Types of Sourcing in China
- Joachim Schadel, Dr. Martin Lockström, Prof. Dr. Roger Mose, Supply Management Institute
Despite China being the world’s leading “workshop” for high labor content goods at low costs, certain car components may cost up to 50% more to produce in China. Sourcing car components in China is a burning issue among supply managers for two reasons: First, producers want to participate in the Chinese domestic car market; second, and more importantly, managers are eager to tap China’s cost reduction potential. However, China is not always “cheap” when it comes to sourcing for the automotive industry because marginal labor costs do not necessarily translate into lower overall production costs. Therefore, how can companies ensure that they source efficiently in China?
- Paul Stepanek, US Active
Before defining the types of sourcing, two basic entities need to be defined:
- A trading company – is a company that has rights to purchase and sell, therefore takes ownership of the goods.
- An Trading Office or Agency – is an entity that does not purchase and sell but acts as a commissioned agent.