- Service: Advisory, Risk Consulting, Climate Change & Sustainability Services
- Type: Press release
- Date: 1/22/2008
China dominates sourcing activities in Asia Pacific, while India grows in importance
22 January 2008
When it comes to choosing a supplier or sourcing a location, it will probably not be surprising that "product quality", "price" and "reliability" of delivery are the three most important factors for consumer markets companies in Asia Pacific. However, "design and innovation capability" and "environmental awareness" will become more important considerations over the next three years, according to the latest report from KPMG.
The report Product sourcing in Asia Pacific was based on a survey with 150 executives who held mid- and senior management positions in international and regionally-based consumer markets companies, and also from more specialist sourcing operations.
According to the survey, 69 percent of respondents perceived "product quality" as a very important factor affecting their choice of sourcing locations. Around 68 percent of respondents considered "price" as another determining factor and 65 percent gave their vote to "reliability". Looking ahead, 55 percent of respondents picked "design/innovation" as an important consideration in selecting a sourcing location over the next three years, while 54 percent put "environmental awareness" as another key factor.
"Companies appear to have adjusted to a broader and more complex set of consumer demands and they cannot focus solely on price. They must also meet rising expectations for quality, innovation, and social and environmental standards," explained Nick Debnam, Regional Chair, Consumer Markets, KPMG in China and Hong Kong SAR. "In addition, they need to strive to better understand the entire supply chain, taking into account more complex factors when choosing both sourcing locations and suppliers."
Among these different factors, 32 percent of respondents cited the financial health of a supplier company to be very important and 40 percent expected it to grow in importance over the next three years. Meanwhile, almost half (47 percent) of respondents believed sourcing is important to their overall tax efficiency.
Geographically, Asia Pacific will surely be a prime location for sourcing activities. Over 75 percent of survey respondents were satisfied with the region as a sourcing location and over 65 percent believe it will increase in importance over the next three years. Within the region, China is firmly established as one of the major manufacturing power houses with 70 percent of the respondents sourcing from the mainland, followed by Thailand (34 percent), Hong Kong and Macau (33 percent), Taiwan (28 percent) and India (27 percent).
The report said that China's competitive edge includes a well-developed infrastructure and strong reliability and quality. In the survey, 46 percent of respondents said they were satisfied with infrastructure in China, and 54 percent of respondents sourcing from China said they were satisfied with timeliness of delivery. India, which is now less significant as a sourcing location, is expected to gain greater importance in the future. Among the respondents, 73 percent believe India's importance will grow over the next three years, citing its strong design and innovation capabilities.
Corporate social responsibility (CSR) and ethical awareness, which are now accepted as an integral aspect of branding and marketing, are playing an important role in the sourcing industry. About 97 percent of respondents have some CSR or sustainability policy or initiative already in place, prompted by the overall corporate culture and standards, as well as regulations in their home markets.
"We can also see the broadening of the scope and definition of CSR in the sourcing industry, from ethical concerns about labour conditions to a wider range of health, wellness and environmental issues,"explained Mr. Debnam, noting that some 60 percent of respondents cited the use of environmentally friendly material as a more important consideration over the next three years.
In terms of strategies, most sourcing specialists continue to adopt a range of sourcing relationships, from basic buy/sell transactions to long-term contracts and collaborations. There is evidence of a slow progression towards more collaborative relations in areas such as design and inventory management. This trend is likely to continue as companies build up their sourcing operations within the region. However, it is worth noting that many respondents do not rely on long term contracts, which we put down to the fact that such arrangements make it harder to respond flexibly to market conditions.
The report said many companies are adopting more holistic approaches to sourcing, which is seen as helping to cut costs. Around 60 percent of the respondents believed that a good sourcing strategy can deliver cost savings of more than 10 percent to their organisations and the majority of respondents are expecting to see additional savings from their supply chain over the next three years.
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