Procurement question of the week on China gets a huge response (not)

This week we had the smallest response so far to a question of the week - perhaps 'is there anything procurement people could be doing about China' is too controversial, or just too big an issue to encapsulate in short sound bites.

But the indefatigable Christine Morton took on the issue though, pointing out that concepts of 'special relationships' had been thrown into doubt with Wikileaks exposing that the US was quite prepared to tell Russia some of the UK's nuclear secrets! She went on to say this:

Like anything, it is fair to say any country is looking out for what they perceive to be their best interests first. That includes China. Should we be worried about China? Yes, but mostly because of the currency situation, in particular the state of the renminbi and the dollar, the concept of “reserve” currencies, and the perils of quantitative easing on the value of currencies.

What the practical things are that buyers can do is to hedge their contracts from a currency perspective, at a bare minimum. Good buyers would also be considering the reputational management issues as raised in a previous posting – so that’s checking everything from labour standards, environmental impact, etc. – but that should be done for any strategic contracts, not just ones in China.

Absolutely agree with all of that. But I'm wondering whether the time isn't right to encourage procurement to go somewhat further than Christine suggests and consider issues that go beyond pure reputational risk.  Should we be looking harder - and perhaps looking for local alternatives - at situations where we are off-shoring and sourcing from certain countries (not just China) where the risk profile is 'challenging'?

I wouldn't expect anyone to do anything that worked against their own organisation's best interest - I certainly wouldn't have contemplated that as a CPO.  But have we really analysed the full cost of supply? Have we thought about the full range of risks; from supply disruption to longer term IP theft or perhaps low-cost country suppliers turning into our deadly competitors in the medium term (once they've learnt all they can from us)?

Worth considering at least; and while I don't think for a minute that China is going to be 'the next Egypt', the events there have also been a salutary lesson about the volatility that runs beneath the surface in even what appear to be stable states.

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Voices (4)

  1. Guy:

    I am not sure about the total cost picture, and it will clearly vary with the industry and products you are considering. However I did want to pick up on this part of your posting:

    ‘Have we thought about the full range of risks; from supply disruption to longer term IP theft or perhaps low-cost country suppliers turning into our deadly competitors in the medium term (once they’ve learnt all they can from us)?’

    The answer is no, and this is because Western business is driven by quarterly results and at best annual budget concerns. I’ve never seen a business case that presented the risk of IP loss and if there was one, the presenter would be accused of being too insular and close minded.

    Mid/Long term modern Western business is putting itself at risk by its short term outlook

  2. Paul Seddon:

    Asia has one extraordinary achievement in lasting democracy in India. This is a country which despite its size and diversity and a legacy of poverty and limited preparedness for self-Government in 1947, has continually achieved transfer of power in a relatively peaceful and democratic fashion against the odds. As a trading partner for high value services, India has now developed a new relationship with the West, not least the UK. We must push ahead with promoting that relationship and India’s growth, as a democratic counterweight in Asia to China.

  3. bitter and twisted:

    I fear a history of insular empire -> brutal communism -> rapacious capitalism – doesnt bode well for chinese superpower behaviour.

    I sincerely hope im wrong.

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