China Sourcing: McKinsey's Latest View

In my recent criticism of me-too sounding consulting reports in this sector, I did not cite McKinsey as one of my offenders in question. And for good reason. McKinsey continues to churn out great primary research and analysis in the area of Spend Management which is both original and insightful. Consider their latest piece in the McKinsey Quarterly (free, for at least for another week) which talks about the challenges -- and opportunities -- of sourcing from China. Now, I'm probably not as optimistic as McKinsey is about China as a near-term global sourcing region -- India and other countries, in my view, can present a more interesting opportunity for a myriad of reasons -- but their research is still insightful.

For example, consider how in the future, "companies plan to transfer to China some critical functions and decisions that are currently the responsibility of headquarters. Although today just 14 percent of all companies in China design products there, our respondents believe that the proportion will rise to 50 percent in three years. Likewise, while 34 percent of the respondents say that their companies' Chinese offices currently approve product prototypes, the proportion is expected to double in three years."

One thing holding back regional offices and IPOs from achieving results is their geographic and cultural separation from centralized procurement. In this regard McKinsey argues that a "prerequisite for giving an office in China more authority—and for raising the volume of goods purchased there—is the ability to instill greater confidence about Chinese staffers, suppliers, and products among the company's internal customers, many of whom prefer to buy from familiar suppliers. Respondents say that their companies overcome such resistance in several ways: for instance, by inviting headquarters staff to China for frequent visits, by sending key Chinese employees to headquarters on job rotations, and by linking everyone's incentive pay to performance improvements that are realized in the Chinese sourcing office."

The report is a great 3 minute read. I would challenge all consulting firms to tackle original Spend Management topics in their research, wrting and relaying information through both the written word through visuals at but half the quality of McKinsey's work. Even at that level, we'd all be the better for it.

Jason Busch

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