to growth. To accomplish this difficult task, choose one with sufficient experience and ability to bring the whole structure of leadership is very important. In addition, success in China, many factors come from outside China, it was based active support is very important. Several multinational companies in China have been considering a "two-level increase," the rule of thumb, that is the responsibility of procurement operations in China must be higher than normal level of two levels of the organization to undertake.

Action to overcome the obstruction

Now many corporate managers are worried about the risks of doing business in China. Sure that the Chinese market is indeed facing a series of enormous challenges. For example, banking or other financial crisis may affect the stability of China's economy, companies must closely Zhu Yi pledged to implement the progress of WTO, equally important to a variety of operational and management risks, such as, how Paichu currency fluctuations, coordination of complex logistics systems and looking for capable and reliable cooperation partners.

The sharing of intellectual property issues, trust is the key. When companies bring products from overseas, the design of the patented technology, they also bear the risk of patent disclosure, disclosure to competitors, revealed to be switched to a rival company's employees and leaked to the domestic private entrepreneurs, these private enterprises will be stolen from cell phones to shoes, from shampoo to software patents of any product. However, those who seem most vulnerable to violations of the company, such as electronics or clothing apparel manufacturer, still continue to expand production in China, because they believe it is necessary to enhance overall competitiveness. While these problems are real, and very important, but competitive advantage comes from understanding and overcome the risks, not avoid the risk from.

The biggest obstacle may come from your own internal resistance, even from your existing suppliers against. We have repeatedly found that those who wish to companies doing business in China by the cultural and organizational structure difficult troubles. These difficulties include the lack of urgency, "step by step" concept, the lack of experience in sourcing and global sourcing of general experience, organizational structure is extremely complex, information is not complete, the existing suppliers to develop feasible goals against and difficult. In a company action is necessary before a clear organizational structure and solve these problems.

Essentially, "high aspirations, act quickly," is today the principle of procurement in China.

Some industry leaders have been in business in China has made great progress: they had been locked edge, and is the fifth level of forward purchasing advantages. Now, however, many companies - even those in the low purchase cost of sourcing products worth millions of dollars the company - has lagged behind in China's major competitors. For these companies, the starting point of any analysis of market conditions, is no longer "our procurement in China ought to have more mass?" But the first consideration, "how do we catch up with other companies?"

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