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).
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.
It is not surprising to see that buyers and companies are looking outside of China for growth and supplies. With China's rising costs, wages, and the stranglehold of some key minerals. I am curious as to what these companies plan to do when other areas in Asia follow pace with China? If companies create a large presence in certain ares, labor and other commodities are bound to go up. What would be the next step from there?
Putting all your eggs in one basket, in this case, one region, is always a risky practice. It's good to see buyers are thinking beyond being in China and now are positioning China as part of an overall strategy.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.