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China Sourcing Strategy
Kobus van der Wath

China Sourcing: WHY? WHAT and HOW? - Towards a Basic Framework of Analysis. We put forward a simplified framework for approaching China sourcing, briefly elaborating the Why?, What? and then pondering the How?

The WHY is impacted in mainly four areas: China advantage; international forces, industry changes and trends; and factors internal to the firm. A good amount of emphasis should be placed on the WHY and WHAT. Desk research, consultants and good logic can often sufficiently address these two questions.

The HOW question remains the most problematic. China’s status as the leading global sourcing hub is now undisputed. Yet, many firms still find it difficult to extract enough value from their China sourcing ventures. Even after 10 years of China being a major sourcing hub, firms with significant experience still find it difficult to get the HOW right.

Typical China Sourcing Problems
From experience we have identified many HOW problems in China sourcing. We highlight key ones:

• Internal buy-in from various divisions to join the centralised China procurement effort. This causes fragmented attempts, slows organisational learning and reduces synergies. Strong top management support and good Global CSM organization is crucial;
• Internal users of products often prefer developed country (i.e. German) quality, and equate Chinese products with inferior quality. Internal education and re-education is needed;
• Project management during design/engineering and fabrication. Languages, practices and different priorities can cause havoc. In China sourcing the emphasis of Project Management needs to fall on Relationship Management;Some common other problems that are often cited are the following:
        1) quality declines or prices escalate as the relationship gets older;
        2) IP transgressions by suppliers or other firms;
        3) lengthening lead times;
        4) troublesome logistics (i.e. customs and shipping arrangements); and       5) contract renegotiation etc.
  

Constructing a Framework           
The key is to approach the HOW firstly from a strategic angle and then to move to an implementation model that comprehensively and systematically addresses all the relevant problem areas. We argue that a thorough understanding of China, goals/objectives, global industry dynamics and the firm itself are necessary to help drive decision-making about the approach to China sourcing that will be followed.

Not everyone needs to become a ‘Sinofile’, but it is necessary to understand China’s cultural nuances, practices and economic landscape. That itself implies advantage and can greatly enhance the probability of negating the problems mentioned above and formulating a winning strategy. Concepts such as ‘true supply chain cost’ and ‘total cost of ownership’ remain illusive in the absence of a sourcing strategy that can be fully implemented.

Implementation requires a good grip on SCM organizational design;  people, skills and teams; methodologies, processes and in-source/outsource decisions; and working with service providers. It also requires solid holistic managerial skills in the areas of project, risk and relationships.