Back in March, EyeForProcurement released its 2007 Sourcing in Low-Cost Countries Report that surveryed 185 procurement professionals from manufacturers, retailers, and 3PLs across Asia, North America, and Europe. The report found that 41% of respondents have been Low-Cost Country Sourcing for more than five years and 57% for over three years, which is good, but that 54% of respondents gave lower labour costs as a primary reason while 43% gave lower material costs as a primary reason, which is bad.
The rate of wage inflation in many countries commonly considered Low Cost Countries, including China and India, is rising rapidly, and over 10% in some of these countries, and material costs are going up across the board, especially in some of these “low-cost” countries which are scrambling to build up their infrastructure and offerings on the global market. Just see Tim Minahan’s recent post that notes that Inflation Woes to Get Worse. As far as I’m concerned, only the 27% that gave shorter distances to final customer’s markets and maybe some of the 21% that gave other get what low-cost country sourcing should be about.
The major countries and regions were, as expected, China (which is utilized by 76% of respondents), other countries in Asia (which are utilized by 53% of respondents), and India (which is utilized by 33% of respondents).
It was nice to see that 36% of respondents indicated that logistics cost was a major element of total cost, almost as many respondents that indicated materials cost was a major cost element (42%) and close to the number of respondents that indicated labour cost was a major cost element (48%).
It was also nice to see that three of the four largest obstacles listed were trade regulations, customs & tariffs, increasing complexity of transport & logistics operations, and government regulations, clearly indicating that global sourcing to “low cost” countries is complex.
For those interested in Low Cost Country Sourcing, I’d like to remind you that EyeForProcurements 2nd Low Cost Country Sourcing Conference takes place August 29-30, 2007 in Chicago. Early bird registration, which is accompanied by a $400 discount, expires this Friday, June 15, so if you’re interested, and not registered yet, I’d recommend you do so quickly. (There’s a good chance The Doctor will be there, but, given that it’s in Chicago, I’d say you can almost count on The Prophet [of Spend Matters] being in attendance.)