Essential Insights: Low-Cost Country Sourcing

MM4-Primary-RGB-V2We are delighted to publish this post from Yang Cao, Managing Director of MM4, China, which accompanies another excellent infographic from eSourcing market specialist Xchanging.

Xchanging low-cost country sourcing infographic

 Growing consumption and increased consumer demands are driving a more international approach to sourcing. Companies of all sizes are going further afield in the hunt for the lowest-cost suppliers.

But while on paper cheaper may be better, a much wider range of factors have to be considered in order to reduce risk and increase the potential benefits.

Know Your Product:

Before a company can source from a low-cost country it must thoroughly understand its own product. What are the main components? Is it labour-intensive? Does it need high-skilled workers? Does it require long lead times? Every low-cost country has different strengths depending on the requirements.

Know Your Markets:

Any organisation thinking of low-cost country sourcing (LCCS) must have access to local understanding and knowledge of how the supply chain operates. That entails either having someone on the team who knows the language, currency, geography, politics and culture, or, working with a partner company that does. Jumping into the market blind is really difficult and mistakes can be huge.

  • Choosing Your Market -- China offers a very mature and stable supply chain making it a relatively low-risk choice for companies new to LCCS. The factors that make China a good sourcing fit shed light on the issues to consider for all potential low-cost countries.
  •  Skilled Labour – The Chinese labour force is highly skilled and can produce extremely complex products from electronics to cars and machinery. For many products, China can produce them better and faster than any other low-cost country.
  • Raw Materials and Sub-Suppliers – China has a large sub-supplier market, and being able to source everything in one country reduces cost, delivery times and the complexity of LCCS.
  • Mature Supply Chain – China has the trained labour, the sub-suppliers, the infrastructure, and the logistics in place to support the global manufacturing and export markets.


Yet costs in China have been rising fast in recent years and for many products, specifically labour-intensive ones, China is no longer the cheap option.

This is driving companies to look increasingly at other countries and their respective benefits and risks. For example, the Czech Republic and Hungary are also among the best low-cost countries based on quality, cost and reliability. Bangladesh, Vietnam, Turkey, India and Poland are also top LCCS growth markets.

Developing a Sourcing Strategy:

The transition to Low-Cost Country Sourcing is not an overnight fix; it requires considerable planning. In particular, companies must develop a well defined strategy and implement well defined standards for new suppliers; they must consider how a new country strategy will impact their wider business objectives in the medium/long term and what the potential risks are. Companies need to ask themselves, will the goods they need be available? Will the supply be constant? Will business IP be compromised? The entire value chain needs to be evaluated before establishing any new sourcing model in order to reduce risk, maintain quality standards and maximise benefits.

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