How the Internet Changed Sourcing

Oct. 10, 2007
The move away from using personal introductions to find suppliers has greatly reduced front-end costs, while creating a need for greater attention at the back end.

The mainstream application of the Internet for business in the mid 1990s revolutionized sourcing in China. Whereas once a winding process involving endless introductions through middlemen on both sides of the Pacific, U.S.-based buyers can now have a short list of potential suppliers in hand on arrival in the People's Republic, limiting the hours of karaoke and Chinese rice wine they would otherwise have had to endure.

As recently as five years ago, the process of finding a supplier usually involved engaging a Chicago, New York, or Los Angeles-based trading firm to act as liaison to a Hong Kong or Taiwanese trading firm, who in turn may have contacts with a mainland distributor who may actually know a factory -- with each tier pocketing a fee.

Now with tools like Alibaba, Made in China, and Global Sources, buyers across the globe can identify potential suppliers and view sample products online from the comfort of their own living rooms. Without a doubt, the most visible benefit to these tools has been the ability to leap over layers of middlemen by enabling foreign buyers to either work with the manufacturer directly, or with a China-based trading company who can manage multiple suppliers on their behalf.

But while these Internet platforms may have ushered in a brave new world, they also bring new risks and new challenges.

The move away from using personal introductions to find suppliers has greatly reduced front-end costs, while creating a need for greater attention at the back end. Although excellent tools for breaking down communication barriers between the two ends of the supply chain, the internet platforms do not vouch for the quality of goods produced by companies listed on their Web sites, nor do they offer inspection services.

While offering some peace of mind through accreditation systems and providing basic information on firms that use their service, such as company size, revenue, and pictures of production facilities, these portals were never meant to be one stop shops. The recent spate of recalls of Chinese products over safety concerns illustrate that diligent buyer-oversight is indispensable to ensure the product you think you're ordering gets delivered to your warehouse.

And certainly, for buyers looking for someone to make 100,000 dog toys or 25,000 Christmas trees, that might be enough arrange for samples, and execute a trial order. However, for high end and highly customized products, a lot more effort and caution is required once a supplier has been settled upon.

The fact is that while these website are very useful, they are simply tools, and do not purport to offer a substitute for proper supply chain management.

Richard Brubaker is the Managing Director of China Strategic Development Partners. He assists foreign companies develop and implement their China based market entry and sourcing strategies. He also the Editor of All Roads Lead to China, a medium for China based news analysis and strategy.

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