Results tagged “low cost country sourcing” from The China Sourcing Blog
There are many similarities between China and India in today's global-economic climate. Both have over one billion citizens, both have experienced resilient growth in output, and both have greatly expanded their roles in international trade. The relatively inexpensive yet well educated workforces of these two countries have made them key prospects for the sourcing of manufactured goods. Yet differences remain in their supplier and logistical capabilities which must be taken into account by the sourcing professional.
Both India and China are capable of world class manufacturing processes. A study performed by the London School of Economics on the supply chains of the two countries’ automotive industries found that two-thirds of their domestic suppliers were able to provide inputs with defect rates of less than 100 parts per million – the typical threshold for suppliers in the US, Europe, and Japan. It was observed that both Chinese and Indian auto manufacturers domestically outsourced component production at similarly high rates, suggesting an adequate availability of competent local suppliers. Whereas the study found higher productivity levels in India, in terms of capital intensity, delivery frequency and stock-turn ratios, China had the edge. In a more recent, broader assessment across multiple industries, Deloitte found that the average number of days an item sits in inventory favored China at 24.2 compared to India’s 32.5.
Beyond the factory floor, connecting products to end users poses different challenges in China and in India. Within India there is a heavy reliance on roads. Their network is the second largest in the world, behind the US, at over three million kilometres. However, only around half of these roads are paved, and their width is generally too narrow to allow the passage of anything beyond smaller, two-axel trucks. Road transit is further slowed by a fragmented Indian trucking industry and by state border checkpoints. China, in contrast, has a far less extensive network of roads. Out of its million-plus kilometre road network, only around 300,000 kilometres are paved. But what China lacks in actual length, it makes up for by having newer, more passable roads. It has five times the number of multiple lane highways than India.
China also has more transport options available to its supply chains in the form of rail, air, and waterways. Over 78,000 kilometres of terrain are connected by rail in China compared with 63,000 in India. Goods can be flown in and out of China by way of 500 airports whereas there are only 334 locations to take to the sky in India. Thanks to geographical endowments, China also has more navigable waterways. Besides some of the world’s most active ports, commerce in China moves on 110,000 kilometres of inland aqueous passageways. This is more advantageous than India’s 16,000 kilometres of waterways, particularly in the movement of bulk commodities.
These transportation differences are partially reflected in the World Bank’s Logistics Performance Rankings. China is rated the highest of all BRIIC (Brazil, Russia, India, Indonesia and China) countries at 27th in the world. Its comparatively higher scores in customs clearance, infrastructure adequacy, logistics, timeliness and tracking ability place it above India, ranked 47th globally. Some of the largest discrepancies between the two countries are shown in survey data collected by the World Bank. Responders reported much higher frequencies of compulsory warehousing/transloading and involuntary payment solicitation in India, while in China greater expenses were incurred in the form of agent fees.
The infrastructure and logistical differences may explain why India is a more common site for the outsourcing of services, particularly IT services, which do not require a physical good to be brought to market. However, India should not be entirely discredited as a sourcing destination for manufactured goods. Both it and China have allocated over 10% of their GDPs toward infrastructure development which will enhance their future logistical abilities in bringing their products to the world’s consumers. The greatest similarity between China and India: neither can be ignored by the sourcing professional.
