08/07/2015
Extensive competitive advantages for China / Quality remains largest challenge / Sustainability and delivery times play lesser roles in decision making
A recent study conducted by msg that focused on mid-sized companies revealed that China remains a favorite exporter around the world. Almost 75 percent of the surveyed companies depend on a small, yet constant number of suppliers in China as part of the supplier mix. However, they show a strong tendency toward the import of components instead of finished products (around 60 percent). The study also examined questions, such as the organization of the procurement.
The study showed that the majority of those questioned (40 percent) use a pool of strategic suppliers (10-15), from whom they can choose depending upon availability and product specifications. What is important to them is that no more than 25 percent of their components or finished products come from China in order to prevent major dependencies upon a single country, while that ratio still allowed them to take advantage of cost and synergy advantages.
Core Results of the Study and Trends:
- Delivery deadlines are still a problem. Only 9 percent of those surveyed have seen any sort of improvement in the last three years.
- Most of the survey participants (65 percent) indicated that the number of defects had increased or remained they same since they began sourcing from China. Only a small number saw any sort of improvement (35 percent).
- 96 percent of the companies who buy from China experience quality issues when it comes to production and/or raw materials.
- Yet, the low costs available on the Chinese market remain the deciding factor.
- More than half have been purchasing goods from China for more than 10 years. Only 12 percent just started using the market for procurement in recent history.
- A third (35 percent) prefers using an intra-company purchasing organization in China, so-called International Purchasing Offices (IPO). While, another significant share uses either the corporate office's purchasing department or the purchasing department at their own Chinese production sites instead of an external procurement service provider.
- Although these international buyers depend on local workers for operational tasks, they are generally managed by 1-3 expatriates, meaning employees sent to China. The ratio of locals to expatriates should grow to 10:1 by 2017.
"Many companies around the globe have adopted sourcing from China as a strategy for creating competitive advantages," concludes Stephan E. Willigens, Vice President of Supply Chain Management at msg.
Details of the Study
msg conducted this study by examining mid-sized companies in Germany, Switzerland, Hong Kong and China, USA, Turkey, Japan and a few Southeast Asian countries. Members of the project team included the Technical University of Berlin, China Business Consulting Ltd. and i-Training Asia Ltd. Almost 50 percent of participants were from the industrial sector, e.g. automobile suppliers, industrial machinery, production and construction equipment. The full study can be accessed using the following link: http://www.msg-systems.com/fileadmin/user_upload/BerLsg_SCM/2015-05-27_Studie-msg_Sourcing_in_China-web.pdf