Is European Middle Market Sourcing Different than in the US?

Over the years, I’ve spent quite a bit of time examining sourcing trends in the middle market (you can read a recent post on the subject here). Recently, I’ve actually been giving some thought to what separates US and European procurement practices within this demographic, especially when it comes to groups like Germany’s Mittelstand (Check out this recent Economist article that summarizes the plight and success of Mittlestand). I believe that a handful of different operating assumptions/philosophies have impacted middle market companies differently in terms of sourcing on both sides of the Atlantic.

For example, I think that historically, European middle market companies have been more at home with regional cross-border sourcing transactions than counterparts in the US. This has had a significant impact on their ability, in many cases, to take a more realistic look at the economics of global sourcing (even in Central/Eastern Europe) rather than simply following larger company trends of moving spend further away to low cost regions (often too late and in an undifferentiated manner). It’s also helped them to trade more freely with neighboring countries and in many cases, has driven greater specialization within supply bases and geographies. Yet these activities are often contained within a certain geographic radius that is often no larger than it is for companies buying in North America.

At the same time, middle market organizations in Europe have often been more conservative and slow to adopt alternative geographies more than one country or border or two away from their facilities. Yet I’d argue that this has probably been an asset from a risk standpoint given how many comparative organizations in North America have been unable to fully capture the same benefits of larger companies in sourcing from low cost markets for a range of reasons (e.g., having to work through brokers/trading companies, limited assets to invest in supplier development, lack of IPOs, etc.).

One area where European middle market procurement organizations look more similar to their North American counterparts is in technology adoption (or lack thereof). In fact, outside of material electronic invoicing in certain geographic markets, I'd argue that most European middle market companies are even behind their lagging North American counterparts in embracing sourcing, transactional procurement, contract management, services procurement/VMS, inventory management, demand/supply collaboration and other technologies to drive their procurement and supply chain efforts.

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