Pro-Q: FAQ

1. How much can we reduce our costs from doing procurement in China?

It varies with the type of commodity, the required quality standards, the efficiency and professionalism of the procurement operations, and even with time. Generally speaking, as of today, statistics and surveys report that foreign companies are obtaining cost savings ranging from 20% to 50%. Cases of 70% cost savings, or even greater, do also exist, however buying from suppliers at such low costs does not always represent the best choice. Oftentimes, suppliers will attract you with low costs and then raise these once your switching costs are too high to quit the relationship; otherwise, they might try to cut costs of their materials or manufacturing processes and compromise quality. We in Pro-Q believe that the expectations should be of significant, but not unreasonable, cost savings, always maintaining quality of the product and delivery of the goods the first and foremost priority.

2. How long will China continue to provide competitive manufacturing costs?

The economic factors that make China a low cost country are in continuous change. Labor cost is increasing; cost of the land is also increasing, not to mention appreciation of the currency. Nevertheless, we believe that foreign companies should consider opportunities of sourcing from China for two reasons: firstly, the simple cost advantage, standing today at significant amounts (30%, 50%, and sometimes even more). We believe that such cost advantage will continue for the next 5 to 10 years. Secondly, foreign and internal investments in the last decades, and in the coming one, are making China a prime base for procurement regardless of cost savings. Increasing quality standards, availability of a wide range of commodities, a state of the art industrial infrastructure and industrial services, mean that China will continue to be a prime base for procurement for decades, even after its low cost advantage might be rescaled.

3. Should we aim to some cost savings target to justify switching to China procurement?

Until a few years ago, procuring from China was a trade off between the expected cost savings and the expected additional efforts the company had to put into the venture. Accordingly, many companies still mention 20% - 30% as the minimum entity of cost saving to justify the switching to global procurement. In fact, today this is no longer true, as competitors are hither sourcing from China or about to do it. Switching to China-supply is no longer about reaping higher margins but it’s becoming a strategic requirement for the multinational company today to level off such advantage from its competitors.

If you have questions related to sourcing in China, we would like to hear from you and share with you our experience and ideas. Please do contact us here.