Low cost country sourcing has been on the agenda for a number of years. Over time the best cost country has shifted from certain countries to others depending on labor costs, quality of goods produced, infrastructure etc.
The difference in labor costs are often appealing but after taking transportation and warehousing costs, costs for capital tied (depending on payment conditions), delivery times, import duties, as well as things like cultural differences, flexibility in deliveries etc. into consideration the case is often not as obvious as it may seem.
Over the course of last year some currencies like the British pound or the Swedish Krona have dropped significantly. The GBP/USD (-28% since July -08) or the SEK/USD (-35%) exchange rates have fallen drastically, whereas the USD/CNY rate has remained more or less at the same level during the same period (EUR/USD has fallen 10-15%-points less). Similar pattern can be seen amongst the EUR/GBP/SEK vs. the Indian Rupee. For many products where the savings are important but still only in the range of 10-15% (taking all of the above into the calculation) if sourcing from e.g. China these savings have quickly been eaten up.
So, are countries like UK and Sweden emerging as the new low cost countries?
Well, two things must be factored in. Is the potential supplier financially stable (more important than ever in these times), and will the currency remain at that level? If you are able to assess the supplier’s stability and you are able to move production from your supplier in a reasonable time period should the exchange rate become unfavorable again it is time to start looking at these new “low cost” countries.
