Procurement Intelligence Unit

IBM did it in 2006 and Panasonic have just announced it will be doing it in 2011, but does moving your supply chain or procurement headquarters to China actually make sense?

Back in 2006 the computing Giant IBM made the bold decision to relocate it’s CPO, US-based Scotsman John Paterson, from his post in New York to the Chinese city of Shenzhen. The move seemed like an odd one at the time, particularly as only Paterson would move, the rest of his NY-based team were to stay put in the US. However, as IBM began to discuss the rationale behind the move the logic became clear.

At the time of the move IBM had some 700 procurement staff employed in China. This team was responsible for managing  more than 3,000 supplier relationships. Roughly 30% of IBM's procurement spend flows through the Asian region and forecasts suggest that this figure will continue to grow.

When you consider this coupled with a growing Chinese consumer market and the fact that the marketplace for the supply of electronic components coming out of Asia has tightened significantly in recent years, the argument for establishing procurement headquarters in China begins to make a lot of sense.

While the positives of increased connections within the Asian market and proximity to strategic partners appears to make the move to China a no-brainer for the CPO, it is important to understand that there are challenges that come with such a decision. Obviously negotiating a CPO out of his or her London, New York or Tokyo office and into the industrial cities of China's manufacturing heartland is no mean feat. However, bigger issues may exist than ensuring that executives enjoy the same lifestyle as they would at home.

Not least of these is the impact that such a decision will have on supplier relationships across the domestic supply chain. Shifting a CPO or a purchasing operation to China is a testament to the importance - or at least the perceived future importance - of China to the organisation's supply chain. Such a shift in focus is likely to come at the expense of the current supply base. While moving to China may enable more strategic relationships with suppliers in that region, does it not alienate the domestic supply base?

Suppliers in the domestic market are bound to feel some sense of trepidation when a CPO uproots to China. Surely in the post-crisis environment of anti-outsourcing and patriotic purchasing that is prevailing across the Western economies (particularly the US), such a move will create tensions among consumers as well.

It appears that moving the CPO, or at least some of the key procurement decision makers, to China makes sense, particularly if the organisation is engaged in competition for Chinese products. According to a press release, Panasonic have moved its procurement function to China in order "to increase competiveness of the company's lithium-ion battery business". However, while it may seem financially and operationally sound to shift the procurement HQ to Asia, it is important to understand the potential repercussions such a move may have in your host nation. The negatives, both financial and PR-related, of alienating suppliers or customers could easily outweigh the gains obtained through any increased understanding or supply links with the Chinese market.

What are your thoughts on this? Should CPOs be moving to locations in which procurement competition is strongest or where the greatest number of goods are sourced, or should they remain in the corporate HQs at home? How do you perceive that these moves will impact on domestic supply chains? Is there likely to be a consumer backlash for shifting focus away from local industry?