Why use an external sourcing organization?
How has your company ensured that its subcontracting is cost-efficient? Have you been able to utilize sourcing from cost-competitive countries? In these countries the procurement price can typically be 50 % of the price level of developed countries. These savings are too significant for any company to ignore.
However, there are often difficulties in achieving the full benefits from cost-competitive sourcing. Finding suitable suppliers and qualifying them already requires a major investment in both time and money. Constant on-site monitoring is necessary to ensure quality and delivery-time. The travel costs alone can be too high for sourcing from distant countries.
Sourcing using a third-party partner is an alternative to using a company’s own personnel. The right third-party partner has local presence, experience in dealing with a different culture and has an existing supplier network. For smaller companies, using a third-party partner is often the only way of cost-efficient sourcing.
Why source from China?
Today China is not the cheapest country in the world. However, in the total economy of purchase China is very competitive for several reasons:
The labor is well-educated and hard-working, but the labor costs can still be only 10 % of the level of developed countries.
Availability of raw materials is good and their prices are competitive.
The industry of China is large, versatile and modern.
The highly-developed communication and transportation infrastructure differentiates China from many other low-cost countries.
High-quality purchases are available in China, but only through continuous control. The cooperation with Chinese partners is based on long-term relationships which require frequent face-to-face meetings. In many cases the buyer should have their representative locally present permanently or almost permanently.