Suppose you’re buying products from China now and thinking about near sourcing to diversify your pool of suppliers and take advantage of the benefits of working with closer suppliers. In that case, this post is a good introduction!
Fredrik Gronkvist, founder of Productmkr.com, gives us his take on near-sourcing from Europe + Turkey VS buying from China. How does near-sourcing benefit buyers compared with shipping from China? Is there a difference between working with EU and Chinese suppliers? How can you prepare your business and processes to get better results? Are there any products that are more suited to near shoring? All of these topics, and more, are covered here.
If you prefer listening to reading…
Why the interest in near sourcing?
During the Covid pandemic freight rates exploded, so the economies of ‘near-sourcing’ (manufacturing closer to home) became more feasible and interest increased in countries like Mexico, Turkey, and Portugal, for example. Also, American importers are on the lookout for closer suppliers to insulate from the geopolitical risks of relying from China. Therefore, demand grew for a supplier database for alternative sourcing locations. (00:00)
What are the key challenges importers face when near sourcing?
There are 2 main challenges when comparing near sourcing from Europe, for example, with China.
- The ability to find suppliers online – China’s Alibaba is incomparable in terms of options, so finding European suppliers can be more challenging.
- The response rate in Europe is lower — compared with China, European suppliers are more conservative and the response rate was found to be around 30-35%, whereas in China it was higher at 50% (and they have numerous salespeople who aggressively look for business). (04:14)
How to improve your chances of receiving a response from non-Chinese suppliers?
Not even being able to get a quote could stop projects in their tracks. So importers planning to near-source their products need to prepare differently than before when relying on China. Companies need to sell their project harder, look more professional and established, and avoid simple errors like using a personal Gmail account to make inquiries. They also need to make the potential supplier’s decision to work with them a lot simpler.
Having clear product specifications and being able to communicate your potential buying volumes are critical for success. Providing a tech pack (for textile products), artwork, packaging designs, BOM, etc, will all be needed. Chinese suppliers may accept some vague elements to your project to start with, but European etc suppliers do not want to do any guesswork.
Labor is more expensive, so it’s less likely that manufacturers there will have sales staff responding full-time to inquiries, hence them being more discerning and avoiding spending too much time on potential tyre kickers. (08:14)
What is the impact of near sourcing on MOQs and lead times?
Chinese suppliers tend to be more open to accepting very low-volume orders, but MOQs in Europe/Turkey vary depending on the supplier. For non-custom products, it is still possible to purchase from wholesalers in very low quantities in the EU, for instance.
However, near sourcing offers a clear advantage in lead times. For example, you can ship from Turkey to Sweden in under a week. Only air freight can provide that kind of lead time from China and it will be very expensive comparatively. In many cases, truck freight alone can be used within Europe, providing significant savings over sea freight.
Manufacturing time and delays seem to be roughly similar between China and Europe/Turkey, but the proximity reduces lead times by about a month! Lower lead times equal better cash flow for businesses as they need to keep less inventory to cover the longer delivery times from China, so that is a strong reason to near source. Also, if a container of products arrives from China and you find that some are defective, it could take 3 months or more to send them back for rework and then receive them again. The same scenario with the buyer and supplier both located in Europe (or Turkey) perhaps could take just a week or so, so the risk is a lot lower. (11:04)
Does near-sourcing reduce quality and compliance risks?
In general, good Chinese manufacturers have improved quality a lot in the past decade, so there is no guarantee that European or Turkish suppliers would provide better. (It depends on the product category, the price level, etc.)
When it comes to quality risks, product inspections are important regardless of where the products are made. If you receive products and send them back, there is always a risk that the manufacturer will not rework or remake them if there is an error on your side, perhaps with a misspecified color, for example. Therefore, clear specifications + quality inspections at the source are needed regardless of where you are sourcing from.
Compliance risks are higher for businesses that source from China because suppliers there may not be familiar with, say, European or American regulations and they often need to be educated by the buyer. Not all products made in Europe, for example, are compliant, but manufacturers will generally be a lot more knowledgeable and prepared to offer support (like helping label the products correctly as per regulations), therefore reducing buyer’s risks of something going wrong. Many EU manufacturers will already offer certified products, saving you time and money on testing that you would have to do when dealing with China, so sourcing from the EU reduces compliance risks. (17:03)
Does it make sense for all types of products?
Suppose products, like electronic devices, contain a lot of parts from China. In that case, it may still make more sense to get them made there rather than, say, Europe, because the European supplier may still need to purchase the components from China and has the same MOQs and lead times to deal with. However, in Europe there are sheet metal fabricators, injection mold shops, etc, so it is possible to get components made. Also, chemicals such as those used for makeup products are commonly stocked. No issues have been seen in garments or wood and crafts products where the suppliers had to order from China and wait, either, so overall, the landscape in Europe and Turkey is that suppliers are less reliant on China and its lead times than you may think. (22:40)
Is the process of identifying and screening potential suppliers in Europe/Turkey the same as in China or Vietnam?
Buyers setting up buying offices in places like Turkey, Poland, etc, have spoken of culture shock and needing to rethink their approach when doing business with manufacturers there in comparison to in China.
Chinese suppliers are generally used to working in a more standardized way with foreign buyers and all tend to use the same jargon and similar processes. For example, doing a final inspection based on AQL is normal for them, but in Europe, suppliers may not be familiar with this process.
Chinese companies tend to hold more relevant industry certifications than European ones which, as a marketing tool alone, helps attract orders from large foreign businesses. Still, on the other hand, European manufacturers are used to operating within an area where a certain level of compliance is required that is already shared with their customers, so they have more of an integral understanding. They are already following regulations in many ways. (27:23)
How should buyers approach sourcing from nearby countries? (Summary)
Describe how you work, the buying process, prototype and pre-production processes, payment terms, and how you will ensure they will comply with your standards. Ensure that the manufacturer knows your market’s rules and regulations, and give them the roadmap of how to work with you. If the process you use works with Chinese and Vietnamese manufacturers, it will work with those in Europe or Turkey as they want to enter into a win-win relationship and make money. (32:19)