China, Mexico and Beyond — The Latest Trends and Savings Percentages in Global Sourcing (Part 3)

In between tourist excursions on our family vacation this week, I had the chance to interview Lisa Reisman, my wife and partner in global sourcing crime, about her views on the latest in low cost country sourcing, especially in China. I shared a few of the findings with her from the latest Industry Week article and Grant Thornton study that I covered earlier in this mini-series on the latest in trends and savings percentages in global sourcing, and here's what she had to share in return based on both a supply and demand perspective in the metals industry (for those who don't know Lisa and MetalMiner, she has a rather unique view on the China market in particular given her sourcing, export, trading, market research and journalism experience looking at the region). Lisa believes that how hungry suppliers are for business often says a lot about the macro environment. In this regard, she notes that "we're seeing an influx of Chinese factories that are very hungry for more business, more so than in the past."

Not only is demand still down from an export perspective in the key markets that MetalMiner tracks, Chinese suppliers also sense an impending crisis on their hands if the RMB approaches a more reasonable parity with the market. Lisa notes that "companies are really seriously evaluating other supply options from an export perspective because of the impending currency adjustment, which will happen, at some point in time." Organizations are also getting better at segmenting their China sourcing strategy based. To wit, "US companies are looking at China Sourcing more strategically, and if they have manufacturing operations in China, that's one thing. But if they're just sourcing for export, we see them taking a close look at both the current and future cost equations on a much more regular basis."

Overall, suppliers appear to be getting more sales-focused, if not desperate. "We're getting an influx of e-mails and outreach trying to pitch more business. There is a lot of capacity right now. I think what suppliers and everyone close to China are starting to see is that we're dealing with yet another bubble market. A frenzy of investment has led to a lot of buying. True, some numbers are actually up. Automotive sales are way up, but housing is the real retail driver in China. It drives a third of the numbers. There is some real demand happening -- demand as a result of stimulus. But you've got to dig below the surface."

Specifically, "There are two bubble markets going on at once: property and too much investment (because of loose lending standards until recently). What we have is an economy that appears to be growing -- and it is to some degree -- but it is not driving local businesses outside of a handful of government-targeted sectors. All the exporters are hungry. In the metals market, companies should consider looking at supply risk as a major factor in their decisions as a result of this. Supplier viability could very well be a very big issue with Chinese suppliers in the metals industry and beyond, if the government-blown bubble pops. And even if the bubble doesn't burst in the coming quarters, supplier viability could still be a very real issue in certain markets."

  - Jason Busch

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