GLOBAL SOURCES BUYER SURVEY

Buyers turn to cheaper markets to counter yuan

Chinas exporters may see fewer orders for low-end products in the months ahead. More than half of respondents to a Global Sources survey of buyers of China products say they will be increasing their sourcing from other countries. This comes in response to rising export prices from China, driven by escalating costs and expected strengthening of the yuan. More than two-thirds of respondents said the stronger yuan had an impact on their China sourcing strategies, largely in response to higher prices. The survey of 385 buyers, conducted in December 2010, shows India as the clear favorite to benefit from the shift in sourcing strategy. Around 57 percent of buyers that will increase procurement in other countries are planning to boost imports from India. Of these, more than half are based in the US and the EU, with 20 percent from Central and South America. These buyers are engaged in a wide range of industries, including auto parts and accessories, biometric systems and security products. Other favored sourcing alternatives include Vietnam, Thailand and Malaysia. India, Vietnam top alternatives Sourcing from India certainly has its advantages. Export prices of some products such as stainless steel cookware are a lot lower than in China, simply because of inexpensive operating costs. Chris Devonshire-Ellis, principal and founding partner of Dezan Shira & Associates, a corporate services provider to multinational companies in Asia, compared the basic expenses of a typical factory in Dongguan, Guangdong province, with those of a similar plant in Chennai, southeast India. He found spending on salaries, benefits and rent in Dongguan is seven times more expensive than in Chennai. But importing from India also has its YUAN IMPACT ON CHINA SOURCING drawbacks. Most export manufacturing YUAN IMPACT ON CHINA SOURCING industries do not have well-established Higher export prices No effect ancillary sectors, stunting the supply 54% 4% chain. Moreover, the country still does Shorter validity not have a solid infrastructure in place. period for export quotes Blackouts, for instance, are common 11% in India, with outages disrupting production for up to 12 hours a day. Difficulty in negotiating The survey also confirms that payment terms 15% Vietnam continues to emerge as a Reduced order viable alternative to China, with 31 quantities percent of buyers planning to increase 16% procurement in the country. More than half of these respondents are US and EU-based buyers, with 19 percent from the Middle East. While many of these buyers source mainly consumer COPING MEASURES products such as hardware and fashion accessories, some from the US and Canada purchase personal electronics. Increase sourcing 53.8% from countries Chinas garments and textiles other than China suppliers have been losing orders of 24.4% Raise retail prices basic items to Vietnam. This is because Source fewer items Vietnam-made apparel can be as much 22.3% closer to a season as 30 percent cheaper, with salaries Source only low-value/ 20.3% low-end items there around three-fifths of those in from China China. An assembly-line worker in Source only midrange/ 16.6% high-end items from China Vietnam, for instance, earns roughly Peg export prices at a 14.3% $101 per month, 53 percent lower than fixed exchange rate in China. Use yuan trade 9.1% settlement Workers in Vietnam, however, are said to need twice as much time to finish one task. Raw material deliveries, especially those that need to come from China, take longer. As such, delivery lead times are longer. What would CHINA ALTERNATIVES normally take two months in China can extend to six months in Vietnam.
India

57.0%

Note: This survey was sent to buyers based in Chinas main export markets, mainly the EU and the US, with additional respondents from the Middle East, Central and South America, and Asia. A total of 385 buyers were interviewed from various industries, including electronics, home products, gifts and premiums, garments and textiles, and hardware.

Vietnam

30.9%

Thailand

30.4%

Malaysia

28.0%

Indonesia

22.7%

Other

25.6%

Please contact the editor if you have any questions about the survey or would like additional information.