| Country | Rank | LPI | Cstms | Infra | IntSh | Lgstc | Trckg | Time |
| China | 27 | 3.49 | 3.16 | 3.54 | 3.31 | 3.49 | 3.55 | 3.91 |
| India | 47 | 3.12 | 2.70 | 2.91 | 3.13 | 3.16 | 3.14 | 3.61 |
| Brazil | 41 | 3.20 | 2.37 | 3.10 | 2.91 | 3.30 | 3.42 | 4.14 |
| Indonesia | 75 | 2.76 | 2.43 | 2.54 | 2.82 | 2.47 | 2.77 | 3.46 |
| Russia | 94 | 2.61 | 2.15 | 2.38 | 2.72 | 2.51 | 2.60 | 3.23 |
| China | India | Brazil | Indon. | Russia | |
| Clearance time with physical inspection (days) | 3.38 | 3.45 | 5.47 | 5.12 | 4.62 |
| Clearance time, no physical inspection (days) | 1.70 | 1.92 | 1.67 | 2.14 | 2.57 |
| Percent of imports physically inspected | 8.59 | 13.63 | 10.54 | 11.08 | 44.20 |
| Percent of imports inspected multiple times | 2.46 | 6.20 | 2.04 | 2.56 | 10.05 |
| Export lead time from shipper to port (median) | 2.77 | 2.34 | 2.80 | 2.12 | 3.98 |
| Import lead time from port to cosignee (median) | 2.56 | 5.31 | 3.88 | 5.35 | 2.88 |
| Number of export agencies | 4.06 | 3.43 | 3.47 | 2.50 | 5.83 |
| Number of import agencies | 4.20 | 3.71 | 4.21 | 3.67 | 5.17 |
| 40 ft container export charge (USD) | 418.90 | 660.30 | 1,614.05 | 378.93 | 1,310.37 |
| 40 ft container import charge (USD) | 376.37 | 1,266.94 | 1,570.42 | 1,023.84 | 1,144.71 |
Grinding media (GM) is required for mineral processing operations using
horizontal and vertical media mills. Different types of mills require
customized grinding media with respect to chemical compatibility, size,
viscosity, etc. Due to the complexities of this process, there is a
certain amount of risk involved when it comes to sourcing grinding
media from low cost countries like China, which is why the low cost
sourcing of grinding media will only reach a peak in the coming years.Chinese exports of grinding media have displayed remarkable growth in the last decade, with CAGR of 17.8% between 1998 and 2007. This is mainly due to the increasing international competitiveness of the Chinese grinding media industry, which is derived from a combination of low labour costs, increasing technological progress and rising quality standards. Consequently, China has become the world’s second-largest producer of GM with Japan and South Africa being the most significant export destinations of cast balls and forge balls, respectively. Other significant export destinations include Australia, Chile, Pakistan and Thailand.
Despite the potential cost savings in low cost sourcing from China, many users of grinding media are still hesitant due to inherent transactional risks and a lack of local and cultural knowledge. In order to overcome these obstacles, companies tend to hire procurement intermediaries, a process which inevitably leads to transactional opacity and the eroding of savings. Moreover, companies with no or little low cost sourcing experience tend to underestimate the importance of local knowledge and networks. Yet by undertaking a holistic and systematic approach with a partner who possesses adequate China knowledge, these mistakes can be avoided.
First of all, it is advisable to do in-depth market due diligence and to create a list of potential suppliers, and then whittle down the list according to relatively crude criteria such as location, infrastructure, and cohesive local supply chains. For the grinding media industry in China, the City of Ningguo in Anhui Province is a perfect example of a region which has a high level of agglomeration, specialization and easy access to well-trained labour and raw materials.
Having arrived at a manageable shortlist of suppliers, a detailed assessment of the shortlisted suppliers should provide a clear picture of the preferred supplier and its ability to meet the objectives of a company’s sourcing needs. Conducting business successfully in China is about building strong relationships, both with suppliers and in many instances with local government officials in order to gain a superior bargaining position for negotiations concerning price, payment terms, shipment terms and legal jurisdiction. This is where many foreign companies fail to utilize the full potential of low cost sourcing. A lack of the above-mentioned factors (local knowledge, weak relationship management, market due diligence) can easily lead to failure or dilution of savings over time, which in turn negatively impacts overall financial performance.
