As most businesses are searching for ideal sourcing opportunities, the contemporary procurement industry is emphasizing the high-growth rising markets including BRIC (Brazil, Russia, India, and China) and MIST (Mexico, Indonesia, South Korea, and Turkey). Before embracing these emerging markets sourcing, it is essential to reflect on a few relevant facts, such as:
- Determining the efficiency of the markets over time
- Current scopes of obtaining value
- Evaluating possible challenges and risks
Companies, which are planning for sourcing from emerging markets, should develop an insight into the market diversity. They should be open to accepting the changes and ready to leverage maximum savings from every change. Market trends always keep changing; if a business sticks to a low price for years, it may miss out on some frequently changing market dynamics.
The best way to deal with low cost country sourcing is to embrace a category management approach. You can keep reading this blog to unveil the four steps that can lead you to the approach.
4 Steps to get Category Management Approach
- Categorize the emerging markets
Macroeconomic indicators divide emerging markets into some categories, such as Real GDP Growth Rate, Purchasing Power Parity, Export Growth Rate, etc. Apart from BRIC and MIST, CIVETS (Colombia Indonesia Vietnam Egypt Turkey South Africa) is also a category that can help financial organizations sell investment products considering their economies. Here emerges a question- how should a business categorize the markets? It can be done with the help of the following macroeconomic indicators:
- GDP Real Growth Rate- It refers to the vibrancy of the economy including economic activities, productivity growth, suppliers’ growth, etc.
- Exports Growth Rate- It indicates the annual compound percentage change in the value of exports made between two periods.
- Purchasing Power Parity- It refers to the overall competitiveness of the emerging markets sourcing.
2. Develop a realistic procurement strategy
According to some recent surveys, many companies are looking for a hike in sourcing from countries belonging to the BRIC category. A business must know which sourcing hub can meet its requirements efficiently. For example, an automotive business may find China as the best market for supplying its raw materials while an apparel business may find India a better choice. Therefore, a procurement strategy must be prepared based on the unique requirements of a business. A realistic procurement strategy makes low cost country sourcing easier for businesses.
3. Consider market diversity
In first-world countries, markets are mature, and their procurement policies are based on the best price-quality combination in the market. In these markets, businesses can derive savings by using the available leverage. It can strengthen long-term bonding with strategic suppliers. When it comes to emerging markets sourcing, it can increase savings from negotiation and close the doors to another avenue. Emerging markets are dynamic; the policies, laws, and practices may change frequently. Therefore, it is important to keep an eye on the market trends and compliances.
4. Select markets suitable for the business goals
To deal with the currency and changing market dynamics and frameworks, a business needs to find two or more emerging markets sources for each commodity. Every month, one source would emerge as more beneficial and competitive. For adapting a procurement strategy to leverage all benefits of low cost country sourcing, a business must consider the following activities:
- Alignment of sourcing strategy with long-lasting market potential
- Defining sourcing strategies by product or service categories
- Looking at the country-specific unique competitive advantages
For leveraging maximum benefits from the rising markets, businesses should monitor the categories continuously. Thorough market research can help businesses make the right decision.