New hot spots for sourcing emerging
Jim Carbone, Executive Editor - Electronics -- Purchasing, 11/30/2004 3:15:00 PM
Buyers can expect Vietnam, Belarus, Ukraine and Brazil to develop into important sources of supply for the electronics industry.
While none of those countries are likely to “become the next China,” explain John Paterson, chief procurement officer for IBM, they will emerge as reliable high-value sourcing locations either because of highly educated workforces or because their governments are pushing hard to develop the supply base.
“If you go back to the old Soviet Union days and look at where the centers of skilled resources were for the computer industry and the space industry, it was in Belarus and Ukraine. There are more PhD’s per square inch in Belarus than anywhere else in the world,” says Paterson. “The Ukraine also has a huge number of highly educated people.” And, he adds, both those countries are largely “untapped.”
In addition, he says Brazil is starting to emerge as a potential source of supply. “Their labor rates are low. They have a large workforce. It is a big market and it is more stable there than it was a few years ago.”
And Vietnam, as well, will offer sourcing opportunities. “There is a serious effort by the government there to build and develop technical capabilities to become a viable source” for supply as other countries in Asia have done.
The idea of identifying emerging sources of supply and developing them is not to gain access to new markets, says Paterson. “My primary reason in sourcing there (in emerging areas) is to get the best value for IBM. It is not because we think there is a huge market opportunity.”
Finding emerging sources of supply is so critical to IBM’s mission that it formed the global procurement support group for the sole purpose of identifying “supply opportunities in emerging locations,” says Paterson. “The group looks at countries where we don’t have a presence and issues reports for the sourcing communities within IBM pointing them to areas of potential opportunity.”
The group also helps develop suppliers in emerging regions.
“You have to work with them closely,” says Paterson, because “they tend to be companies that have operated in their own local market where requirements such as quality may be somewhat different than what we are looking for. There’s a lot of education and training and knowledge transfer that has to go on to bring them up the leaning curve,” he says.
And, at times, there is a need for IBM to make an investment in a potential supplier in an emerging region, says Paterson. For instance, IBM provided satellite dishes and satellite communications capabilities to some promising software suppliers in Belarus to overcome the challenge of communicating with them electronically. “They had lots of very bright people, [but] they didn’t have an infrastructure,” which would have made communicating with them electronically a big challenge otherwise.
IBM is also looking to Vietnam where most manufacturing is done by a handful of large Japanese companies who bring in parts from the outside. “We are watching and helping where we can to promote the development of a local supply base there, says Paterson adding that IBM has similar initiatives in eastern Europe.
Paterson says IBM is also exploring opportunities in China where the bulk of manufacturing is in factories owned by companies from other countries such as Japan, Korea and Taiwan.
“You are largely dealing with large companies that are very well known and happen to have their manufacturing in China for low-cost labor,” says Paterson. However, through joint ventures, there is an “intellectual capital transfer” that is under way and eventually China will have indigenous supply base for part such as semiconductors and liquid crystal displays.
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