29 September 2008 | Jake Kanter
Cultural differences are the most significant barriers to successful sourcing from low-cost countries, according to experts.
Senior buyers told delegates at a low-cost country sourcing conference in Prague last month purchasers must form a watertight understanding of the countries and vendors they intend to source from to achieve the benefits of moving supplies to a lower-cost region.
Atul Malhotra, head of purchasing at manufacturing firm Georg Fischer Automotive, said the culture in China is the complete opposite to that in the West.
He explained when a contract is signed in Europe it signifies the start of a deal, while in China it represents the start of negotiations. "All people who deal in China need to get into the network and have personal relationships with suppliers to be a success. You need to spend time in the country."
He added building partnerships could help avoid some of the "nasty surprises" he has experienced. He gave the example of a shipment from China the firm was expecting. When it never arrived, Malhotra found the supplier had accepted a better deal while the ship was on route and the goods were redirected to another buyer.
Bjoern Koch, director of purchasing, emerging markets diesel systems at automotive supplier Bosch, said: "Without a relationship you can forget it. You have to establish trust otherwise you won't get competitive prices."
Speaking about the company's experiences sourcing from Eastern Europe, he said it is important to have a local contact in the country. Someone who can "speak the language, understand the culture and has the technical knowledge".
Miroslav Pavlícek, head of global sourcing at Siemens, agreed.
"It is naïve to think you can do business with Eastern European countries only in English or German, especially when you are sending requests for quotations. It is very important to have someone who can speak the language."
He added databases and registers can be used to help locate suitable vendors, but warned they are not always reliable. He argued it is vital to investigate potential partners thoroughly and use the help of local research institutes and chambers of commerce to gather data.
The purchasers agreed having someone on the ground can also help secure better prices because they are able to negotiate more successfully with suppliers. But they urged buyers to "actively manage" these local contacts to ensure supplier performance is transparent.