Etienne Charlier의

당신은 확실히 중국에 있는 sourcing에 관하여 많은 다른 이야기를 듣고 읽었다. 어떤은 thrilling 이고 다른 사람은 무섭다. 그러나 무슨이 진짜로 중요한 궁극적으로, 중국 sourcing 장면의 상세한 내용의 이젠 그만을 당신의 회사를 위해 약간 주요 질문에 응답하기 위하여 이해하는이다: 에 아닙니다 근원 또는 근원; 근원에 근원에 아닙니다 무엇 그리고 무엇?

중국에 있는 Sourcing는 인기있는 화제이다. 역시 좋은 아이디어 같이 보이기 때문에 방법 근원에 가지고 갈 작은 결정이 이지 않는 근원에 무엇과, 근원에 결정 (또는 아닙니다). 중국에 있는 sourcing 프로젝트는 시간이 걸리고는 그러나 보상 운동이다. 그것은 아프 준비하는을 위해 이지 않는다 그러나 더 값이 싼 질 공급에 또한 증가한 융통성 및 개량한 제품에 뿐만 아니라 지도할 수 있다.

이 기사는 중국에 있는 sourcing의 가장 중요한 양상을 개괄하고 sourcing이고 또는 이렇게 하는 것을 고려하고 있는 그들을 위한 약간 통보 그리고 제일 연습을 제안하는 것을 시도할 것이다.

세계의 중국 작업장.

우리는 모두 이고, 인 것을 계속해, 전통적인 생산 국가에서 제조 용량의 지속적인 교대를 중국으로 목격한. 그리고 이 교대는 모든 기업의 맞은편에 일어나고 있다.

이것은 보스톤 상담 그룹 학문 (무화과 1)에서 도표에 의해 설명된다: 약간 년 전에, 2개의 국가는 미국에 (중국과 멕시코) 이미 전통적인 수출상이 그들의 것이 떨어지는 것을 보는 동안 수출액의 상승을 경험했다.

 
숫자 1

Along the same trend, exports from China to Europe have increased by 34% in 2004. A Europe centric figure 1 would show Eastern Europe countries playing the role of Mexico and China still leading the pack.

China is already the leading world manufacturer for a wide range of products, with 20 to 50% of the world’s production for toys, motorbikes, bicycles, air conditioning, TVs, DVD players, desktop and laptop PCs, digital cameras and mobile phones.

This trend is not about to change. To quote the Boston Consulting Group again: “… one finding is clear: a company can now source almost anything from China. […] in recent years the opportunity to source in China has expanded to include extremely high-tech products, as well as components that are part of a more complex logistics pattern, such as automobile parts.”

Interestingly, China does not reach such strong production capacity status for the first time. Prof. Adshead explains in “Tang China: the Rise of the East in World History” that between 500 and 1000 AD (Tang and Song dynasties), China already was the top manufacturer in the world. Similarly, in the early 19th century, China represented 28% of the world production capacity, according to the economist Angus Maddison.

China’s low cost formula: LCC3

China is a low cost country (LCC) to the third power. Not only it offers low cost labor, but it does it in a sustainable manner. In addition, the number of inexpensive but smart and motivated professionals available for sophisticated jobs grows year after year.

Cost effectiveness: Direct labor cost is low. But the cost advantage of China does not stop here. As a consequence of low labor cost, cost for parts and sub-assemblies is also lower. And finally, production machines, tooling and the entire production infrastructure are cheaper.

Sustainable cost effectiveness: The sheer size of China guarantees that companies can count on a pool of 600 million people in the countryside to supply their factories with cheap but educated workers. Besides, every year, 3.5 million new university students graduate and feed businesses’ need in white collar and professionals. This is without counting with the 250,000 Chinese students currently in universities across the globe.

Smart cost effectiveness: Part of the 3.5 million university graduates are well qualified engineers. China produces six times more engineers than US engineering schools. Although India is the most popular location for SW R&D outsourcing, China is the leading SW outsourcing country for Japanese and Korean enterprises. What is more, low R&D costs enable businesses to provide quick customization and fast response in sectors where R&D is strategic. In some sectors, China is already producing its share of technology innovation, thanks to a system where Design Institutes and Research Centers have a good place. Bill Gates had something to say about this: “In June 2001, I was visited by Wang Jiang from Beijing […] He presented his invention, a piece of software that recognizes characters handwritten on a screen. I was astonished. All our teams worked on this and the Chinese delivered it.”

Sourcing Challenges and Best Practices

As they say: “In China, nothing is impossible but nothing is easy either”. Various challenges and pitfalls pave the way toward successful sourcing. The main difficulties relate to identifying suppliers, sorting the good ones from the others and finally, ensuring that selected suppliers remains as good as they appeared to be at contract signature time.

