The China Sourcing Blog



At an Inflection Point? Dealing with increased costs and risk in global supply chains (Jul 1)
There are many reasons today why Assembled in America makes more sense than Made in America, even though the latter, as Gail Dutton writes at World Trade Magazine, signifies innovation, quality and reliability. Based on the experiences of commodity leader Mark Thompson from plant genetics leader Pioneer Hi-Bred International, Dutton extrapolates ten basic premises why companies today would logically take recourse to global sourcing, ranging from the geographic availability of materials and technology and varying costs of goods and labour, to the value of joint ventures and the wisdom of establishing additional sources of supply. Under such basic formulae the process of outsourcing and especially the phenomenon of low-cost country sourcing have expanded significantly over the last thirty years.

Yet there are indications that global sourcing is set to enter a critical phase, or a strategic inflection point brought on by structural changes and altered estimations of cost and risk.

The...


The China Story: Why sourcing is changing (Jun 18)
According to a report by the Renmin University of China and Donghai Securities, the Chinese economy has just peaked.

From the People's Daily, this report envisages China to be on the verge of a systematic slowdown after decades of unsurpassed economic growth. Due to a deteriorating external environment and a tightening of domestic policy, China's economy is forecast to grow at a slower rate of 10.4% in 2008, presumably the first indication of a sustained weakening of economic growth. The current situation also has the (Chinese) editors of the Economic Observer slightly worried, and for them too 2008 is the year in which the ideal track of the Chinese economy has been broken with slower growth, inflation and unemployment, intertwined with surging oil and food prices and a depreciating dollar - contributing to fewer Chinese exports during the first four months of 2008. Yet there are solid grounds for remaining confident, the editors conclude, as recent figures suggest that China's exp...


Weak links in the supply chain: Risk can never be outsourced (Jun 10)
Small players: they are the weakest link (h/t Supplychainer).

This was the finding of an independent report commissioned by the EU, Evaluating Business and Safety Measures in the Toy Supply Chain, which concluded that China has taken steps to address safety concerns after the recalls of last year, yet small players all round - both among Chinese manufacturers and European importers - tend to be the soft spots in the supply chain. According to the report's independent expert authors, final product testing alone is insufficient to guarantee product safety (which instead has to be embedded in the entire supply chain), and Chinese enforcement authorities should continue to strengthen supervision of the Chinese toy industry, especially focusing on weaker manufacturers. One example of these would presumably be Guangzhou Dongxin Electronics Co., Ltd., which turned out to be the only substandard toy maker in a recent review of the Guangzhou market undertaken by the Guangzhou Municipal Quali...


Taking a cue from Barack Obama: Collaboration and networking in global supply chains (Jun 6)
I could not help being somewhat sidetracked this week by unprecedented political events in the U.S. as Barack Obama became the presidential nominee for the Democratic Party. Conducting his campaign with a message of substantial change, Barack Obama has also indicated a desire to engage more constructively with China. China Dialogue recently compared and analyzed the policies of both presidential candidates on climate change, and has republished in full Obama's speech from late May setting out his vision for a new energy future. Bemoaning the U.S.' failure to lead on climate change and its struggling to stay relevant in the debate, Obama noted that already some coal pollution from China's dirty plants is making its way to California, and in an effort to curb China's carbon emissions, he promised thatas we develop new forms of clean energy at home, we will share our technology and innovations with all the rest of the world. If we can build a clean coal plant in America, China should b...


Waiting for something to give: Transportation costs and the soaring price of oil (May 30)
Is low-cost country sourcing set to become a victim of the rising costs of oil?

A new article from Purchasing.com reports on an Economics and Strategy Report from CIBC World Markets in Toronto, whose chief economist believes that the rapidly rising costs of transportation may be reversing globalization as businesses are forced to look closer to home for suppliers. Claiming that rising costs will once again make the world rounder, the article notes that the combination of global raw material costs and high energy costs in China have led to receding Chinese exports of such products as steel, furniture, footwear, metal goods and industrial materials. Interpreting the CIBC World Markets Report as a sign that transport costs are erasing China's labour savings edge, the Montreal Gazette cites from the report that it currently costs $8,000 to ship a standard 40-foot container from Shanghai to the North American east coast, up from just $3,000 in 2000, and at $200 per barrel of oil, the cos...


