07 July 2005 | Anusha Bradley
Sourcing by UK companies of goods and services from low-cost countries will increase by 70 per cent and 64 per cent respectively over the next five years, according to a new study.
European suppliers are expected to suffer as British firms are lured to source production in cheaper countries.
But despite interest in sourcing from abroad, the study found that only a quarter of companies had begun to lay the foundations needed to make a success of it.
Christopher Jahns, executive director of the Supply Management Institute in Germany, which carried out the research with spend management company Ariba, told SM: "Our research shows that while low-cost country sourcing [LCCS] intentions are clear, there is a surprising lack of knowledge about the complexities of using suppliers overseas."
The report warns that while huge savings can be made, investment is needed to secure supplier relationships and infrastructure. It could also avoid pitfalls such as political and currency instability, corruption, and poor labour and intellectual property laws.
In the survey, based on responses from 200 purchasing directors, the UK was the only nation where domestic companies were the biggest suppliers. It was also the only country in the study, which included Germany, France, Italy and Spain, to name the US as a main supplier.
Jahns said this was due to cultural and language similarities. Spain, for example, listed Mexico as one of its main suppliers.
One surprising result showed a likely decrease in UK sourcing from India, while European sourcing from India is expected to increase.
UK sourcing from China for direct supplies is expected to rise from 24 per cent to 37 per cent by 2010.
Paul Hampton, Ariba product marketing director, said while China was leading the way for LCCS, purchasers should be careful to choose the right country for the right goods.
The Manufacturing Alliance, a UK business group, told the Treasury in June that Britain could lose out to foreign competition because skills levels are not meeting manufacturer's needs.
The Trades Union Congress last week called for the government to examine how industry could tackle "the threat to companies and jobs posed by the expanding Chinese economy".