The mere task of identifying suppliers is not as easy as it would seem to be. Everything changes at high speed in the country; this is why supplier directories you might find often do not cover the most interesting companies. The most informative directories, online or offline, are in Chinese. A related pitfall is that many searches fail because the initial sample of potential suppliers was too small. In many segments, only 5 to 15% of all existing suppliers will fully comply with Western standards. Many will have a good enough product but would fail in processes management or reliability. If you start with a small initial sample, the chance of ending up with no good supplier is high.

Supplier qualification is of course a key task. The basic principle here is: if there is any risk of any problem in any area (product, logistics, process …) it must be explicitly covered in the qualification. Western companies and Chinese companies have totally different sets of expectations. Assuming that the other knows what is expected always leads to troubles. Think that “whatever can go wrong will go wrong”, unless it is explicitly managed. The fact that data is not readily available and that Chinese companies are very protective of some type of information, does not make qualification any easier. Furthermore, one of the essential factors in a supplier’s value is the quality of its management. Recognizing dynamic and effective managers from ineffective bosses, in the Chinese context, is important in the qualification process as well.

China’s supplier base is improving year after year. Still, it is safer to assume that “you get what you INSPECT, not what you EXPECT”. Supplier management must be an active and rather hands-on activity in China. Many suppliers have not institutionalized the processes and attitudes that make a company fully reliable. Buyer need to assume the worst and perform regular inspections and supplier audits. When such pressure lessens, quality of the product or service tends to start slowly degrading. The minimum goal of such quality assurance and control is to prevent any sub-standard good from leaving China. Once the defective or wrong product has left China, it becomes significantly more difficult to solve problems.

Compounding on all the previous challenges, comes the “China factor”. Things do not get done the same way in China then in Europe: the way to negotiate, the way to supervise, the way to solve problem when they appear, the way to get relevant information are quite unfamiliar to Western business people. Lots of problems can be solved very fast when action is taken at the right moment and at the right level. But the geographical and cultural distance between China and Europe makes it hard to catch early warning and to swiftly react. The only way to effectively and sustainably source from China is to use a trusted team on the ground. Whether it is an in-house team or a trusted service organization that represents you, this is a must.

Enable the full potential of LCC3

In spite of the difficulties, a cost benefit analysis of sourcing in China for most of the products and commodities most often leans toward the benefits. Nevertheless, with such challenges, enterprises will want to maximize their return and ensure long term profitability of their sourcing projects. Here come three less straightforward approaches to increase the yield of China sourcing activities.

Organizational optimization
Capturing all the benefit of China sourcing projects is not possible when existing operations and processes in Europe remain untouched. Part of Chinese suppliers’ price advantage is explained because they do not perform certain of the management tasks you would expect a supplier to perform. To really maximize the yield of sourcing and minimize its risks; companies will have to either insource these tasks or outsource them to a third party. Of course, this additional overhead needs to be included in the Total Cost of Ownership analysis in the early phases of the search.

Supplier Development
With so many suppliers improving and so much investment coming into China, it is very common to encounter suppliers with a great management team, a good product and decent process, but that are still a little short of where they should be to become fully reliable partners. In many case, these are the great suppliers of tomorrow. Investing a little in these suppliers by assisting them in developing their process or their products will pay off in the future.

Leverage local companies R&D capabilities
What Chinese companies can do thanks to the LCC3 formula, Western companies also can profit from, at least partially, by using China suppliers? Western companies can take advantage of high customization flexibility by using products developed by Chinese companies in China and integrating them in their portfolio or solution.

Recently, my company concluded a supplier search for a US based client looking for a high-tech test instrument to integrate in its portfolio. The products it found in Europe and the US were either too expensive or too weak in functionality. The Chinese supplier was not only able to provide a product with functionalities very close to the top Western products but also to provide it at a cost enabling the client to launch an aggressive sales campaign. In addition, the Chinese supplier was able, in a very short time, to allocate the necessary engineers to develop US specific functionalities.

When most R&D intensive companies are struggling to allocate limited resources, the Chinese can afford to pour people at technical problems and offer flexible and highly reactive service.

Conclusion

As always, China offers considerable benefits for those with a good strategy and, more importantly, a flawless execution. These benefits do not come easily and require knowledge, persistence and commitment. Still, with its low cost basis, its sustainably low cost yet educated workforce, and its R&D capabilities, China is worth the effort to do it right. Those who have allocated the right resources to sourcing project delighted with their investment and now enjoy good yield.
 
 

Etienne Charlier is the founder and Managing Director of procurAsia. He created procurAsia, a service and consulting company, in order to assist Western companies source high tech products and industrial equipment from China. Today, procurAsia is a dynamic and growing company with clients in Benelux, France, Switzerland, UK, Scandinavia, Middle East and US.

Etienne Charlier is also member of the Board of Director of the Benelux Chamber of Commerce in China, a non-profit organization aiming at supporting enterprises from the Benelux based in China.