Low-Cost Country Sourcing: The Next Hotspots

Continuing on in my highlights from the Supply Management low-cost country sourcing issue, I thought I'd share the publication's views on what the next global sourcing hotspots will be. The above-linked article suggests that UK Trade and Investment has identified five potential new global sourcing hotspots: Vietnam, Mexico, Indonesia, the UAE and the Ukraine. Since we've covered Mexico and Vietnam quite a bit on Spend Matters (key tips: purchase bullet proof clothing before visiting suppliers in Mexico and manage total logistics cost aggressively in Vietnam), I thought I'd share some of the suggestions on the others. First, the UAE. According to the article, "The United Arab Emirates … its low taxes, minimal restrictions on trade and foreign exchange, and excellent location have enabled the government to project a business-friendly image in its quest for high-tech investment, and also to promote the UAE as a hub for traders in the region and worldwide." What's my take? Don't dive in just yet. The UAE has significant skilled labor shortages and has to import many of its workers. Not a recipe for a sustainable low-cost country sourcing environment.

What about Ukraine? It has the right makings from a rural poverty standpoint (i.e., lots of potential factory workers) as well as a relative "high level of education and skills". Still, "persistent political differences between Ukraine's pro-EU parties has hampered reform efforts, while the pull of pro-Russian forces and the growing determination of the Russian government to prevent further Westernization from occurring next door will increase the risk of trading with Ukraine." But I'd sooner place my European LCCS bets on Ukraine than many other developing markets both from a cost and location standpoint. Indonesia, on the other hand, is a wild card (at least in my book). I believe there are too many risk elements to place any firm bets on Indonesia as the next LCCS hot spot (e.g., militant Muslim groups that pose a threat to Westerners travelling outside of tourist regions, labor unions, corruption and a highly variable infrastructure).

- Jason Busch

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