You have to be here: China sourcing and quality control (May 26)
In the latest of their TrendWatcher series, the Institute for Corporate Productivity last week produced a piece entitled China's Quality Squeeze, which incorporates a range of statistics, notably:
70% of product recalls in 2007 involved Chinese goods, a scenario which has been greatly helped by the
30% annual increase of Chinese imports to the U.S. from 2001 to 2005, so that today40% of all U.S. consumer imports come from China.
This despite the range of well-publicized China supply-chain quality lapses and gaffes of 2007, which have, however, not significantly dampened foreign firms' confidence in continuing to source from China. Instead, the strategic impact of the recent wave of quality concerns in China is inducing companies to inject more stringent quality control measures in their dealings with Chinese suppliers. Even so, the TrendWatcher piece continues, in its examination of best practices and risk factors for sourcing goods from China, a Quality Executive Board (QEB) survey fo...


Limited yet uncertain: Economic impact of the Sichuan earthquake (May 21)
While China remains gripped in the traumatic aftermath of the devastating Sichuan earthquake that have juxtaposed extreme tragedy and national outpourings of grief with heroism and sheer determination to save more lives, the economic impact of the quake is largely regarded as limited. While an important producer of agricultural products, Sichuan comprises about 4% of China's GDP production and most of the province's developed areas were left largely undamaged. Chinese government sources estimated the quake to have affected 14,207 industrial companies, however, which may have incurred losses of 67 billion yuan, equal to about 0.5% of China's GDP for 2007. State-owned enterprises are estimated to have incurred losses of about 30 billion yuan, and around 3,000 employees of these companies are injured, dead or missing.

As such the quake is expected to rather aggravate inflation than impede economic growth, and the loss of farm output in Sichuan will impact already tight supplies of rice...


Achievements and Challenges: China's ongoing struggle with IP (May 18)
This year's World Intellectual Property Day on April 26 focused on celebrating innovation and promoting respect for intellectual property (IP). In his message to mark the eighth World IP Day, World Intellectual Property Organization (WIPO, of which China is also a member state) director general Dr. Kamil Idris hailed the growing popularity of World IP Day, and explained what IP has to do with the really big issues like global warming or the things that add spice to life:
Without Intellectual Property Rights (IPRs), many new technologies developed to tackle global problems would never see the light of day and the great sporting events, which entertain and unite us, would not be broadcast into homes across the globe.
With the added significance of the greatest sporting event taking place in China this year, China's role in protecting the things that add spice to life remains a hot issue. To illustrate its achievements as well as its determination with IPR, China welcomed IP Day this y...


Sourcing and paying online: Alibaba, e-Future and B2B (May 14)
Business-to-business (B2B) is still a relatively novel concept in sourcing from China, as most payments are still made via more conventional methods, i.e. bank transfers and Letters of Credit. As Bill Dodson writes at This is China! Blog,
For most companies in China, the websites are little more than brochures for brick-and-mortar operations that provide a service or product that is paid for in ways other than the internet. B2B in the form of e-commerce has been more difficult to monetize - especially in China - because the products on offer have to go through a manufacturing process that may or may not involve design, testing and quality checks.
In addition, international transactions are further complicated by currency conversion issues:
A company cannot simply wire money to a Chinese bank if the supplier does not have a foreign currency account at the bank. The supplier also requires permission to convert the payment into RMB that the bank will hold in the company's RMB account. Su...


China's rising and hidden sourcing costs (May 13)
It is now well known that the famous - and hitherto unanimously considered cheap - China price is inexorably inching upwards. In fact, everything in China is going up, from yesterday's estimated earthquake death toll to manufacturing costs to wedding costs and of course, inflation. As China gradually moves up the value chain, however, despite the odd snow storm and earthquake, the inevitably rising China price is detrimental to China's status as the best country for low cost sourcing, compared to emerging opportunities offered by countries such as Vietnam, Turkey, India and others in Central and Eastern Europe.

In a survey for the American Chamber of Commerce's annual white paper, more than two-thirds of member companies agreed last month that China was losing its competitive advantage in global markets due to rising costs, Industry Week reported. The top five business challenges in China were listed as human resources constraints, inconsistent regulatory interpretation, unclear reg...