Laying a strong foundation in China – realising the potential of low cost sourcing

China is a rapidly changing place and offers enormous opportunities for businesses that adopt the right strategic approach and take a long-term view.

While the construction industry hasn’t been as quick to react as some other industries, an increasing number of businesses are taking an interest in low cost sourcing in China. 

Often companies are under the impression they can only source cheap, low technology items from China but in reality this is not the case.  There are now a wide range of value-added products available such as electrical equipment, boilers, radiators, taps, white goods, door furniture and kitchen units.

The construction industry in China is booming and this is set to continue as increased migration into the major cities creates a growing demand for housing.  In 2005, the house-building sector alone grew by 12.5%, achieving a market value of $236.1 billion.  Looking ahead, this is expected to reach $364.7 billion by 2010 – a 54.5% increase over five years.

As more construction firms invest in China, we anticipate a huge growth in the production of flat-pack products in China, such as kitchens and bedroom furniture.  Learning from automotive manufacturing techniques, the industry is moving towards a modular approach where medium to high volume products are manufactured off-site and distributed to where needed.  Adopting such methods and working with carefully selected Chinese suppliers offers significant cost savings and greater efficiency.

However, we recognise that the reality of doing business in China can be challenging and addressing the question of ‘how’ to source from this market is by no means straight-forward.  There are a number of strategic options available and so it is important to invest time in researching and planning your approach, as well as learning about the local culture.

Low cost sourcing is just one possibility, yet even here there are variations.  For example, as many construction firms operate supply and fix contracts, the simplest solution can be to use a local representative to research suitable suppliers of approved parts and direct existing suppliers to use them.  However, for larger businesses it may be more appropriate to set up a local purchasing function or establish a dedicated manufacturing operation in China.

Each strategy brings its own set of benefits and risks and these should be rigorously assessed before committing to a course of action.  Nevertheless, for those looking East the potential opportunities are great.

Contact details
Email: Richard Gane
Tel: +44 (0)121 265 6603