The rapid globalization has presented a vast opportunities for companies to leverage on developing economy such as China, India, and South Africa as global sourcing destinations. Last week, our CTO Thomas Cheah interviewed Edward Rayner - a procurement consultant and ex-Director of Purchasing at Worley Parsons Supply Hub in China, Vijay Kumar - a supply chain expert with more than 40 years of experience in India, and Lars Greiner - a shipping and logistics specialist who have been developing commodity supply chains throughout Africa. Throughout the interview, they shared about the international trade laws, culture and language barriers, economy and logistics of these countries.
GoSourcing: There are many organisations that have yet to purchase goods / services from abroad. Their main challenge is often not knowing where to start. Identifying the right supplier is probably one of the biggest hurdle. What is your advice to tackle this challenge?
Lars Greiner: There are 2 aspects to this question, the first is a fear of the unknown, and it is not an unjustified fear. Especially in Africa, but in many countries around the world, people are moving to global sourcing without knowing the basics of international trade, or how to manage the contract. Before you can go out and find the right supplier, it is important that people undertake basic investigation and learning on international trade and terms of payment. You need to engage subject matter experts on your industry and the countries you are talking to in order to gauge all the hidden costs. Then when you get to actually identifying the right supplier, you need to do a due diligence on them, make sure whom they say they are, they are.
Lars Greiner: There are 2 aspects to this question, the first is a fear of the unknown, and it is not an unjustified fear. Especially in Africa, but in many countries around the world, people are moving to global sourcing without knowing the basics of international trade, or how to manage the contract. Before you can go out and find the right supplier, it is important that people undertake basic investigation and learning on international trade and terms of payment. You need to engage subject matter experts on your industry and the countries you are talking to in order to gauge all the hidden costs. Then when you get to actually identifying the right supplier, you need to do a due diligence on them, make sure whom they say they are, they are.
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GoSourcing: Everyone is well aware of the horror stories of intellectual property (IP) piracy in China and the lack of enforcement to protect IP. How would you protect the IP when looking for manufacturers to produce products with IP advantage over competitors?
Edward Rayner: First you will need to define your unique IP, i.e. What is it that you can do that no one else can. You should work on the understanding that your IP is not protected (no matter the contract), and the courts will not intervene. Instead of finding ways to protect IP in China, it is more practical to focus should be on mitigating the impact of loss of IP. To be honest, if IP is the critical driver of your business, then perhaps China isn't the place to source. For instance, if you are going to release a truly innovative product and wish to be the only supplier, then don’t build the initial product launch in China.
Edward Rayner: First you will need to define your unique IP, i.e. What is it that you can do that no one else can. You should work on the understanding that your IP is not protected (no matter the contract), and the courts will not intervene. Instead of finding ways to protect IP in China, it is more practical to focus should be on mitigating the impact of loss of IP. To be honest, if IP is the critical driver of your business, then perhaps China isn't the place to source. For instance, if you are going to release a truly innovative product and wish to be the only supplier, then don’t build the initial product launch in China.
GoSourcing: Logistic issues is often the main challenge when sourcing in India. I heard in India, there is no such thing as next-day delivery, as no transport company to manage nationwide deliveries. How would you overcome the challenges of slow transit networks in India?
Vijay Kumar: This is not true. For example, Amazon promises 2-hour delivery to their customers in Metros especially covering items like grocery. Many companies are leveraging distributed distribution centers and even rely on smaller competitors to level peak load demand. Many e-commerce companies have successfully adopted drop ship models to make overnight delivery a reality. Now there are many national road carriers who compete with the railways (second largest in the world) efficiently.
Vijay Kumar: This is not true. For example, Amazon promises 2-hour delivery to their customers in Metros especially covering items like grocery. Many companies are leveraging distributed distribution centers and even rely on smaller competitors to level peak load demand. Many e-commerce companies have successfully adopted drop ship models to make overnight delivery a reality. Now there are many national road carriers who compete with the railways (second largest in the world) efficiently.
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GoSourcing: What are the key advantages of sourcing in China, India, and South Africa. What are the opportunities in these countries? And what motivates buyers to source their goods / services from these countries?
Edward Rayner: The benefit of sourcing in China is the flexibility in terms of capacity management, i.e. you can scale up and down relatively easy. Currently, China has excess capacity in heavy industrial and export manufacturing, and the central bank is trying to stimulate internal infrastructure to take up excess capacity. China is also progressively shifting from manufacturing to services, which will in turn creates new markets and opportunities.
Vijay Kumar: Globalization has mandated the prevalence of internationally accepted standards in India and this has enabled the nation to emerge as a global supplier. Traditional exports, such as iron and steel, are being supplemented by automobiles and space exploration and high technology.
Lars Greiner: The volatility in the South African Rand has caused havoc with our international competitiveness. However, the quality of engineering and mining goods coming out of South Africa remains relatively high and always innovative. With a weak local currency, the good are then also excellent value for money. South Africa is also well positioned between East and West to send products in both directions very quickly and easily, as well as generally very very inexpensively. If you look at the entire supply chain from port to your project, I think you will be hard pressed to beat the delivered prices over here.
Edward Rayner: The benefit of sourcing in China is the flexibility in terms of capacity management, i.e. you can scale up and down relatively easy. Currently, China has excess capacity in heavy industrial and export manufacturing, and the central bank is trying to stimulate internal infrastructure to take up excess capacity. China is also progressively shifting from manufacturing to services, which will in turn creates new markets and opportunities.
Vijay Kumar: Globalization has mandated the prevalence of internationally accepted standards in India and this has enabled the nation to emerge as a global supplier. Traditional exports, such as iron and steel, are being supplemented by automobiles and space exploration and high technology.
Lars Greiner: The volatility in the South African Rand has caused havoc with our international competitiveness. However, the quality of engineering and mining goods coming out of South Africa remains relatively high and always innovative. With a weak local currency, the good are then also excellent value for money. South Africa is also well positioned between East and West to send products in both directions very quickly and easily, as well as generally very very inexpensively. If you look at the entire supply chain from port to your project, I think you will be hard pressed to beat the delivered prices over here.