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Globalisation

Cooperation with the best suppliers worldwide is indispensable nowadays in order to hold one¡¯s ground in global competition. High production costs in the Western economic hemisphere are reflected in high product prices. As a way out of this high cost situation many enterprises have resorted to international sourcing and production. Especially global resourcing offers enterprises an opportunity of purchasing partial products at a lower price. Therefore, an orientation towards an international resourcing market is understandable, and also necessary. The chances of global sourcing are obvious:
  • Returns: lower prices for semi-finished products from abroad will increase your own returns.
  • Product know-how: some regions have specialised product know-how. Worldwide sourcing will enable companies to integrate innovative leaps more quickly into their final products.
  • Support for Sales: sourcing managers may identify a demand in regions where the own product has not yet been launched. This is how new selling markets are created.
  • Flexibility: manufacturers abroad may cushion any problems there might be with domestic suppliers.
Due to its constantly increasing integration in international division of labour over the recent years, the People¡¯s Republic of China has managed to rise to the rank of an important member within the global production chain. Among the world¡¯s biggest trading nations China nowadays is holding rank 3 behind the US and Germany, out-ranking Japan, which is now on rank 4. The US is China¡¯s most important trading partner.

There are various reasons why China, in a relatively short span of time, has ascended to be one of the world¡¯s most important export countries:
  • Production at lower cost due to relatively cheap, but increasingly highly qualified labour: The average annual income in China is approximately 1100 € while it is 21000 € in Germany, which is equivalent to a factor of 19. Chinese universities are currently providing the labour market with an estimated annual 3 million highly qualified engineers, natural scientists and economists. An estimated 7 million students are currently studying engineering sciences at China¡¯s 460 higher technical colleges. Moreover, the Chinese hinterland represents a vast labour reservoir.
  • Extensive capital investment: 2003 FDI (foreign direct investment) reached a total volume of 53.5 billion US$. This made China the biggest FDI recipient country for the first time.
  • Improvements in product quality and production efficiency: Due to the progress made in technology development as well as the restructuring of the economy, product quality and production efficiency of ¡°Made in China¡± have undergone a continuous improvement process.
  • The expanding Chinese domestic market: Strong competition in the domestic market, the continuous inflow of foreign investment and/or technologies make for shake-outs in all market sectors, thus enhancing the international competitiveness of the Chinese industry.
  • The continuous improvements in infrastructure and/or efficiency of the logistics system.
In a mid- and long-term perspective, the sourcing market China will increasingly gain in interest. There are no hints whatsoever that there might be any major changes in the basic parameters in the foreseeable future. With a population of approximately 1.3 billion people, the favourable conditions on the labour market will remain unchanged for a long time to come. Thus, products ¡°Made in China¡± offer big opportunities for sourcing managers in Western companies.

Have you realised these opportunities, too? Want to start your sourcing activities in China in order to profit by the cost advantage? Don¡¯t hesitate to contact us. We will gladly be available for you with our advice and our support.
 
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