Progress report on IBM’s move of procurement operations to China
关于IBM公司采购业务迁往中国的进展报告
By Paul E. Teague
From: www.purchasing.com

What have you learned about the supply base in China? Is it growing steadily? Is it increasing in reliability?

Paterson: The supply base for goods is very robust in China. As most procurement professionals know China has become the manufacturing center of world, with a growing trend towards innovation and technology specialization versus its prior focus on purely labor intensive manufacturing.  In the electronics supply chain sector quality and reliability is on track to equaling world-class status from utilizing advanced equipment in large scale manufacturing.  Large international companies are still playing a big role in the electronics supply chain sector, but some China-based manufacturers are seeing large year on year revenue increases.  Local suppliers are using acquisitions to become global players as well as featuring end-to-end integration from design to after market services.  

The supply base for services (technical skills, complementary workforce, computer programming, etc.) is still relatively small/medium scale with regional focus, as compared to the high-volume focus of the goods sector.  Services supplier locations are typically found in the larger cities such as Shanghai, Beijing, Shenzhen, Chengdu, etc.  The trend is for these suppliers to become more global in focus by increasing their management skills and capabilities as compared to a few years ago.  However, strong support for these suppliers and/or even equity investment is needed in order to leverage their advantages and grow them into global suppliers.  

Q: What unexpected problems have you run into?
           
 A:  IBM has been active with suppliers in China for several decades, so we have not experienced any unexpected problems.  With more than 600 experienced procurement professionals in China focusing on both strategic and tactical issues we are able to get an early indicator of trends which allows us to anticipate and deal with changes that may take years to fully come to fruition - that is the level of flexibility global businesses need to compete today.  An  example  would be the rising costs of labor in the coastal cities driven by the continued expansion of the manufacturing sector in this region.  We are seeing the beginnings of  the manufacturing sector looking to spread further inland to the center and west of China to better balance development across this large country.  Another area we have insight into is the extra attention to ensure logistics flow smoothly during peak times of the year when multiple sectors (electronic, apparel, toys, etc) are all vying to move product outbound at the same time.   

Q: How have you addressed those problems?

 A:  Dealing with these types of challenges is partly why we are moving to a model of global integration, which enables us to locate operations and functions anywhere in the world based on the right cost, the right skills and the right business environment. For example, last April, when Bangalore was at a stand still by rioting over the death of a local movie star, IBM shifted data-center operations to its facilities in Brazil and Colorado. Having the same standards globally made this solution a reality.

Q: What was the original objective for your move there? Have you accomplished that initial objective?

 A:  IBM's objective of relocating its procurement headquarters to Asia was to get closer to a region which provides a large percentage of current and future supply to IBM.  From a strategic perspective this is consistent with IBM's move toward becoming a truly global enterprise and to take advantage of the huge growth opportunities in emerging markets such as China, India, Russia and Brazil.  In the short-term we accomplished the move to Asia but that is only the first step in a multi-year plan to accelerate the development of local talent/resources and the supply base to support IBM's global business.  

Q: What lessons have you learned in general that would help others?
           
 A: There are many well known challenges associated with doing business in China.  Some of the ones receiving a lot of attention recently center on supply chain responsibility, supply chain security, environmental controls, disaster readiness (Asian Flu, Pandemic, etc), and business ethics. Clearly, these are issues which need attention and must be acknowledged by any company seeking to conduct business in China.  Procurement strategies must ensure proper controls are in place and that precautions are taken where needed.  Without a doubt, China is one of the most vibrant economies in the world and with that comes the reality that extra attention is needed to aspects of procurement which may be taken for granted in other more mature markets.  However, the opportunities which exist from both a procurement and market perspective are clearly worth the effort involved in becoming more localized in this region, something which is hard to appreciate from 7,000 miles away.