How the Internet Changed Sourcing

Friday, July 28, 2006 23:14
To say the least, the advent of platforms Global Sources and Alibaba have had a huge impact on the world of doing business in China.  Whereas before it was difficult at best to find suppliers, companies would often have to spend a significant amount of time, money, and energy before the arrival of that first container.5 to 10 years ago, the strongest relationships were often those in Chicago, NY, or LA trading firms who would act as liaison (for a price) to a HK or Taiwanese trading firm (who took their piece), who in turn may have another relationship on the mainland who may actually know a factory.    

Now with tools like Alibaba, Made in China, and Global Sources, executives in the most remote areas of their own countries (or living rooms) can identify potential suppliers and view sample products online.  Without a doubt, the most visible benefit to these tools has been the ability of buyers in the U.S., E.U, and other countries to leap over 1-2 layers of trading companies to work with either the manufacturer themselves, or a mainland China based trading company who would be able to manage 1 or more suppliers on their behalf. 

Another benefit to the buyers has been the fact that their timelines can be significantly reduced as the process by while to identify and get preliminary pricing is now only a few clicks away.  So instead of going to a trade show, meeting 100 suppliers, and then attempting to get pricing 1-2 weeks out, buyers can now go to a virtual trade show of sorts and contact only those with the most potential. 

For small to medium sized companies looking for a measure of safety comfort, each company has an accreditation system and does offer basic information (company size, revenue, and pictures of sites).

But, as with everything else, there are new risks, and while the ability to recover 10, 20, or 50% may sound like the answer to everyone’s problem, the advantages that these technologies and services bring also introduce new challenges

1) Communications with Suppliers
2) Supplier Qualification and Negotiation
3) Supplier Management
4) Quality Control
5) Order Management
6) Cash Management
7) Logistics Management
8) IP Protection

Ironically, these tools had a huge impact on crunching the upfront process while creating a greater need for attention on the back end, and it is here that the real risks lie.  When working with these tools, companies will have different levels of success and challenges depending on the below:

1) Heavy industry vs. light industry
2) Component vs. assembled products
3) Commodity vs. customized products
4) High vs. low technology based products
5) Large vs. small orders

for companies looking to purchase 100,000 dog toys or 25,000 Christmas trees, these can be great tools to identify suppliers, develop relationships, get samples, and execute a trial order.  however, for a high end and highly customized product, these tools should not go beyond the identification and relationship building stage without considerable care and caution.

The fact is that while these website are very useful, they are simply tools, and like a chainsaw, these tools should be used properly.  

Stayed tune for future posts where we highlight issues found on the factory floor


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3 Responses to “How the Internet Changed Sourcing”

  1. All Roads Lead To China » Networking in China: Part II How Relationships are Changing says:

    October 10th, 2006 at 8:13 pm

    […] The fact is that with so much of the FDI being concentrated on the east coast, these government (while a little spoiled) have put in proper structures and processes to work with foreign investors and manufacturers looking to bring money to their area. The Special Economic zones (Economic Development, Technological, or Foreign Trade) all have representatives that are eager to bring in foreign investment to their zone, and they have the strong government connections (2) Off the East Coast/ i.e. in Inner China: for those missing the ways of the old days, companies going west will experience a higher level of government involvement. this is rooted in the fact that they have not been the primary focus of investors, and in many of these areas there is a real need for investment in local industry. while not bringing out them mayor, meetings with vice mayors and department heads are still the norm if a company has a successful track record in China and shows real interest in the area. for those without a track record, lower level meetings will occur first, but the climb to the top can occur quickly. Relationships with Manufacturers/ Suppliers: Of course, above all, mutual quality and price agreements will define the success any supplier/ buyer relationship in China. However, as discussed in our post (How the Internet Changed Sourcing), we already identified a large portion of why and how the development and management of relationships with suppliers have changed. […]

  2. All Roads Lead To China » Networking in China: Part III Building a Network says:

    October 22nd, 2006 at 3:57 am

    […] Making first contact is much easier now than ever before (see How the Internet Changed Sourcing) as websites like Alibaba and Global Sources provide online directories of tens of thousands of manufacturers and trading companies. In addition, exhibitions like the Guangdong fair (twice a year) and industry specific conventions occurring every day, potential suppliers are easily accessible and a single trip can potentially provide an buyer with contacts to multiple potential suppliers. […]

  3. How to Build a Strong Outsourcing Platform in China says:

    July 25th, 2007 at 7:30 am

    […] (for a fee), they will not ensure your goods, and they do not offer inspection services. See How the Internet Changed Sourcing for […]