The Importance of Localization

I'm glad that David M. over on Buyer Analytics found a Frontier Strategy Group study that hints at the importance of supply base localization -- not just labor-driven low cost country sourcing. According to the research David quotes, "executives are looking for new growth opportunities outside of the traditional BRIC markets of Coastal Brazil, Russia, Urban India and Coastal China. 71% of executives believed that corporate earnings growth in these markets is likely or very likely to decline over the next five years as a result of increased competition, higher wages, market saturation and a leveling off of growth rates." For me, this implies that other regions might not only realize new sales and marketing investments from global companies, but also new sourcing and supplier recruitment efforts as well.

In Europe, interestingly enough given its neighbor's instability, "Turkey was seen as the key to growth in the region. 36% of EMEA executives cited the country as the most attractive place for future investment, slightly ahead of the Ukraine (30%)." But in Central and South America, "Mexico and Inland Brazil were the clear favorites ... Over 70% of executives cited one of the two markets as the most attractive in the region. Mexico was seen as a particularly attractive opportunity given improved political stability, high levels of FDI and its proximity to the U.S. market." David notes at the end his post that "procurement will need to meet the challenges of sourcing in these markets." Amen. Let's hear it for globally-informed supply base localization decisions based on factors other than simply labor cost arbitrage. Because after all, that's a game with potentially dangerous consequences.

Jason Busch

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