Panjiva recently conducted a survey to better understand the concerns, challenges, and opportunities on the minds of the global trade community. The responses were promising – most global trade professionals are optimistic about the year ahead. In addition to optimism, a few other themes emerged – notably, concern about rising manufacturing costs and an interest in exploring Africa as a sourcing destination. The results provide some guidance as to what should be on your sourcing agenda this summer:
- Talk with your customer-facing teams about how aggressive they intend to be
- Manage expectations that costs are going up
- Begin learning about Africa as a sourcing destination
Find out how aggressive your company intends to be (and act accordingly)
One of the key takeaways of the survey was that buyers and suppliers are optimistic about both the state of global trade and the overall economy in 2014. Respondents also indicated they expect to spend more in the year ahead as they invest in growth – a refreshing change from what we've seen over the past half decade. Most of the growth over the past few years was in fits and starts, making it hard for global trade pros to trust that the recovery was real – and to buy aggressively.
While there is plenty of optimism, it's clear that people haven't fully let go of fears that the recession will strike again. Having been burned before, many sourcing executives are understandably nervous about aggressively building up inventory. But there is a danger in being too cautious – companies that are too cautious will lose market share to their more aggressive competitors. And what if your company as a whole is contemplating aggressive moves, and yet you’re relentlessly cautious in your ordering? If so, you may quickly find that sourcing is the weak link in your company’s value chain.
Communication is the key to striking the right purchasing pose, and now is a good time for sourcing executives to have serious conversations with the sales, marketing and merchandising departments of their organization to determine growth plans in the post-recession environment. Only then can you ensure that sourcing is marching in lock-step with the broader organization.
Manage expectations on rising cost of manufacturing
While 2014 is set up to be a big year, sourcing executives still have some concerns. One major concern that more than a quarter of respondents mentioned is the rising wages in manufacturing hotspots such as China. As the opportunities available to Chinese workers have increased, their leverage – and their wages – has also increased. A recent protest of workers at an IBM factory in China is just one example of workers demanding higher wages and ultimately, respect. Now, the significant cost advantage enjoyed by manufacturers in China has all but disappeared, and sourcing executives need to address the fact that the costs of manufacturing are going up.
For the past couple of years, sourcing executives have been looking beyond China for sourcing destinations in an effort to get ahead of cost pressures, but in reality, it's been harder than expected for people to move production out of China. There are two reasons for this – the first being that it's hard to find the required capabilities outside the coastal regions of China, which has for decades been the definitive sourcing destination for low-cost, high volume manufacturing. Second, when production has moved outside of China, wages haven't remained low for an extended period of time. Vietnam and Bangladesh are two examples of apparel sourcing destinations where wages used to be low, but where, like China, the costs have recently been increasing.
There is no question that the quest to diversify beyond China will continue, but sourcing executives will have to come to terms with the fact that costs are going up. And that means they need to, unfortunately, be the bearers of bad news. From a management perspective, the only thing worse than seeing costs going up is being surprised to see costs going up. Now is the time to spread the word, broadly and loudly, that costs are going up.
Look to Africa as a potential sourcing destination
While there might not be a new China, there are regions that are emerging as potential hotspots. The African Growth and Opportunity Act, enacted in 2000, has helped sub-Saharan African countries join the global apparel marketplace, and it appears more sourcing executives plan to explore Africa in 2014. Nine percent of respondents to the survey called out Africa as the next sourcing hotspot. Though small, it shows that a significant number of people are seriously thinking about Africa as a sourcing destination.
(Beyond the sourcing world, business executives such as Michael Bloomberg are also betting on Africa. Bloomberg recently launched the Bloomberg Media Initiative Africa, a three-year pan-African program designed to advance transparency and governance in Africa.)
2014 is the year sourcing executives should start having internal conversations about different regions of Africa (if they aren't already). Companies that are comfortable placing big, long-term bets may want to start investing now, even if it’s just investing by learning. Companies that are comfortable letting others pave the way in developing new sourcing hotspots should (and probably do) feel less urgency on this subject. Though sourcing will definitely shift to Africa, there are few places on the continent that offer fully developed capabilities today.
With the worst of the financial crisis behind us (we hope), the sourcing community has some breathing room to review sourcing practices and consider new regions. With summer just around the corner, now is the time for having candid conversations about how aggressive your company intends to be, managing expectations that costs are going up, and even having a little bit of fun by exploring new opportunities around the globe.
Josh Green is the CEO of Panjiva, the leading provider of intelligence to the global trade community.