Global sourcing not to last long for Chinese suppliers

Interviewee: Kevin Chen, Gasgoo president and CEO

Gasgoo.com: Have the auto-parts sourcing orders largely transferred from China to other markets? What is the current situation of the global auto-parts sourcing?

Kevin Chen: According to the sourcing information from six carmakers and over 50 tier-1 auto-parts manufacturers we have contacted, their sourcing quantities are basically increasing and most of them have not had sourcing orders cancelled or transferred. 

I think the concerns as expressed in your questions come from such a fact: Since 2005 or so, global sourcing companies have found that different emerging markets have different advantages in different types of products. For example, the forging parts in India and leather components in Thailand are very competitive. Therefore, these global companies will focus their attention not only on China, but also on India, Turkey, and even Vietnam, where they set up sourcing centers and compare different markets before deciding where to source their different products. As a result, it is possible that a global company has not fulfilled its sourcing target in China but has completed the rest of the sourcing in India or other markets. In this sense, some sourcing orders of the global companies have really been moved out of China.

Nowadays China remains to be the major destination of global sourcing. Gasgoo.com will soon release a detailed report on global sourcing in China. Here I would like to remind China's suppliers of two important points: 1. Global sourcing opportunities will not last long for Chinese suppliers, so they must grasp any of the chances available no matter how brisk or hectic their domestic businesses are. 2. The business from global sourcing is not permanently reliable (for it will probably move to other countries anytime), so China's auto-parts suppliers should start now to explore overseas markets and boost their capabilities of globalization.

Gasgoo.com: For the fact that some global companies have not fulfilled their sourcing in China, there are some strategic reasons and some executive reasons. Would you elaborate on the latter?

Kevin Chen: There are many executive-level problems. We can view them from two perspectives.

At first, from the perspective of China's suppliers:

1. They focus more on investing in equipment than on the process management and quality control, and this often results in their failure to pass the appraisal by the global sourcing companies;

2. Low ability to communicate with global companies in many aspects such as language, culture, techniques, and management. Only some sales staff can speak English and a Chinese supplier's understanding of the same process or standard is often quite different from a global company's. That's why many opportunities are lost or delayed;

3. As their domestic business is good, many Chinese suppliers pay inadequate attention to global sourcing, thus losing some chances as well.

Then, from the perspective of global sourcing companies:

1. Global sourcing actually involves technology, quality, logistics as well as sourcing. Their sourcing centers in China have to coordinate with plants and agencies abroad, and therefore the process will slow down and Chinese suppliers will doubt the sincerity of the global sourcing company;

2. The first step of many global sourcing companies is to compare the prices in China with that of the current supplier. Some global companies only want to get the price of a Chinese supplier to push down the price of the native supplier. That is why many Chinese suppliers get no further news from the global companies after giving the price quotation;

3. When China's technical standards are slightly different from international standards, Chinese suppliers are usually not approved by industry authorities to modify their technical standards, and therefore have to spend lots of money buying foreign equipment for making the products needed by global companies. The hard procedure and huge spending will hold Chinese suppliers at bay.

Gasgoo.com: What kinds of products are suitable to be sourced in China? How should the buyers look for the proper suppliers when they know what to be sourced?

Kevin Chen: We have made it clear what products are suitable to be sourced in China. With the rapid growth of Chinese suppliers, the products which were not suitable to be sourced in China now can also find the proper suppliers. For the tier-1 segment, most OEMs tend to choose the supplier which a famous OEM has already developed. The OEM which first developed a supplier has made great efforts in a series of upgrading for the chosen supplier based on its original competence, which helps the supplier reach the global sourcing standard. But other OEMs just benefit from their efforts. The problem is that currently no OEMs like to take the lead to develop a good supplier, so suppliers need to improve their own competence to get close to the international standard apart from looking for global buyers.

For tier-2 and tier-3 segments in China, as they face more target customers, international buyers find it hard to know them. Therefore, it is important for them to look for more effective ways such as gasgoo.com, a B2B website used widely by global buyers. Buyers usually turn to their friends, while making use of professional auto sources platform like gasgoo.com for acquiring upscale suppliers becomes more and more widespread practice today.

Gasgoo.com: If you give ten points to European and North America suppliers for their overall capacities, how many scores would you give to China's suppliers?

Kevin Chen: I'd like to divide them into four categories: those foreign owned companies lead the list by an average of 9-10 points and they do not need to bother about export; foreign-Chinese joint venture companies get 7 to 10 points though some of them do not intend to export their products; homegrown Chinese suppliers get 5 to 8 points and they are willing to promote export; state owned enterprises can obtain less than 5 points but are slow in accepting innovations and improving services.

In conclusion, we find that the main targets of global sourcing are still the state-owned Chinese suppliers or privately-owned suppliers. 

Gasgoo.com: What are the challenges for Chinese suppliers when it comes to global sourcing activity? What can they do to meet these challenges?

Kevin Chen: In the global sourcing process Chinese suppliers have three major challenges: to stabilize domestic and oversea business, to seek better supply-demand balance and to keep cost of meeting global customers a certain percentage below their own profit margin, so to be able to maintain competitiveness.

Based on my previous experience I believe there are two aspects Chinese suppliers should have to consider. One is that these suppliers shall leverage global sourcing opportunities to get more customers and stay in contact with them, no matter how hard it is. As I said before global sourcing companies will not always be willing to switch suppliers, they will settle down with certain suppliers after they get accustomed to some well-regulated environment, and only change one when there is introduction of a new product or new-generation product.

Secondly, local Chinese suppliers shall take it as a precious chance to test their own abilities and strengthen their competitiveness. They shall develop things together with their clients and expand knowledge of market to become a mature supplier in the process.