Manufacturers feel the heat over emerging market sourcing: Deloitte

15 May 2008

Heightened publicity over product recalls has made product safety, as well as product quality and environmental standards, in emerging markets a hot-button issue. According to a new Innovation in Emerging Markets annual study by the Deloitte Touche Tohmatsu global manufacturing industry group, boards of directors, senior management and investors of global manufacturers across industry sectors are sitting up and taking notice.

Roughly two-thirds or more of both developed market and emerging market executives surveyed by Deloitte said that over the last 12 months these issues had become more important when global companies choose emerging market suppliers. As a result, manufacturers are taking additional steps to address the risks.

The Deloitte study, which captures the views of more than 650 global executives, explores how manufacturers from developed and developing countries view and handle their exposure to risk stemming from sourcing in emerging markets-and how the most successful companies are working to manage this risk and turning it to a competitive advantage.

Product sourcing from emerging markets has increased. Roughly three-quarters of the developed market executives surveyed said they had increased their use of emerging market suppliers over the last three years, with almost half saying they had increased it significantly. In terms of where they look for suppliers of components and parts, 66 per cent cited China, while 36 per cent named Mexico and Central America. Central / Eastern Europe, India, and Southeast Asia were each cited by one-quarter or less.

''Manufacturers are feeling the heat - especially with all the negative publicity related to issues of sourcing from emerging markets,'' says Hans Roehm, global managing partner of the Deloitte global manufacturing industry group. ''But the more successful companies are not avoiding the risks inherent in sourcing from emerging markets. Instead, they are intently focused on understanding and managing these risks in order to continue to reap the benefits that emerging market sourcing provides.''

Just over one-third of the developed market executives surveyed by Deloitte felt that their companies had been very successful in sourcing from emerging markets. These companies appeared to be more attuned to the risks involved. Their boards of directors and senior management are more involved in product safety and quality issues, and their companies work closely with their suppliers to inspect supplier facilities more often.