Chinese currency moves make global sourcing decisions more complex

25 August 2015

Sourcing decisions need to be more strategic than ever, especially in the wake of the recent devaluation of the Chinese currency, according to a study.

Consultancy AlixPartners conducted a survey of almost 250 senior executives in western Europe and North America from manufacturing and distribution companies in 20 industries, as part of its lastest Strategic Manufacturing Sourcing Outlook study into nearshoring.

The global business-advisory firm concluded a deep, case-by-case analysis and tight project management was crucial in "a world of constant flux" when it came to manufacturing and sourcing decisions.

According to the research, 32 per cent of manufacturing and distribution executives in western Europe and North America said their companies had recently 'near-shored' production or were in the process of doing so. A further 49 per cent of western European companies expected to near-shore within the next three years. For 38 per cent of European respondents, eastern Europe was the most-attractive nearshoring destination.

AlixPartners managing director Andrew Bergbaum said: “Recent moves by China to devalue the yuan make already-complex manufacturing-sourcing decisions all the more complicated. These recent actions prove, as does our recent survey, that the world of manufacturing and supply chains is world of constant flux, and that in such a world there’s no substitute for deep, strategic, case-by-case analysis and tight project management.”

Lower freight costs, improved speed-to-market and customer service improvements were seen as the biggest benefits of near-shoring for both European and North American firms. The average estimated saving from near-shoring was 8.5 per cent, with 63 per cent of western European firms expecting cost savings of between 6 per cent and 15 per cent. The availability of skilled labour was cited as the biggest challenge to near-shoring by 48 per cent of Europeans respondents. Quality and consistency issues are also considered a key challenge by 41 per cent of respondents in the region, with local government regulations creating a challenge for 37 per cent of firms.

AlixPartners said safety and security issues continued to complicate near-shoring decisions. While 61 per cent of European respondents anticipated an improvement in eastern Europe, 41 per cent expected deterioration in the Middle East and 45 per cent in North Africa.

Some 55 per cent of North American respondents said the US remained the most attractive near-shoring destination, followed by Mexico, (31 per cent), up slightly from last year’s survey (28 per cent) but down from 49 per cent three years ago.

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