Low-cost outsourcing set to reach $130bn by 2008

17 March 2005
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17 March 2005 | David Arminas

The value of contracts outsourced to low-cost countries is set to almost double over the next three years, according to a survey of procurement professionals in Europe and the US.

The report from Accenture surveyed 238 senior purchasers, who also expect the savings from using suppliers based in cheaper economies to rise by 37 per cent over the same period.

The companies questioned currently spend $70 billion on global outsourcing and the survey expects this to reach $130 billion by 2008.

China emerged as the preferred location for outsourcing work among both American and European firms.

New European Union members Poland, Hungary and the Czech Republic also emerged as preferred destinations among respondents from EU member states, while US corporations were more likely to favour Latin America and India.

The report found that outsourcing is now firmly established, with 22 per cent having more than 10 years' experience in the field, and only 23 per cent not involved at all.

Although nearly all purchasers are satisfied with the savings from outsourcing contracts (86 per cent), only 16 per cent were happy with lead times and 14 per cent with innovation generated by such deals.

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"If purchasers need these capabilities, they should consider moving elsewhere," said Alex Milward, a partner in Accenture's supply chain practice.

"Poland, Hungary and especially the Czech Republic could benefit most from more sourcing in years to come because they are already ranked highly for quality and delivery standards."

Milward added that using Chinese suppliers may not always be the answer to requirements.

"The issue is not first to decide to go into China and then look for the product or service.

"Purchasers need a flexible supply chain allowing them to shift sourcing easily to places such as eastern Europe."

Martin George, vice-president and managing director for Europe, the Middle East and Africa at BreconRidge Manufacturing, said purchasers sourcing from China should understand before they decide to go there that product innovation and lead times are not the strengths in the region.

"Many firms have it in their head that China is the obvious place to be," he said.

"But it is best for goods that involve high-volume production and need few technical and engineering changes."

SMmar2005

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