Buyers Say Sourcing Outside China Is 'Important'

Citing rising labor costs and other manufacturing concerns, purchasing managers at companies operating in China say they would like to reduce sourcing activities in the country and explore opportunities in other Asian locations. This is according to the results of a recent survey of procurement professionals by trading services provider Panjiva and the Global Sourcing Council.

A large majority of respondents to the survey, especially those involved in purchasing at medium and big size companies, said "sourcing beyond China" is one of their more important concerns. This is in addition to volatility in global demand, rising commodity prices, and a surge in labor costs or wages in major manufacturing regions like China.

The survey report noted:

Fundamentally these concerns point to rising costs making business more expensive. They are not overwhelming concerns, but they are points of uncertainty that, when coupled with cost-containment plans, may point toward significant changes in trade in 2012.

The survey results reflect growing concerns about China's domination of the global manufacturing and procurement markets combined with recent negative news on labor conditions and wages in the country. The survey was conducted late in January, just as complaints spiked about manufacturing conditions at plants in China producing electronic products for major equipment vendors like Apple Inc. (Nasdaq: AAPL).

Since then, Apple and Foxconn Electronics Inc. , by far the world's biggest contract manufacturer, have announced a slate of actions to address concerns over allegedly unfair or illegal labor practices and low wages. (See: Will Apple, Foxconn, & Sweeteners Satisfy Labor Activists? and Does Apple Have a Foxconn Problem?) Here are further comments on the survey from Panjiva:

The buyers in our survey are interested in shifting their sourcing: they want to find new geographies, outside of China, to supply their goods. But why? Over 73% of our "buyer" respondents currently source in China, a number that grows to 83% for "buyer" respondents working for firms with over $100 million in annual revenue. There is real, current investment in China as a supplier of goods. Yet respondents say sourcing beyond China has become more important over the past year.

It's not that surprising that buyers are exploring new locations for supplies. One of the cardinal principles of procurement is ensuring availability of supplies through multisourcing, a strategy that has recently been sorely tested as China tightened its grip on both global manufacturing and procurement. Many companies have been alarmed in recent times by Chinese actions restricting the supply of critical rare earth minerals used in the production of many electronics devices to foreign buyers. (See: Don't Blame China for Rare Earth Crisis and The Truth About Rare Earths, Part 1.)

This partly explains why the Panjiva/Global Sourcing Council survey results indicate a preference for additional purchasing sources by a clear majority of the 271 respondents. In addition, the respondents appear to have been spooked by persistent concerns about the state of the global economy. Despite this, most of the survey participants described themselves as "somewhat optimistic" or "very optimistic" about the economy in 2012.