LOW COST COUNTRY SOURCING

Dhaval

Dhruv 07
Hardik M Shah 42
Jigar Shah - 44

DEFINITIONS OF GLOBAL
SOURCING

Global sourcing is defined as the process of

identifying, developing, and utilizing the best
source of supply for the enterprise, regardless of
location

NEED FOR LOW COST COUNTRY

SOURCING

Pressures

Continued

Actions

pressure to reduce cost

Investigate

Capabilities
Use

cost saving opportunities from LCCS

internal knowledge to asses opportunities

Enablers

Systems

that can be used to collect data and other

information on foreign markets.

AVERAGE HOURLY COMPENSATION COSTS OF

MANUFACTURING WORKERS IN DIFFERENT REGIONS

US = 100% ($21.1)

EXAMPLE
If, for example, the cost basis is 100 points
for a component manufactured in Germany
and 70 points for the same component
manufactured in China, the gross savings is
30 points. Shipping the component to
Germany and customs charges may add
another 10 points, bringing the components
total cost to 80 points. The net savings of 20
points may still be enough to warrant
sourcing that component in China.

LIST OF LCCS FOR VARIOUS

INDUSTRIES

BENEFITS OF LCCS
Reduced cost of procured goods and services by
nearly 30%
Inventory cost savings average nearly 12%
Logistics cost reductions of more than 10%
Penetration into new markets
Reduced inventory and cycle time
Access to new technology and innovation

UPFRONT ISSUES
Sourcing

product in a LCC is a long term

venture, not a quick win event
It

will take significant time and effort.

Your

approach must be different than

working with domestic suppliers
Cultural

Issues
Language Issues

Plan

on developing and growing your

suppliers

LCCS TRENDS AND IMPLICATIONS

Cost Savings Achieved via LCCS

Enterprise using LCCS for more than 20% of their overall spend enjoy
more cost savings

Final Destination of Goods and Services

procured in Low-Cost Countries

 TOP FIVE CATEGORIES PROCURED

VIA LOW COST COUNTRY SOURCING

LCCS RISKS
Supply disruption
Long lead times
Poor quality
Security issues
Hidden costs

KEY QUESTIONS BEFORE SELECTION

Who are the right suppliers?

What are the strengths and weaknesses in commodity coverage in the suppliers
countries or regions?

How can I ensure savings, considering total cost of ownership?

How can I maintain product quality?

How can I ensure competitive lead times?

What are the legal requirements?

What are the benefits or pitfalls regarding local taxation?

How can I manage the local language and cultural challenges?

Assurance that the companys intellectual property is protected.

Does the supplier work for the competition?

Does the supplier demonstrate business ethics that are in line with expectations?

Has the supplier indicated a reticence to sign a nondisclosure agreement?

Does the supplier have a proven track record of treating intellectual property
confidentially?
Has there been any negative news or rumours about the supplier not acting in an
appropriate manner?

Does the contract include significant penalties for intellectual property violations?

Is the supplier willing to provide reference customer?

FIVE BEST PRACTICES FOR LOWCOST SOURCING SUCCESS

Become business partners, not just buyers

Buyers

tend to seek the lowest possible price regardless of any

other benefit. Procurement should identify and respond to broader
business goals proactively. Partnering with low-cost suppliers
involves a mindset shift from price to value, from products to
solutions, from inputs to outcomes.

Explore new value frontiers; its not just about price

Low-cost

country sourcing involves a more holistic business

perspective when evaluating and selecting vendors. First, a longrange assessment of the suppliers overall business health and
process capability is necessary. It is critical to foresee any conflicts
of interest the supplier may encounter to derail the relationship.

 Make

suppliers part of your team; the best value chain wins

Suppliers

are more tightly integrated with the supply chain than

they have ever been. So companies must take a more inclusive
approach to managing them, bringing them into the decision-making
processes and change initiatives. Procurement organizations need to
champion the full contribution potential of strategic suppliers even
beyond the supply chain.

Pursue

To

low-cost country sources

tap into more cost-effective sources around the globe, companies

must be prepared to leap hurdles imposed by borders and geographic
differences. Even after overcoming language and cultural obstacles,
companies still need the expertise to establish and manage contacts
in different countries particularly emerging markets. it is not possible
for a company to develop the skills and expertise on its own and only
a shallow talent pool is available the company should look outside for
the right resources to augment its internal staff.

Low-cost country sourcing can deliver tangible results

to the bottom line
Companies

can realize significant direct material savings

when successfully relying on low-cost sources in emerging
regions. But companies must have strategic sourcing
experience and skills to attain those savings at a
manageable level of risk.

INDIAN COMPANIES SOURCING

GLOBALLY

INDIAN RETAIL CHAINS STEP UP

GLOBAL SOURCING
These days, the likes of Big Bazaar, Ebony,
Shoppers Stop, Westside are looking to source
merchandise at the lowest rates globally.
Future Groups Pantaloon Retail India has set up
global sourcing offices in Hong Kong and
Mainland China the first overseas sourcing
operation by any domestic retail chain.

