Low Cost Country Sourcing a “Huge commercial incentive”. China vs India

One of the papers from the recent IPSA / CIPS Pan African Conference, in Johannesburg, sheds essential light on the subject of sourcing goods and services in the vast global marketplace that has so conveniently opened up to African organisations.  In his presentation “Low Cost Economy Sourcing – Competitive Advantage or Threat”, David Noble, Group Supply Chain Director at IMI Plc, writes from a background of considerable experience in this highly volatile and risk-sensitive field of doing business globally.

Imperial Metal Industries Ltd (‘IMI’) is a large diversified manufacturing group and has been operating in the UK for the past 145 years.  In his presentation, Noble revealed that IMI has been actively involved in low cost sourcing (LCS) for many years with LCS representing 6% of total spend in 2005, 12% in 2006, 20% in 2007 and an expected 30% in 2008.  “The significance of this lies in the fact that a net saving of £30 million (on procurement spend) translates into ‘equivalent incremental sales’ of 260 Bar whilst £45 million in net procurement savings translates into 350 Bar – a truly huge commercial incentive!”, Noble told SmartProcurement.

Noble further pointed out that “effective sourcing is an art and a science”.  It is deemed a ‘Science‘ in that organisations can adopt a ‘change process’ to the standard business processes of sourcing products, services and components with tremendous results. This ‘change process’ requires experience, knowledge and a thorough understanding of the complexities of international trade and, in setting up overseas sourcing networks your organisation will need to commit substantial resources.  As an ‘Art‘ effective sourcing requires procurement planners to holistically consider the ‘new culture’ they intend to do business with.

With a view to the upcoming Strategic Cost Management and Global Sourcing Conference (7th & 8th of October in Centurion), Noble provided some interesting comparisons between China and India.  He also took this concept further by comparing Western and Chinese culture, a summary that could prove most useful to supplier business strategy.

Figure 1:  Comparing China & India.

Figure 2:  Western vs. Chinese Culture.

Noble concluded his presentation with some extremely important pointers which he aptly heads “The China Challenge”:

  1. Nothing is easy.
  2. Patience is the essence of success.
  3. You are the expert, so…” means they are setting you up.
  4. You don’t understand our country” means they disagree.
  5. Provisional regulations” means they can change the rules anytime they want, even retroactively.
  6. Basically no problem” means there are many problems.
  7. Signing the contract is the beginning of the real negotiation.
  8. When you are optimistic, think about Rule #2.
  9. When you are discouraged, think about Rule #1.

The significance of China as the recognised leading low cost economy will be carefully highlighted and examined by acclaimed future strategist Clem Sunter, in his keynote address to the Strategic Cost Management and Global Sourcing Conference on the 7th & 8th of October.  Sunter will present on “The China Game” in which he shares his own experiences in dealing with this emerging giant.  For more information on this upcoming event call Erieka Santos on 086 133 4326 or e-mail: admin@smartprocurement.co.za

SmartProcurement would like to thank David Noble for the use of his presentation material in this article.

David Noble has worked in Supply Chain Management for nearly 30 years, across a diverse range of industries encompassing Motorola, Phillips, RS Components and Reuters.  A key achievement for Noble was his pioneering of Category Management and International Strategic Sourcing for Motorola in the late 80s.

Noble’s current role is Group Supply Chain Director at IMI Plc, a leading FTSE200 global conglomerate, with sales of £1.7 billion.  His current role sees him assume responsibility for the absolute management of a multinational supply chain which involves development and optimisation of supply and manufacturing footprints in low cost economies.  His responsibilities further extends to leading a 54 strong central and international sourcing group located in China, India, Vietnam, Eastern Europe & Mexico with indirect accountability for a further 130 buying and logistics staff across the businesses.

Noble has been a Fellow of CIPS since 1994 and served on a number of key groups including the Fellowship Selection Panel (FSP).

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