AMR's Perspective — China: To Source, Or Not to Source

Even though much of the coverage of the recent happenings in China has been by free resources (e.g., blogs, vendor learning centers, webinars, etc.), AMR Research has now chimed in with two briefs (registration and membership required) which should be reading for anyone sourcing -- or considering sourcing -- from the region. The first brief shares the specifics of the recent VAT and tax changes in China, as well as offers perspective on why the Chinese government implemented them and what they'll mean for future investment and trade.

In AMR's words, "tax law changes in China caught our attention and once again point toward the need for companies to take their due diligence to the next level when sourcing from China." Some of their advice in this brief is what I would describe as far-out (e.g., employing certain types of laborers to take advantage of new rebates to offset reduced or eliminated VAT rebates). But all of it is highly relevant and well researched.

The second AMR brief that I mentioned explores the hidden additional costs of doing business with Chinese suppliers and contract manufacturers. This brief packs some fascinating numbers that show, among other areas, that based on AMR's benchmarks, a majority of manufacturers who outsource production to China experience a net cost increase when the total costs of global sourcing and global manufacturing are factored in together. I won't give away the other numbers, but they're frightening. And what's even scarier is that I'm guessing that AMR's benchmarks come primarily from their customer base, which I'm guessing are more sophisticated than the average manufacturer.

With insight like this from AMR, should companies panic about their China sourcing efforts? I'd say that even the largest multinationals should put themselves on notice to take a hard look at all of the non-unit cost sourcing and supply chain factors that together make up the landed sourcing cost from China -- and not just on a one-time basis. Clearly, things are moving fast in the region. I'm headed to China in September to investigate for myself how things are changing in the region.

Even though I've indirectly been involved in a handful of China sourcing transactions and trading relationships this past year, I still believe there's no substitute for investigating things from an on-the-ground perspective. I'm curious to see how things have changed since my last trip, and you can be sure that I'll be sharing my experience with Spend Matters readers, as well as trading thoughts with AMR and other experts.

Jason Busch

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