adr international Procurement consultants

Low cost companies not low cost countries

Changed world conditions mean we need to think of companies, not countries, when looking for low-cost sourcing opportunities, says Robert Sobcak

For many years China has been a synonym for cheap suppliers across all commodities. But with rising commodity prices, a lack of energy sources and many other factors, companies are revising their low-cost country spending decisions.

Recent ADR International research showed that a company from the UK can buy stainless steel for very competitive price in its own domestic market. This because despite cheap labour or overheads available abroad, the other components of total costs of ownership such as the availability of sources and capacities make the UK very competitive in this commodity.

Another example is Kurdziel Industries, a large US producer of castings, which has recently concluded that products they had outsourced to China had become more expensive than producing them in-house.

Things have moved on. Experience shows a clear erosion of the traditional split between low-cost and high-cost countries, as many suppliers in emerging countries are unable to deliver benefits because of poor performance and productivity and high logistics costs.

Buyers are therefore seeking companies which offer the most advantageous relationships, whether they are located in an emerging region or, for example, Western Europe.

Global companies such as Unilever, for example, no longer focus on regions or countries. Instead they use a database of vendors capable of supplying their global network for best total costs no matter where the vendors are located.

Of course, this requires active and capable sourcing resourcing all around the world.

It should be borne in mind that low-cost status does not last forever. Every country wants to move from being regarded as emerging to being seen as developed. Some countries, South Korea, Singapore or some central-European nations, for example, have already achieved this.

The US has benefited from a weakening dollar for a couple of years, while Europe became very expensive with its Euro. In recent months currency rates are moving even more into foreground. Economic crises have caused a substantial fall in the value of some currencies such as the UK pound and some central-European currencies.

Nevertheless this brings unexpected opportunities. Offerings that appeared lucrative a month ago may mean a loss today or next month.
The global economic downturn has brought the factors of trust and reliability into focus. The ability to deliver goods and the ability to pay have increased the need for trust and risk mitigation.

Such proven business relationships will last even when the economy recovers, and risk management with those companies which have proved they can deliver the goods will be more important in the future.

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