The Chinese procurement sector has always played a significant role in the international procurement industry and is certainly regarded as a global player. The indications are that, despite the economic downturn, the country has lost none of its influence in this sector. In fact, businesses from Europe and the U.S. are still thriving in the region and China remains a business environment that encourages investment.
While there are challenges for both China and those wanting to invest in the country, the qualities that made it a procurement hub are alive and well today.
The cheap land and low cost of labor that initially encouraged Western companies to do business in China are still a pull, although costs are, admittedly, on the up. Stewart Ferguson is Head of Research and Consultancy at the China-Britain Business Council, the largest membership organization for UK companies doing business in China. He believes that the country’s investment in infrastructure is compensating for any rising prices and maintains that the Chinese/East Asian business culture remains a lure.
“Although labor costs might have gone up, if they can keep reducing the transportation costs and making efficiencies in distribution, it will go some way to offset other price rises,” he adds.
QUALITY VS QUANTITY
While European and American organizations have turned to China for inexpensive production, the assumption has often been that quality will be compromised. But that’s not an entirely fair picture of the Chinese manufacturing industry. Ferguson argues that the same level of quality is there to be found and thinks there are some lessons to be learned.
“China can produce quickly and in volume but sometimes there is a question over whether the quality slips. There is an onus on the person that is making the purchase in ensuring that their suppliers are capable,” he explains.
Identification and verification of suppliers is one of the most important steps to take for any business wanting to operate in the region. This is where the China-Britain Business Council and its American counterpart, the US-China Business Council, step in. “We are there to be able to help and possibly work in collaboration and connection with third party quality control advisors which companies may be using,” Ferguson explains.
“I think the key part of this is the verification and continued monitoring of suppliers.”
Now is as good a time as any to conduct business in China, as it weathered the economic storm well. “I think the companies in China recognized the economic downturn a year in advance of companies in the West,” says Ferguson.
“It’s not all doom and gloom. If you look at the Chinese domestic market, that continues to grow and actually grew throughout the global downturn. So although there were some companies that had a very tough time exporting from China, those selling into the market were doing extremely well.”
He adds that Western companies who had invested in the country to manufacture and sell into its markets are now seeing “phenomenal growth”, at a level of profitability unseen in Europe.
However, there has recently been some dispute between China and American technology companies with regard to government procurement contracts for technology products. Foreign companies had argued that they were being excluded from this market due to the country’s strict regulations and laws in this area. Following these allegations of bias, the Ministry of Science and Technology published a document on its website in April, assuring foreign businesses that it is open to receiving bids for government contracts from overseas.
Joerg Wuttke, President of the European Union Chamber of Commerce in China, has spoken out in favor of the improvements to the new draft. “This move towards allowing cutting-edge products to be accredited for government procurement without restricting the intellectual property rights of innovative companies is most welcome,” says Wuttke. He reiterated the “valuable contribution” that foreign-invested companies can make to China’s high-tech capabilities. And so to the future of procurement in China. Ferguson is a firm believer in the opportunities available. “I think the opportunities are just going to continue to grow, but companies have to be knowledgeable of what the opportunities are and realistic of what market entry barriers there might be,” he explains.
There is no doubt that China has a thriving procurement industry, albeit one that requires a level of commitment from foreign companies. While the country still provides a business environment that encourages investment, rising inflation could prove a stumbling block in the future. Either way, today China remains an unstoppable force.