'Indian Firms are Sourcing From China'

Multinationals have always been sourcing from low-cost countries (LCCs) like China and India. Now, Indian companies, too, are buying extensively from other LCCs. Nearly a year ago, global consulting firm Accenture studied the sourcing behaviour of 50 Indian companies that are going global. In a chat with BW's Rohit Viswanath, Gregory C. Cudahy, global managing partner (supply chain strategy), Accenture, argues that LCCs are on the agenda of many firms. Excerpts:

How important are LCCs for Indian companies?

Most companies see LCCs as a busine- ss priority and have established metrics to implement and monitor it. LCCs are critical to maintaining margins in a competitive market. Indian firms are now aggressively investigating China and South-east Asian countries for sourcing. Many are seeking to source higher value products from them.

Why are companies so aggressive about these countries?

For many companies, it is a question of reducing costs by locating new, efficient suppliers. Others look at it as an opportunity to develop suppliers who can help establish a manufacturing base in that country.

What proportion of overall procurement is from LCCs?

Most companies intend to step up sourcing from low-cost countries over the next three years. Overall, they suggest that a weighted average percentage of inputs from LCCs will rise from the current 12.1 per cent to 17.4 per cent.

What methods do companies employ for such procurement?

The preferred method is to go in for direct purchase from LCCs. Others are looking at setting up international procurement offices in LCCs.

What do they look for in LCCs?

Experience with similar clients is the No. 1 criteria. Companies evaluate suppliers on their success in supplying to other clients in a comparable industry. This paves the way for structured and quantitative evaluation on parameters like quality certifications, operations audit and financial capabilities. A chunk of LCC suppliers are local businesses.

What advantages do they offer?

Many companies save over 20 per cent through LCCs. The others also indicate that they have obtained savings in excess of 10 per cent through LCCs and this proportion is expected to increase.

What are the key challenges?

The big challenge is identifying suppliers. That is because in LCCs, databases of suppliers are not readily available. Companies are sceptical of reducing volumes from current suppliers. Also, customers are not ready to approve suppliers from LCCs unless convinced about reliability and quality.