Tuesday, January 25, 2011

China's Hidden Risks

China is such a frequent focus of speculation and comment that it sometimes seems that many of the challenges of doing business there must be mitigated because everything is so thoroughly documented at the moment. Whether that’s true or not, a CPO based there recently made it very clear during an interview how important it is right now to look behind the hype to get an idea of what’s really going on.

He related that “Things are more dynamic here – word travels fast. Business travels fast. Suppliers are faster and more optimistic than those in Europe. People in the west often say no to opportunities because they’re not instantly feasible or they’re not as hungry. No is not a response you hear over here. A contemporary of mine said it best: ‘everything is possible, everything is negotiable.’”

“It’s so important to put the optimism aside for a short while and make sure the right processes are in place,” he argued.

Going back an article from a Procurement Leaders magazine issue from April 2009 concerning the prospects for the Chinese economy during the global downturn, the general feeling was that suppliers’ attitudes were changing as the economy saw exports reined in and some sectors begin to seize up, following on from a period of rapid growth. They were becoming more flexible, the article noted.

And much of that rings true today, especially as China is supposedly about to post its first trade deficit for several months – there are plenty of reports of suppliers in China hungry foreign business and, indeed, offering an increasingly sophisticated and well-recognised service.

Over on the Spend Matters blog Jason Busch recently posted an interview with Lisa Reisman of MetalMiner on the sourcing situation in China. Her response conveyed this note of caution that chimed with our CPOs concerns. She said: “I think what suppliers and everyone close to China are starting to see is that we're dealing with yet another bubble market. A frenzy of investment has led to a lot of buying.”

“Supplier viability could still be a very real issue in certain markets,” she warned.

It’s long been difficult to gauge quite what is happening or will happen to this dynamic economy. But one thing does become clear, there are huge risks awaiting those not prepared to look beyond this veneer of optimism among suppliers to learn more about the markets they are sourcing from.

Taken from Procurement Today