China’s role in the supply chain shifts as strategy trumps low-cost sourcing in many procurement departments.

Supply chain risk is taking on a larger role in electronics purchasing as geopolitical, environmental and other factors weigh heavy on buyers’ minds when sourcing new products. The trend continues in 2017, cementing a gradual change in sourcing from low-cost regions—especially China. As organizations seek to diversify their supply chains and reduce risks by sourcing closer to where their products are made, sourcing from China is less about cost and more about strategy.

“China is not going away as a manufacturing powerhouse, but some of the reasons for developing new suppliers or new [supply] destinations are changing,” says Laura Hodges, director of pricing and purchasing at industry researcher IHS Markit. “People are looking with a more open mind across the broader landscape. This is a well-documented switch over the last few years.”

Indeed, the rising cost of labor in China and its growing domestic economy have played a role in the shift occurring in that part of the world. And recent research shows that support for China as a low-cost sourcing destination is waning. In 2016, less than 50% of buyers surveyed by IHS Markit agreed that China is a low-cost sourcing option—compared to 70% who said so a year earlier. The findings were released in late January as part of IHS Markit’s fifth annual Trends in Global Sourcing study, which surveyed global purchasing and procurement executives at a wide range of companies (the majority of which are based North America). This is the first time in the study’s history that support for China as a low-cost sourcing destination has dipped below 50%.

Buyers are turning to China for other reasons, however, as it remains a growing resource for buyers of all kinds, the study showed.

“Taken together with continued support for the country as a sourcing destination, the survey signals the arrival of China as a hub, or even the hub, of global supply chains rather than a mere cheap outsourcing destination,” according to the survey.

Hodges points to other evidence of a shifting climate as well, including a resistance among buyers to seek cheaper sources in inland China.

“It doesn’t seem that there’s a widespread movement to go inland,” she explains, pointing to buyers’ desire for risk reduction and supplier diversification. “To move inland doesn’t help [those goals].”

More than 80% of survey respondents who source in China said they continue to use suppliers in the East, which includes Shanghai and surrounding provinces. Western provinces barely registered, and those in the North saw declining activity, according to the survey. What’s more, Hodges points to other low-cost sources in Southeast Asia, such as Vietnam, as part of the broader spectrum of supply open to those for whom cost ranks as the chief criterion.

Strategic Sourcing Takes Hold

The shift reflects a larger trend of sourcing closer to home—or, at least, closer to where a company’s products are being made.

“We certainly have not seen a reduction in the amount of uncertainty and sense of risk that many executives and respondents have,” Hodges explains, adding that, increasingly, risk is overlaying cost concerns when it comes to making buying decisions. “Therefore, you see moving closer to the home-base as a factor [that] helps dictate their decision-making process.”

For those doing business in North America, increased sourcing south of the border illustrates this point. Mexico was the one bright spot outside of Asia when buyers were asked where they will increase sourcing activity, rising to 26% from 20% a year earlier.

“Instead of going halfway around the world, [Mexico] is closer when serving the North American marketplace—and a cheaper destination for the United States,” adds Hodges, adding that Mexico and China are neck and neck when it comes to costs for many companies. “It often makes more sense to bring it to Mexico—especially if you want to diversify your risk. That is a good option for many organizations.”

Other key findings from the Trends in Global Sourcing study include:

  • Two thirds of respondents said the financial costs of supply chain disruption were increasing, with 19% of respondents saying that it was significantly increasing; this represents a reversal of the 2015 results when just 1% of respondents had that view.
  • More than 90% of respondents said they were either somewhat concerned or very concerned about commodity prices.
  • Supplier viability also ranked as a top concern, with more than 75% of respondents saying there were either somewhat concerned or very concerned about the issue.

The bottom line is that buyers are taking a more cautious approach to sourcing outside their home region these days—a trend that is likely to continue throughout 2017.

Victoria Kickham

Victoria Kickham

Victoria  Fraza Kickham is a Boston-based freelance writer covering manufacturing, distribution and supply chain issues. She is the former managing editor of Industrial Distribution magazine, and her articles also have appeared in The Electrical Distributor magazine,,
Electronic Design, and Machine Design magazines. Contact her at and follow her on Twitter: @vfkickham.

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