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US, Europe to boost outsourcing

By BS Corporate Bureau in Mumbai
June 02, 2005 10:21 IST
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American and European companies plan to increase the amount of goods and services they source from low cost countries (LCC), including India and China, by 85 per cent within the two to three years, resulting in an average savings of 22 per cent to original equipment manufacturers (OEMs).

According to a study by global management consulting and technology services firm Accenture, India, however, stands second to China among the LCCs but ahead of Mexico, Argentina, Thailand and certain Asia-Pacific nations,.

The study, based on a survey of 238 companies in the US and Europe, also found that 50 per cent of companies that do not currently source goods and services from LCCs - including China, Latin America and Eastern Europe - would begin sourcing in the next two to three years, the study said.

Given the expected 85 per cent increase in sourcing expenditures in lower cost countries, survey respondents also anticipate saving an average 22 per cent on goods and services they acquire from these countries. However, these savings do not come without trade-offs, it said.

According to Jose T Morales, partner, Accenture, "The principal concerns that respondents cited with regard to sourcing from LCCs are long lead times (55 per cent), insufficient product innovation (44 per cent) and questionable delivery reliability (21 per cent)".

While reducing costs is still respondents' main motivation for sourcing goods from suppliers in LCCs, capacity management and business continuity also were cited as important factors in their decision to source from suppliers in LCC.

China and India are the preferred LCCs, with near-shore locations forming a significant second tier. Russia and Ukraine score lowest in overall performance based on cost, quality and delivery, the study said.

The key concerns were quality, security and internal resistance among others, identifying suitable vendors and sorting the requirements of the day-to-day management.

Meanwhile Morales was of opinion that India should not look at China as a competitor, but should strive in creating value for the buyers and reap the benefits of global sourcing.

India's sourcing remains as $30 billion in manufacturing and is estimated to leapfrog by around five to 10 times in the next three to four decades.
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BS Corporate Bureau in Mumbai

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