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In this guest post, Procurement Leaders invites Xchanging's Yang Cao to explain how small and medium enterprises (SMEs) approach sourcing from China, and what considerations need to be factored into low-cost country sourcing strategies.
SMEs, in terms of procurement capability, are often at a disadvantage when compared to big multinationals. They don't have the same scale necessary to garner mass savings or, when needs must, to set up factories wherever required. SMEs, more or less, have to follow the market and more and more, the market is looking to China.
Low-cost country sourcing (LCCS) isn't new. Tier-1 sportswear companies like Nike have been sourcing from Asia since the 1960s, but for a lot of SMEs it's unmarked territory. Because of that, and a host of other factors - the language barrier, cultural differences, currency and exchange rates and the huge distance separating buyer from supplier, LCCS can be rather daunting.
Why SMEs are sourcing from China
China is the perfect starter-country for companies testing the waters of low-cost country sourcing. Big business paved the way more than 40 years ago and now, because of that, China has a very mature and stable supply chain making it a relatively low risk choice for companies new to LCCS. There are a number of factors that make China a good sourcing fit for the risk averse SMEs, but for the purposes of this blog I'd like to highlight what I consider to be the most important.
How SMEs should source from China
For SMEs sourcing from China, there are a few key tasks that must be undertaken to reduce risk, increase the potential benefits and guide the process. Obviously, due diligence is required as is an entry/exit strategy but more important than that, the SME must first fully and truly understand its own product and acquire local knowledge.
Growing consumption and increased consumer demands are driving a more international approach to sourcing. SMEs are going further and further afield in the hunt for the lowest cost suppliers. Due to its maturity and stability, a lot of companies are using China as a foundation when low-cost country sourcing and then, depending on how big the business is, looking at other countries from there. For small or medium-sized companies China is the perfect place to start.
Yang Cao is managing director - China, Xchanging Procurement.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.