Global sourcing is a purchasing approach where a company acquires products and services from international markets beyond its own borders, aiming to reduce costs by leveraging inexpensive raw materials or skilled labour from low-cost countries. This strategy enables businesses to access advanced expertise, resources, and technology that may not be accessible in their native country.
Business process outsourcing serves as a prime illustration of global sourcing. Several organizations have established their call centres in Asian countries like India and the Philippines to take advantage of the abundance of cost-effective, proficient workforce. Managing global supply chain strategy has sparked vigorous debate, particularly in light of the COVID-19 pandemic and the subsequent supply chain disruptions. Many businesses that relied on suppliers in China encountered unexpected disruptions.
In many instances, the reliance on a single region had a significant impact on business continuity. The absence of alternative suppliers led to temporary suspensions of operations for some businesses, while others were forced to close permanently. The current state of affairs finds US companies increasingly cautious about manufacturing in China. The persistent trade tension has prompted many US companies to reassess their supply chain and explore diverse sourcing alternatives to fortify their resilience amidst uncertainty.
The heightened risk in the Chinese supply chain can be attributed to the ongoing trade conflicts with the US, the pandemic, and geopolitical upheaval. As a result, several companies are turning their attention to countries such as India, Mexico, and Vietnam for manufacturing goods.
Why do businesses prefer China sourcing?
Despite the escalating trade war leading to higher tariff rates and prompting some companies to withdraw from China, the country's enduring status as a renowned manufacturing powerhouse remains largely unshaken.
Businesses of varied types and sizes continue to view China as their key sourcing hub, often engaging the services of a sourcing agent based in China. China's large population, manufacturing prowess, and cost-effective resources make it an attractive sourcing hub for multinational companies. A few reasons to prefer China as a sourcing destination are:
1. Expansive supplier base
China offers a vast network of suppliers for Western businesses, facilitating the import of raw materials and sub-components for the production of:
- Textiles
- Electronics
- Home products
- Automobiles
- Toys
- Machinery.
The linguistic and cultural gap is bridged by the existence of trade companies and procurement agents in China, which benefits foreign purchasers by lowering costs and streamlining processes. Whether based in the USA, UK, or elsewhere, collaboration with these entities proves highly advantageous for establishing a cost-effective supply chain in China.
2. Low cost of production
China's various provinces host a range of manufacturing facilities, strengthening its status as a global production hub. The country's excellent infrastructure, encompassing roads, air, railways, ports, and bridges, facilitates seamless transportation of goods. This well-established infrastructure translates to significant time and cost savings for buyers, ultimately reflected in the competitive pricing of goods. China's abundant labour market further enhances its allure as a favoured sourcing destination for multinational corporations.
3. Technological capabilities
China's significant technological prowess facilitates large-scale production of goods, with factories boasting top-tier equipment and tools. The integration of advanced technologies like artificial intelligence (AI) and cloud computing has revolutionized China's supply chain management. It positions the country as a premier sourcing destination for major global businesses and fosters innovation and efficiency in the supply chain sector.
4. Large scale production
China's extensive supplier network facilitates the import of raw materials and components, fostering mutual support among factories and saving time and effort. Sourcing agents in China leverage these connections to benefit transnational corporations. Bulk material imports by Chinese suppliers reduce production costs, enabling businesses to save significantly and enjoy the convenience of offsite production. Further cost reduction is achieved through unit cost reduction, economical packaging, and streamlined product designs.
5. Sustainability
Today's consumers increasingly prioritize ethical and eco-friendly products, compelling companies to uphold social responsibility to safeguard their reputations. In China, sourcing teams have shifted focus to sustainable production and procurement to meet these demands. The country's well-established export industry facilitates the identification of compliant suppliers and manufacturers. Furthermore, the government's stringent labour regulations and anti-pollution efforts make China an ideal destination for sustainable manufacturing and sourcing, fostering environmentally conscious practices.
6. Near-shoring capabilities
In the supply chain sector, speed of service is crucial, but sourcing the right products efficiently is equally vital. Aligning the sourcing process with consumer preferences enhances profitability by reducing inventory issues and maximizing return on investment.
Leveraging China's mature production landscape, locating suppliers with agile production setups is readily achievable. Near-shoring production to China, given its geographical proximity to key markets, emerges as a strategic move for managing global supply chain for sectors including manufacturing, quality control, new technology, etc.
How to improve the supply chain while sourcing from China?
1. Procure from multiple suppliers
Diversification is paramount to navigate geopolitical tension, trade embargoes, and the aftermath of events like the COVID crisis effectively to mitigate supply chain risks. Amidst escalating China-Taiwan tensions, Gartner's study revealed that 75% of supply chain leaders are exploring alternative options, with 55% already engaged in this process. Leaders must holistically assess their supplier network, pinpoint dependencies, categorize revenue impacts, and establish prompt countermeasures to swiftly address supply chain disruptions within a multi-sourcing strategy.
2. Nearshoring
In pursuit of a sustainable supply chain, balancing local and global sourcing is crucial to reduce dependence on global networks and mitigate risks in an increasingly volatile world. While local sourcing may incur higher costs, it minimizes environmental impact by lowering transport distances and overall expenditures, emphasizing the need to find a strategic balance between regional and international procurement practices.
3. Foster strategic partnerships
Balancing local and global sourcing from China is crucial for a sustainable supply chain, reducing dependence on global networks and mitigating risks in an increasingly volatile world. Emphasizing a strategic balance optimizes environmental impact and expenditure.
4. Create layered supply chain systems
Supply chain leaders must anticipate unexpected disruptions and plan accordingly by implementing layered systems and redundancy to minimize the impact of unforeseen events.
