On Balance, a Good Move for IBM on China

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It has been almost a year since IBM moved its global purchasing headquarters from Westchester County, N.Y. to Shenzhen,[link widoczny dla zalogowanych], China. John Paterson, vice president and chief procurement officer, set up IBM's operations there August 1,[link widoczny dla zalogowanych], 2006. IBM made the move to get closer to a region that provides a large percentage of current and future supply to the company. Paterson, a member of Purchasing's Editorial Advisory Board, says that from a strategic perspective the move is consistent with IBM's efforts to take advantage of huge growth opportunities there.
So what have Paterson and IBM learned since the move? We interviewed him recently by e-mail to find out.
For one thing,[link widoczny dla zalogowanych], they've learned that while China may be low cost,[link widoczny dla zalogowanych], it isn't necessarily low quality. "In the electronics supply chain sector, quality and reliability are on track to equaling world-class status from using advanced equipment in large-scale manufacturing," Paterson says.
Moreover, he reports that while large international companies still play a big role in the electronics supply chain there,[link widoczny dla zalogowanych], some China-based manufacturers are using acquisitions to become global players.
While the supply base for goods may be robust, Paterson says the supply base for services is still relatively small and regional.
For virtually all manufacturers contemplating outsourcing or moving to China, the major attraction has been the low cost of labor there. But, Paterson notes that labor costs are rising in China's coastal cities. "We are seeing the beginnings of the manufacturing sector looking to spread further inland to the center and the west of China to better balance development across this large country," he says.
Establishing purchasing programs in China��or any other country��may not make sense for every company. You have to analyze your costs and pick your products carefully. IBM has done that and one other important thing: It has made a big effort to understand the cultural attitudes that affect business dealings in China. Being on location there continues that effort.
You can read our full interview with John Paterson on the supply-chain solutions channel at purchasing.com. Tell us what you think by clicking on the Readers Rant icon.