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Sourcing finished products and raw materials from China can be a challenging experience, replete with risks and obstacles at every turn. But the downside of ignoring China as a supply chain source far outweighs any of the potential pitfalls. New research and on-the-ground observations can help companies source more effectively in the industrial powerhouse that China has become.
It is no longer news that China has become "the factory to the world." The business models for many large companies, such as Wal-Mart Stores and Dell, already depend on sourcing aggressively from the People's Republic. Imports to the United States from China have soared Imm $66 billion in 1997 to $163 billion last year. By one estimate, foreign companies opened 60,000 factories in China between 2000 and 2003.1 Many major companies whose first-tier suppliers have historically been geographically close are now evaluating Chinese sources in a concerted effort to slash their procurement costs.
China, however, is changing at a breathtaking rate. This means that policy makers and managers must constantly re-address a wide range of sourcing questions. The questions range from how much visibility you can expect to have into your Chinese partners planning processes to what level of environmental compliance can be expected of Chinese factories.
Answers to such questions often are based on weak assumptions, received wisdom, and even myths. Furthermore, much of the received wisdom comes from a time when the bulk of China's product offerings were unsophisticated, many of its industrial managers did laek crucial skills, its factories were antiquated, and supply lines were unpredictable. Today, those characteristics are confined to smaller and smaller industrial pockets in the nations hinterland. They certainly do not describe supply conditions in the nourishing provinces and cities of China's east coast. Overall, the nation s industrial practices, processes, and capabilities are changing faster than many Western managers realize. Yet, these changes affect the types of decisions Western managers must make when establishing a sourcing operation in China, the velocity of those decisions, and the way resulting agreements are made.
Therefore to succeed in China, Western managers must understand the pace of change. They must realize that basing a Chinese sourcing strategy on old answers to perennial questions is not only inefficient but also increasingly dangerous....