Introduction to Sourcing
The businesses are crossing national borders and becoming the part of global markets. The business giants like Amazon and Walmart are famous to outsource their suppliers rather than producing each and every product by their own; while the young entrepreneurs and small businesses from USA, UK, and Asia are found to go for outsourcing due to multiple benefits they get by sourcing. The trend of sourcing is found inclined towards China because this is helping businesses to save money and get superb services.
Definition of Sourcing
The concept of sourcing is often found overlapped with procurement, whereas procurement starts after sourcing. Global sourcing or sourcing is basically defined as the process of locating suppliers for the production of goods or provision of services. Global sourcing is also considered in the broader sense of sourcing as simple sourcing can address finding local suppliers while global sourcing means consulting suppliers beyond national boundaries.
Sourcing helps to find out the suppliers which are affordable and provide reliable services against the needs of the buyers. The sourcing doesn’t start directly by contacting the suppliers, rather it is based on needs, which are later transferred into a proper sourcing plan. This sourcing plan then leads to a market research of the local or global market where the suppliers can be found. Then selected suppliers are evaluated on the basis of different criteria and finally most reasonable supplier is finalized as that supplier matches best to the business needs like on the basis of service quality, production line, supply chain, cost or reliability etc.
In a nutshell, it is the sourcing that helps to deal with a management of goods and services directly. It is crucial at the strategic level and tactic level for the companies as it satisfies the companies’ purchase needs like when to purchase, why to purchase, how to purchase and from where to purchase. This ultimately helps the supply chain management by improving it through strategic sourcing.
China Global Sourcing
It was earlier said by the founder of the New York Tribune, Horace Greeley, that if a person wants to become rich then he should follow the statement “Go West, young man!”. However, the statement of Horace Greeley is modified now as “Go East, young entrepreneur!”, and this has become the best advice for the entrepreneurs and global businesses to follow a right direction to make their business ventures successful.
In the past two decades, China has attracted the attention of all countries due to its excellent capabilities in manufacturing goods and providing services at a low cost yet in a reliable way. Today the “Made-in-China” tag is a sign of prestige for world-class brands.
Benefits of China Sourcing
Enlisted below are few reasons why even the big businesses like Walmart prefer China sourcing,
Supplier Base
China has a huge suppliers’ base which imports sub-parts of products or the raw material and then produces it to final form in their own factories. That is why sourcing of apparel products, textile goods, electric and electronic devices, toys, vehicles, machinery and cutlery products from China helps the businesses save a lot more money that otherwise businesses have to bear while producing goods at their own factories in their countries. China also provides businesses with a wide range of suppliers and factories from which the business can choose the supplier of their choice easily as the best match for their needs.
Low Labor & Transportation Cost
China not only has well-established factories and suppliers but also it has a supreme infrastructure in the form of world-class roads, bridges and ports that robust the transportation of material and goods conveniently. This saves transportation and shipment time and cost which is obviously a part of production and order delivery. Since the country is sound in mega-scale productions, therefore is also has a huge supply of labor force that is ready to work efficiently in low labor costs in different shifts. The country is the developed global supplier market takes good care of training and development of its human resource. Therefore, low labor cost comes with the trained labor force. Nowadays cost is also one of the leading reasons why businesses today source from China. The low-cost labor force of China is a cost advantage for businesses from all around the world.
Large Scale Productivity
Since China has a huge range of supplier who imports the material from other countries or ask the surrounding factories to provide the needed material to them, therefore the factories try to help each other by providing substitutes and required material quickly to each other so that they do not have to look outside the country to fulfill their needs. This increases pressure on each factory which results in the decrease of production cost in each factory. On the other hand, of Chinese suppliers have to import material from other countries then they usually import it in bulk quantity and this saves a lot more production cost, whereas a local supplier has to import limited stock just produce an ordered supply only. So sourcing from China saves businesses form heavier production costs and pain of importing material and producing goods at their own. The Cost is also cut down during production by minimizing unit costs, replacing packaging with affordable yet durable packaging, introducing molds and designs that are easy to produce and handle and achieving break-even points earlier.