从上世纪末到本世纪初，二十多年来，中国的成品出口占到了全球出口的一半以上，成就了中国的制造业大国地位，而在数量的意义上，中国被赋予了“世界作坊”的称号。这是不争的事实。然而，金融危机对“从中国采购”的趋势是否有影响呢？
根据目前的情况来看，中国出口商品正经历着国际国内的空前挑战：从国际方面来看，金融危机一方面使外国公司各个自身难保，迫使他们不得不取消或推迟从中国采购的订单，另一方面，也促使一些国家推行贸易保护主义，提高进口关税、购国货等政策使“爱国”的外国企业也不得不忍着国内高价商品的痛而割舍物美廉价的中国商品这块肥肉；国内的情况也好不到哪儿去，国内原材料价格上涨、劳动力成本提升、人民币升值。一般情况下，外国公司从中国采购的目标都是，中国商品至少可以节省20-30%的成本。一旦这一优势消失，从中国采购对这些外国公司而言就无利可图，会想办法开发其它市场，比如印度、越南、朝鲜等成本相对更低的国家。
看来，2009年对中国的外贸企业来说形式比较严峻。针对这一情况，中央政府将加强纵向联动推进省部合作机制，以及推动商务部、海关、质检、检验检疫等部门横向合作，营造有利于外贸企业的政策环境。建议中国企业密切关注中央政府为帮助企业应对危机、保持出口稳定而推行的政策、办法，使企业的损失最小化。同时，企业应该积极应对危机，不能坐以待毙，比如想办法降低成本、提高产品质量来争取出口订单；此外，对于有条件的企业，主动走出去也许是一个不错的出路。
最后，在中国赴欧采购团在英国停留期间，英国商务大臣曼德尔森给商务部部长陈德铭的存储盘也值得关注，据说里面有1000家想与中国做生意的英国企业名录。
Mexico is currently being considered as an alternative sourcing option
to China, especially by some US-based supply chains eager to bring
production closer to home. Yet they are not the only ones hoping to
find new opportunities in Mexico, so are manufacturers from....China.
At the Supply Chain Digest, Dr David Simchi-Levi of MIT has proclaimed that the dramatic rise in fuel prices and transportation costs of recent times constitutes a tipping point where logistics costs have started to negate the unit cost advantages of China and other Asian countries. As a result, Simchi-Levi has noted a number of companies that have either put Asian offshoring on hold or have brought production back to domestic or nearshore sources, the so-called in-sourcing (or near-shoring) phenomenon that is raising Mexico's profile for US sourcing and supply chains.
And logistics costs are not the only concerns with China. As this article from IHT outlines, inflation, rising labor costs, shortages of workers and energy, a strengthening currency, and dwindling tax breaks for foreign investors all have multinationals encouraging their suppliers to diversify out of China. With the so-called China plus one strategy, companies are expanding their bases elsewhere in Asia (particularly Vietnam) so as not to be overly dependent on factories in one country. Yet few companies are actually closing factories in China, and for those with large operations in China, China plus one is only a strategy intended to mitigate risk and control costs.
If US supply chains are not about to retreat en masse back to Mexico, expanding Chinese auto manufacturers are preparing to advance into Mexico to get a foothold in America. Following the Chinese company First Auto Works, who announced plans to build an assembly plant in Mexico with Grupo Salinas, private Chinese auto manufacturer Geely Automobile this week also announced plans to move ahead with construction of an assembly plant in Mexico to supply both the North and South American markets. Geely and a local partner will invest up to $270 million to build a factory in Leon, capital of Guanjuato state in central Mexico. With the plant eventually set to have an annual capacity of 300,000 units, Geely wants Mexico to be a stepping-stone for achieving its ambitions of conquering the US market.
And Geely might pave the way for a host of Chinese manufacturers to head into Mexico. With China now being Mexico's second largest trading partner, during his visit to China in July Mexican President Felipe Calderon invited Chinese business leaders to invest in Mexico:
So if some US supply chains are forced to head back closer to home in Mexico, manufacturers in China are prepared for a big push westwards, to Mexico and beyond.We do want global investment, and if there are (Chinese) companies that are thinking about investing in other (Latin American) nations, but those nations are not hospitable to investment, they should know that they are welcome in Mexico and we protect their rights.
Image: www.iho-ohi.org
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