Procurement Intelligence Unit

In recent weeks, PIU Insight has been dominated by stories about sourcing in China. This in itself is no surprise; the world's second-largest economy is engrained in the purchasing process of just about everything we buy. Everything we purchase from elastic bands right through to the most sophisticated component parts for our factories and power plants wear the 'Made in China' badge. 

However, in a sea of Chinese sourcing success stories, one article this week did catch my attention. Forbes Business ran a piece suggesting that Vietnam may soon provide a viable option for organisations looking to make the most of low-cost sourcing opportunities in Asia. The article concentrated primarily on the benefits and potential risks associated with sourcing in Vietnam. The article did mention that the desire to source in Vietnam was driven by a belief that organisations were looking to move away from the traditional sourcing hub of China.

It seems this story was the crack in the dam wall that prompted a flood of anti-Chinese sourcing stories to pour through. Soon after the Forbes article, the Sydney Morning Herald ran a story suggesting that as discriminatory legislation and protectionism in China continues to rise, foreign companies should perhaps begin to look at other Asian nations to meet their sourcing needs.

The American Chamber of Commerce in China also released findings from a damming survey suggesting that US businesses feel less welcome in China now than that any stage in the past. The report's findings stated that 38% of companies surveyed with operations in China felt unwelcome in the country. Again the findings of this report point to two key focus areas when identifying the reason behind this discomfort - legislative and judicial discrimination, and protectionist policies making it more difficult to compete in the Chinese market.

Both of these stories ran at the same time as the long-awaited trial of four Rio Tinto employees, held on charges of bribery and espionage, began in Shanghai. The trial is being held behind closed doors with no media or foreign embassy staff allowed to attend.

2010 finds us at an interesting economic crossroads: while most Western economies are still fighting the effects of recession, or at best staggering their way out of it, the Chinese economy continues to go from strength to strength. As the Chinese economy continues its upward trend, we can expect to see less reliance on, and in fact a concerted move away from, foreign investment. This means that foreign organisations may need to look to other nations in order to fulfil their low-cost sourcing needs. Countries such as Vietnam and Indonesia are currently leading this race, with governments in both nations in the process of changing and updating foreign trade policy in order to make investment in these nations more appealing.

Here's a thought - perhaps China has outgrown the West. Western organisations began investing heavily in the nation during the 1980s, primarily under the lure of cheap labour and an enormous workforce. Initially China was dependent on this investment to develop local industry and move from a rurally driven economy (see Vietnam and Indonesia) into a nation with a strong industrial presence. However, over the last 30 years China has managed to take this investment and develop an economy that is robust and powerful enough to no longer rely upon the West. Perhaps by shutting out Western business interests, China is simply taking the next step towards reaching its full economic potential.