Reliability
Being the international hub of sourcing, the country has larger responsibility on its shoulders of making quality orders to meet the market needs otherwise its suppliers can become a reason for collapsing business in the market. Hence country takes full responsibility of producing ordered products as per specifications and accepts order replacements if required. The country also welcomes third party inspection in its factory as a compulsory tool before finalizing a contract between buyer and seller just to maintain its reputable image in the good book of global markets. Today, China is no more categorized as low-quality producer and supplier of goods.
Access to Global Markets
There is seen a shift in production and assembly units of world-renowned brands form their home countries to China as a result of sourcing. The reason of shifts production plants and assembly units to China is totally commercial as businesses believe having units set in between factories which provide global supplies is a good step to save cost, develop the economy and get opportunities faster than others.
Best Mode of China Sourcing
It is wise to go for China sourcing, but since the country is a huge market of suppliers and traders, the first step is to decide from where to buy within China. Following sections gives a quick recap of all possible tools that can be used by the sourcing department of any company to make a valid decision about the sourcing.
Direct Purchase
The most trustworthy and highly appreciated mode of choosing a supplier is by contacting the supplier directly – this is what almost 80% of the businesses believe. It is a good decision to go for direct purchasing from suppliers as it allows businesses to control the whole process without the interference of any outsiders. This saves business secrecy, agent commission fees, and TPI inspection fees, but it should only be considered when the business is expert in managing the suppliers and minimum order quantities (MOQs) of suppliers.
Sourcing Agents
Like trading companies, there are individuals in China who provide similar services to buyers like trading companies and keep their commission against their consultancy services. The benefits of sourcing agents are that they can visit the buyers since they are free to move anywhere on their own will. But it is difficult to trust sourcing agents as some of them may have hidden benefits with suppliers thus they can misguide the buyers. Therefore, it is preferred to contact legal and well-reputed sourcing agents only.
Trading Companies
Trading Companies work as the middle person in between the supplier and the buyer to make the deals. These companies work with multiple companies and have complete information about these factories, thus they charge some markup against their services and help buyers to find the best supplier. Some trading companies are specialized in the particular industry or product category.
Sourcing Companies
Besides trading companies, there are sourcing companies which have command on import details and quality inspection. These companies represent the international clients in China by taking care of whole sourcing process by designing product specification and developing samples to guide the supplier what their buyer wants, then these companies overtake whole negotiation and legal contract process with the supplier on behalf of the buyer. This saves the buyer from bargaining and miss-commitments from suppliers. The sourcing companies do not take commission like trading companies, rather they have their own offices and work solely, thus they are more trustworthy because they do not anything to the supplier and can contact other suppliers in time of need. They also offer different services based on buyers like there are small, medium and large size sourcing companies for small, medium and large sized businesses.
Online Access
The cost-effective and easiest way to have detailed information about the supplier in China is looking for the relevant suppliers online. Usually, the suppliers have their official websites or have joined the sourcing platform like Made-in-China.com, Alibaba, and Global Sources; where the buyers can find the details they want. The enlisting of suppliers on such sites make them authentic and traceable and buyers can look up at the reviews of the other clients for these suppliers which rate them from good to bad, so selecting a supplier is easy via online search.
Social Media
Social media has also provided a portal to suppliers to own a genuine identity where buyers can contact with them, but this platform is not wider like sourcing companies and trading companies. The suppliers have made their professional accounts, pages and customer care presence on social media portals like Facebook, Google Plus, Twitter and LinkedIn to get queries, reviews, and feedback from their clients. There are some authenticated LinkedIn groups from China for sourcing like China Trade Group, China Sourcing Forum, China Sourcing Group, China Sourcing and China Sourcing, Networking, Import, Export, Trading, Manufacturing which are providing their services online.
Trade Shows
The trade show is also part of the online search to find the legitimate supplier in China. Trade shows provide buyers with the opportunity to talk to suppliers directly and take the details of their company, management, business model and portfolio. This lets the buyer make a spontaneous decision about the capabilities of suppliers. Two trade shows from China have gained much value, one is Canton Fair which is considered the largest trade show of the country and is held twice in a year in Guangzhou, Hong Kong China; the other is East China Fair which is held once in a year in Shanghai, China. These shows are worthy because they are industry-specific, reliable and specific shows that are serving suppliers and buyers equally without personal benefits.