5. Use data to drive decision-making
Supply chain leaders can leverage real-time data and modern technologies to make informed decisions, anticipate disruptions, and future-proof the supply chain. This data-driven mindset offers insights into customer demand, streamlined planning, and enhanced reporting capabilities.
6. Create end-to-end global supply chain visibility
The 2023 survey highlights the lack of real-time visibility in 78% of C-level executives' supply chains, despite plans for investment in agility and automation. Modern, data-driven technologies prioritize managing global supply chain visibility for comprehensive oversight and cost efficiency.
7. Stay updated on problems in your supply chain in real time.
Leveraging technology for real-time issue identification and seizing opportunities in the supply chain is crucial. Prompt corrective actions and upgrades are vital to pre-empt failures within the supply chain.
8. Clarify accountability
To mitigate the impact of disruptions, companies must appoint an accountable leader equipped with the necessary infrastructure to manage and resolve crises. Clear processes, defined roles, and responsibilities within the supply chain minimize failure risk. This ensures swift response in line with pre-defined action plans when disruptions occur.
9. Create open lines of communication
Establishing transparent communication channels among manufacturers, suppliers, staff, and customers reduces supply chain disruptions. Accurate and accessible information to all stakeholders ensures timely reactions to issues. Free flow of communication facilitates identifying challenges and fostering innovative solutions across the supply chain network.
10. Develop a risk management plan
Supply chain risk management now encompasses unprecedented market disruptions, necessitating resilience and competitiveness. Beyond traditional factors, modern approaches consider geopolitical conflicts, terrorism, cybercrime, and sanctions as real threats, emphasizing the need for comprehensive planning to mitigate their impact.
11. Declare the right shipment value
Successful importation from China involves more than just reliance on a sourcing agent. Importers should familiarize themselves with supply chain intricacies. Accuracy in shipment value declaration is crucial to avoid penalties by Customs. Familiarity with incoterms such as CIF, FCA, EXW, and FOB is essential.
Incorrect declarations can result in import bans, fines, and increased shipment costs, disrupting supply chains. Opting for accurate shipment value declarations ensures regulatory compliance, avoiding costly repercussions and sustaining import operations seamlessly in China.
12. Keep an eye on quality control
While a sourcing agent may oversee production, it is essential for you, as an importer, to actively engage in the process. Partnering with the right factory in China is imperative, ensuring product integrity. Clear product specifications must be communicated to the supplier, who then conveys them to the factory.
Upon production completion, a quality control report should be requested to verify product alignment with specifications. Inconsistencies or deviations warrant attention to prevent defective products from exiting the manufacturing unit.
By maintaining involvement in this manner, you can uphold product quality and mitigate potential disruptions within the supply chain.
13. Learn Chinese language
Addressing the language barrier is crucial in managing supply chain issues with Chinese suppliers. Communicating specifications effectively is often hindered by the lack of English proficiency, leading to quality and design issues, as well as time losses.
Learning to speak Mandarin can significantly mitigate these challenges when doing business in China. Proficiency in Mandarin, even with the support of a sourcing agent, enhances communication clarity and facilitates a deeper understanding of the local context.
Considering online Mandarin classes before finalizing deals with Chinese suppliers can equip you with essential language skills to enhance your collaboration and streamline supply chain operations in China.
14. Be mindful of different payment modes
When collaborating with Chinese suppliers, a diverse array of payment options awaits, providing reassurance of reimbursement in case of non-compliance with terms and conditions.
Delays in delivery or discrepancies in quantity and quality can prompt refunds, emphasizing the importance of understanding available payment methods and associated transactional terms. Trusted credit card companies offer credit card payments, ensuring refunds if suppliers breach contract terms.
Additionally, PayPal and Western Union are popular options for transactions with sourcing agents or direct suppliers in China. Familiarity with these payment modes and their associated safeguards strengthens financial security and fosters trust in supply chain transactions.
15. Contact a reliable sourcing agent in China
The rise of sourcing businesses in China has become crucial in bridging the connection between material buyers and the vast pool of suppliers and manufacturers. These sourcing agents play a pivotal role in facilitating trade between foreign businesses and Chinese suppliers.
With an extensive network in China, sourcing agents assume the responsibility of identifying and securing the right suppliers, overseeing the production process, and managing the shipment to the client’s destination, effectively saving time and cost for businesses.
However, it is imperative to select a sourcing agent with a proven track record and comprehensive knowledge of the supply chain landscape in China. Moreover, when engaging with a sourcing agent, it is important to allow ample time for the processing of freight quotes, typically around a week, and to meticulously compare multiple quotes to ensure the selection of a cost-effective and reliable supplier in China.
Conclusion
By adhering to these best practices, businesses can navigate the complexities of sourcing in China more effectively and make informed decisions to optimize their supply chain operations. Building a resilient supply chain for the future necessitates proactive measures in a volatile global landscape. Prioritizing collaboration among network participants strengthens supply chains.
For managing global supply chain diversification of procurement sources, strategic partnerships, layered systems for data-driven decisions, enhanced visibility, accountability, open communication, and robust risk management are crucial elements. Embracing these strategies fortifies supply chain, preempting disruptions, and ensuring organizational success amidst global challenges.
Acknowledging the impact of the China-US trade war and the COVID-19 pandemic on China's economy, it is evident that the country remains a pivotal global manufacturing and sourcing hub. Equipping yourself with comprehensive knowledge of the involved processes positions you to participate in Asia's influential supply chain network, fostering global business. Commencing with a resilient China wholesale sourcing strategy and establishing connections with suitable suppliers is instrumental in elevating your business to new heights of success.
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