Sourcing and logistics in China: Costs, processes and strategies of German companies procuring in the Chinese market

China is one of the world’s export powerhouses. Trade with the US continues to grow at double-digit rates, topping $300 billion in 2007. Regional trading partners like Hong Kong, Japan, South Korea and Singapore are also importing tens of billions of Chinese goods each year. But China’s export strength doesn’t end there – Germany, the Netherlands and the UK also made the list of China’s top ten export destinations in 2007, with annual exports surging over 20% in Germany and over 30% in both the UK and the Netherlands. Most of these imports are motivated by anticipated cost benefits compared to procurement locally. But just how economical is the procurement of goods and products in China in real terms, once companies take into consideration related costs and increased risks? To answer this question, PwC carried out a study in collaboration with the BME (the German association for materials management, purchasing and logistics).

The results of the study deserve attention: the price benefit for those product groups that can be most economically sourced from China is approximately 50% compared to Germany, even after all logistics costs have been taken into consideration. On the other hand, companies suffer an average cost disadvantage of approximately 15% compared to Germany for product groups that are least economically sourced in China. In these cases, sourcing in China only continues to make sense for strategic reasons. What is astonishing in both cases is that the majority of companies nonetheless continue to fail to make use of the many opportunities available to substantially reduce their logistics costs.