A large number of modern-day organizations consider sourcing as a viable strategy to reduce their production costs. This further helps companies to lower the prices of their goods and services while intriguing customers at large. China is a preferred sourcing destination for most marketers. However, the scenario is changing in recent times. The recent trade war between the U.S. and China has urged many business owners to look for alternative sourcing destinations. This is hampering the China product sourcing scenario at large. Conducting procurement operations outside of China has its advantages and disadvantages. Companies need to consider both sides before coming to a decision.
Why Organizations Should Procure Goods and Services Outside of China
Companies are feeling the burden of increasing costs while conducting their sourcing activities in China. The scenario is becoming grave with every passing year. The trade war between the U.S. and China has resulted in tariff hikes. Apart from this, factors like increasing labor charges, stringent environmental regulations, and the rising cost of raw materials make the production operations of organizations very expensive. The reasons why companies should engage themselves in procurement operations outside of China are listed as follows:
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Fewer Language Barriers:
No doubt, the Chinese language is tougher than most other languages. While arranging procurement activities in China, most marketers cannot communicate with the Chinese suppliers lucidly. The role of sourcing agents in China comes handy to business firms in this regard. A large portion of the Chinese workforce is not fluent in English. This is also another problem.
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Products that are Unavailable in China:
Not all products are found in China. Business firms have to remember this fact. For this reason, organizations look for manufacturing alternatives. These production options pave the path for product customization. In this age of cut-throat market competition, all companies want to get hold of a unique product key.
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Orders in Minimal Quantities:
If any firm wants to procure goods outside of China, it can avail the benefit of smaller orders. China does not allow sellers to purchase goods in small quantities. Buying in small amounts gives sellers the upper hand. It increases their competitive advantage at large.
What are the Disadvantages of Sourcing Outside of China?
The cons of sourcing outside of China are listed as follows:
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Lower Productivity:
The Chinese workforce is aware of the latest trends in technology. They also know how to implement these technologies in their production operations. As a result, their productivity is greater when compared to suppliers from Vietnam or India. The professional mindset of the Chinese workforce is an added advantage for organizations.
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Soft Skills:
This is another reason why companies want to go with sourcing products from China. When it comes to soft skills and worker attitudes, the Chinese workforce excels in every aspect. Chinese manufacturers are more proactive, unlike the Indian and Vietnamese manufacturers.
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Supply Chains:
There are several alternative supply chains in the Chinese market which is a great advantage for marketers. China’s supply chains are developed and complete when compared to most other countries. Because of the huge number of alternatives, the finished goods from the Chinese manufacturers reach the hands of marketers within a short period.
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Logistics:
This is another aspect where China surpasses its Asian counterparts. The ocean freight from China to the U.S. takes far lesser time when compared to other Asian countries like India. China’s superior infrastructure and lightning fast transportation options add more to the scene. The China product sourcing operations of organizations are particularly helpful during high consumer demand.
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Labor Cost Comparison:
Though the labor costs in China are higher than that of India and Vietnam, marketers go with China. The reasons for this are obvious. When the aspects of wages, productivity, and exchange rates are taken into account, China outperforms India and Vietnam. It is a known fact that every organization wants to get a hold of quality goods and services at a minimal cost. The China procurement scenario is not an exception in this case.
How Organizations Can Detect the Right Time to Source Products Away from China
To determine the right time of sourcing away from China, organizations have to conduct market research accurately. According to supply chain experts, if companies choose to conduct sourcing operations in countries like Vietnam and India, they can expect lower manufacturing costs but not huge savings. The political and economic condition of China is facing many upheavals. This is mainly because of the trade war between the U.S. and China. This is making sourcing products from China increasingly difficult for organizations. The high import tariffs have resulted in the decline of Chinese imports. If the situation remains the same in the coming few years, China will likely lose the tag of a sourcing hotspot.
The Best Sourcing Alternatives to China
The best China sourcing alternatives are listed as follows:
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Vietnam:
Electrical machinery, footwear, clothing, furniture, fish, coffee, and tea are some of the prime sourcing products from Vietnam.
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India:
It is a known fact that India has plenty of natural resources under its name. The major Indian exports come in the form of pearls, precious metals, semi-precious stones, mineral fuels, nuclear reactors, organic chemicals, pharmaceutical products, iron, and steel, etc.
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Mexico:
Automobiles, electrical equipment, machinery, mineral fuels, medical apparatus, furniture, vegetables, and gems are some of the items appropriate for sourcing from Mexico.
Organizations need to focus on the pros and cons of China procurement before taking any decision. In recent times, the China sourcing operations of organizations have taken a downward trend. With the help of sourcing agents in China, organizations can streamline their procurement operations. If a company is successful in addressing the challenges, it can excel in its China procurement activities.