Procurement Intelligence Unit

You only have to look at the recent disasters in the Philippines, Indonesia and Vietnam – three of Asia's fastest growing economies – to appreciate the risks that global sourcing can bring.

At the tail end of last month a series of ferocious monsoons swept across the Pacific Ocean and into the South China Sea, causing almost unprecedented flooding. Just days later, a huge earthquake hit the Indonesian island of Sumatra, a country still rebuilding after the 2004 Asian tsunami.

In the Philippines, parts of Manila's business district were submerged by a raging torrent within minutes, with devastating consequences for the capital's millions of residents, and those companies sinking huge sums of investment into the country.

A week on, the effected countries are stumbling back to their feet and counting the cost of a disaster that has claimed countless lives and left the country's rapidly improving infrastructure devastated.

Ever more unpredictable and extreme monsoon seasons are, however, just one of the myriad of challenges that await those companies looking east in an effort to improve efficiency and, most crucially in the current financial environment, cut costs.

But with global sourcing rates continuing to show no sign of slowing, and likely to quicken as the dash for cash continues, are companies aware of the risks posed by problems such as talent shortages, communication issues, currency fluctuation and supplier liquidity in the emerging markets?

And while the undeniable benefits that the region offers can potentially hand procurement huge advantages, there's also little doubt that a failure to understand these challenges could pose a significant, and possibly insurmountable, barrier to success.

With the exception of China, few countries have benefited from the swing to low-cost country sourcing and procurement outsourcing to the extent enjoyed by India.

A primary driver among the country's rise to prominence has been the ready availability of an ever-expanding, and qualified, workforce. The figures are staggering. Between 2005 and 2010, India is expected to add 70 million people to its workforce. By the time 2050 rolls around, the country will also have the largest working-age population of any nation on earth.

Elsewhere, however, the picture is less encouraging. The rush to establish procurement operations in some of the region's emerging economies has served to suck up the available talent at such a rate that shortages are now a major concern in countries such as Vietnam and, to a lesser extent, China.

Talent retention is also another challenge, although the economic slowdown has, to some extent, ensured that a previously transient workforce (particularly in China) is now far more concerned with keeping their job, rather than relentlessly seeking the next opportunity to increase their salaries elsewhere.

Even as purse strings are loosened in credit markets across the globe, supplier liquidity is also a factor weighing heavily on procurement's mind, particularly in regions where supply chain visibility is more problematical than elsewhere.

Social unrest, particularly at a time of rising unemployment – India's jobless rate currently stands at 6.8% and is widely expected to increase over the next 12 months – is another consideration.

As recently as March, Chinese Premier Wen Jiabao vowed to use any means necessary to maintain the country's growth rate at the magic 8%. Anything below that figure, Jiabao openly admitted, could cause the Beijing authorities a considerable headache.

"We will improve the early warning system for social stability to actively prevent and properly handle all types of mass incidents," he said, while outlining his plans to tackle the threat of widespread disruption.

Inflationary pressures are likely to be additional consideration for CPOs across the world over the next 12 months. In Vietnam, for example, the country's Prime Minister Nguyen Tan Dung last week introduced a raft of measures designed to curb inflation rates that rose 22% in 2008 and are still on an upward, rather than downward, curve. And as demand for commodities picks up elsewhere and supply struggles to keep pace, other countries could soon find themselves facing the same predicament.

This is, of course, just a snap shot of the kind of risks that procurement faces as we move through the final quarter of 2009 and beyond. But, once again, the more information procurement operations have to help them mitigate factors such as inflation, supply risks and supplier liquidity, the better placed they are to face a future that, despite positive signs, still remains hugely uncertain.