SOURCING PLANS - MUL

India's biggest carmaker Maruti Udyog Ltd is toying
with the idea of sourcing components from the global
market as part of its strategy to become more cost
competitive.
"In Maruti, for example, we are looking to go in for
worldwide procurement," MUL Managing Director said
in New Delhi.
The sourcing of auto parts from the international
market means sourcing components from the best and
the cheapest supplier globally, he told an annual
convention of the Automotive Component
Manufacturers Association of India.
Giving an example of 'opportunity share' mindset, he
said, "There were four million two-wheelers sold three
years ago. If we can upgrade 10 per cent of them to
cars, there is an opportunity for 400,000 entry-level car
sales this year."

TATA MOTORS

Tata Motors is turning to China to buy auto parts unavailable in

India as it seeks to offer vehicles with automatic transmission at
home
The maker of trucks, sedans and utility vehicles may benefit from
"unbelievable" prices at Chinese component makers. The company
will buy "sub-assemblies" including automatic transmissions from
neighbouring China,
Tata is seeking to offer a wider choice to entice customers as
competition from Toyota Motor and Ford Motor intensifies at
home.
"Sourcing from China would be the only way forward for Tata
given that an Indian supplier may not be willing to build
something like an automatic transmission unless the volumes
were high enough
Tata Motors' domestic business doesn't produce any automatic
transmission vehicle

GLOBAL GIANTS PROCURING FROM

INDIA

GLOBAL RETAILERS
Walmart
Around 80 percent of the products are sourced from China.
Indian Sourcing mainly includes Cotton ,Leather.
Walmart formed a Joint Venture with Bharti.
Walmarts office in Bangalore serves as Walmarts Global Procurement (GP) hub for
the
sourcing of merchandise from India and Sri Lanka to Walmart stores

Carrefour
Carrefour is also looking to step up its vendor base and sourcing from
India.
The company has about 600 vendors.
It sources and exports products worth $200 million from the Indian
market. These include field fresh vegetables and garments among
others.

GENERAL MOTORS

Almost two thirds of GMs jobs are in other countries.

GM clearly states that foreign investment and outsourcing
of jobs are an integral parts of its growth strategy.
GM had invested in manufacturing in the BRIC countries of
Brazil, Russia, India, and China.
GM operate in Chinese markets through a number of joint
ventures and maintaining good relations with our joint
venture partners, which are affiliated with the Chinese
government, is an important part of our Chinese growth
strategy.
GM has the other BRICS covered as well: We are
increasingly well-positioned in Russia, Brazil and India with
a $ 1 billion investmentin Russia to turn out a quarter
million vehicles by 2015.

INDIA A SOURCING HUB FOR MAJOR AUTOMOBILE SECTOR

PLAYERS

GLOBAL SOURCING BEYOND PRODUCTS

Services

IT industry Likes of TCS, Infosys are well known names providing world
class IT services
BPOs and KPOs India and Philippines are global hub for call centre
outsourcing. Ventus, Sutherland, Convergys are some of the major players.
Major factors contributing to the success of these companies in the sub
continent is ability to attract the existing large pool of English speaking
population .

Research and Development

Samsung has around 6000 employees working in R&D in India. Two research
centers in Bangalore and New Delhi are working on global projects.
Growing the R&D facilities of the international companies like Suzuki and
Daiichi Sankyo
Operating cost of R&D centres in India has gone up by 9%, according to the
study. Despite this, operating cost in India is still 25% lower than in China.
Collaboration with Universities to get the desired talents Panasonic

ROLE OF IT IN GLOBAL
PROCUREMENT

EDI Samsonite and Walmart

ERP/ MRP Toyota and other automobile manufacturers

RFID Proctor and Gamble uses to track its products.

E-Commerce India Mart, Alibaba.com

Extranets and Intranets Dell has a extranet that links

with all its suppliers

CHINA STILL A LOW COST

COUNTRY?

Rising wage rates especially in the Coastal regions.

Rising Cost of Land.

Less preferential tax and incentives policies.

Rising Fuel Prices are also a cause of concern.

Forcing Companies to Move In(Internal China) or

forced to Move Out.

GLOBAL SOURCING OPPOSITION

Protectionist measures in Software Industries

Imposing tax on firms shipping jobs overseas
Employment based immigration certification such as labor
certification requirements or numerical cap on number of visas
A Bill seeking to prohibit American companies that lay off workers
from hiring people on visas such as the H1B.
Anti Dumping Legislation
Dumping occurs when manufacturers export a product to another
country at a price either below the price charged in its home market,
or in quantities that cannot be explained through normal market
competition.
Import duties and Anti Dumping Tariffs are measures that a country
takes against dumping of goods.

Examples : US vs China,India imposed 12 anti-dumping duties

against China in FY10

THANK YOU!