Global sourcing – The still backward procurement world
“Global sourcing – The backward world” – in 2011, our author wrote about the topic of sourcing in retail intrapreneur No. 2 under this title. At the time, he projected trends and developments in global procurement – plausibly and speculatively – into the lives of four very different people. Now, eight years later, he rearranges the scenario of that time in the 10th edition of retail intrapreneur. Not least, this fits into the context of our anniversary issue question “What really works?” In addition, he again dares to look ahead – this time to the year 2023. In the “Fact Check” (via QR code) you can further deepen some of the procurement trends outlined here. So let’s accompany the protagonists Mr Hu, Dr Maurer, Ingo Müller and Steve from San Antonio, USA, on their second journey through the still inverted world of procurement. And as in every good Netflix series, two secondary characters are now playing from 2011: the two sons of Mr Hu, who studied and invested in the USA in 2011.
May I introduce our protagonists from 2011
2020: Ingo Müller – a former importer reinvents himself for the third time
“That sure was a flop!” – the “Arab Spring” was a Western hope that ended tragically. Ingo Müller also had to recognise this. Of course, traditional North African countries like Tunisia, Morocco and parts of Egypt remain EU procurement markets – but mainly in controlled production belonging to brands. Ethiopia – highly hyped – remains an insignificant niche. In addition, the Chinese were quicker: The “New Silk Road” secures their interests.
There is no room for a procurement agent like Ingo Müller, and his retail customers have also repositioned themselves in Asia. The same is true for Eastern Europe, where good old outward processing is fading away. The last existing factories with seamstresses over 60 process last-minute orders for brands that simply failed to make the leap to Asia due to their small size or lack of required technology. Only Turkey has been able to hold its own, in part because its desolate economic situation and the decline of its currency have reduced production costs. The fact that hundreds of thousands of former refugees are also in precarious employment is largely ignored by politicians and the economy. “For us, Turkey is the wall that Trump always wanted for himself”, Müller thinks.
Ingo Müller is now living his third career, and again his instinct has picked up the right trend: he is a “speed manager”! He specifically examines the processes of his customers – European retailers and brands, as well as Asian producers – exclusively from the point of view of speed and identifies and corrects faults, in particular at the interfaces. As a pragmatist he can convince quickly, and he is able to connect both sides. Recently, he has entered into an interesting technology partnership for 3D product development and AI-supported image recognition, which promise further enormous time savings potential. “The geographical distance from procurement markets is not the cause of the problems at all – it is rather the culture and attitude”, Müller sums up.
2021: America First fails – the Hu brothers and Steve in San Antonio.
The Hu brothers don’t see their US garment production failing right away. Under Trump’s "America First" doctrine they even think they are on the winning side for some time: foreign investments in industrial jobs against the backdrop of the escalating trade war with China and the EU – well done! But the power of hard facts is ultimately too great. Neither can the Rust Belt (once Manufacturing Belt) be reindustrialized, nor can clothing production made in USA really work. Lack of qualified staff, missing know-how, in part due to the increasingly restrictive handling of immigration and expulsion of tolerated workers from Central America. All essential materials must be imported from China. With their US setup, the Hus are neither fast nor cheap.
Before the 2019 trade war, the USA procured more than a third of its clothing imports from China. Now the figure is less than one-sixth. Within 18 months, sourcing of several billion units was shifted to markets such as Vietnam, Bangladesh and Myanmar – but also to new regions like Uzbekistan. With sometimes dramatic consequences for working conditions and compliance. European customers were pushed out of entire markets.
The Hus wind down the plant in 2021. The fact that Donald Trump has already been indicted and has left the country can change nothing. In addition, Hu Senior – meanwhile very old, but busy – calls from his new domicile in Hong Kong: he desperately needs them there. On their return to China they carry something really valuable in their luggage: the latest technology from Silicon Valley and some US-Chinese engineers, who are working in the attractive tech hub Hong Kong and see more future there than in deeply torn America. The outflow of the intellectual elite is yet another negative effect of the lost years 2016–2020.
And Steve, the former shift supervisor? He barely gets by on two poorly paid jobs as an Amazon courier and driver for Uber.
2022: Back to the roots – the Hu Empire in Hong Kong
Hong Kong! The Old Lady, the master of the art of living! Long written off as a tourism and shopping amusement park with almost 50 million visitors annually, 2/3 of them from Mainland China. Over a period of 25 years, the party not only managed to get the former British colony on course despite all the protests, but also to achieve the perfect environment of entrepreneurial innovation and centralised control. Targeted years of immigration from the People’s Republic, the holding of the favourable Shenzhen forecourt, the return of capital from emigrated Hong Kong Chinese and, since 2020, the arrival of the tech elite from Silicon Valley in 2020 has done the rest. The most important aspect of all this is the comprehensive management of society and the economy according to value points, the SECS – “Social and Economic Contribution Score”. Only the best scorers have access to the perfect business conditions: capital, know-how, infrastructure and political goodwill. And the Hus are part of it, father and sons: Triple A Citizens!
Their integrated technology and manufacturing company is based in Hong Kong, with research & development. In Shenzhen, service centres, programmers and micro-factories are housed in a technology park. In northern China, Vietnam, Myanmar and Uzbekistan, full-stage textile and clothing production is carried out for the whole world. The Hu Empire is a so-called cluster leader and close partner of Alibaba. It sets new best performance standards in the “old” textile and clothing industry with regard to sustainable, cost-effective and fast supply for consumers all over the world.
China’s leaders have found with Hong Kong and entrepreneurs like the Hus the blueprint for their expansive economic policies. Taiwan, which has been part of the People’s Republic of China as a special economic zone since the “Great Deal” with the USA in 2021, is now to be integrated precisely in line with this model.
2023: Sh** happens – Dr Maurer is disappointed
Dr Maurer – now CEO of one of the largest European retail companies and in the process of implementing a further restructuring – is frustrated, but not surprised, when his CDO advises him to stop all his digital projects and pilots. So this is the sobering assessment of three years of intensive work on realigning product development and procurement. And now? “Let’s sign the Hu cooperation agreement. There the solutions are further developed, better integrated with each other, and we get easy access to reliable production, not only in China,” says the CDO.
Dr Maurer had fought for a long time to find his own way, originally a close and flexible procurement alternative to Asia. Together with Ingo Müller, he had analysed and determined that fast and cost-effective production was possible in Asia. He invested in new PLM technology, in 3D product development, in digital colour systems. And even good old 2D cutting technicians.
How could it come this far, the technology is basically the same, isn’t it? He knows and appreciates the old warhorse Hu, but he is uncomfortable. Did he work so hard to achieve independence from Chinese production almost ten years ago only to become technologically dependent? “We were simply too slow, didn’t network the topics enough and didn’t consistently think through developments – including the needs of new consumers. Too few IT resources in the company and in the market, too much resistance, too many half-hearted and long, drawn-out projects,” is the ruthless conclusion of the two top managers.
They summarise the philosophy of their Chinese cooperation partner as follows: The Hu approach starts right at the front with the customer and is simple, systematic and consistent.
- Trend recognition: digital image recognition, network data crawling and blogging according to trends. Customer and influencer involvement in creative product development, especially in the five megacities with almost 250 million consumers.
- Testing & sampling: virtual tests with the community. Supported by machine learning, 3D sampling and personal avatars. 3D printing and digital colour & fabric management in technical product development.
- Speed & customisation: complete networking of digital and physical production in micro-factories. A sample is available in hours rather than days, already secured in terms of style, colours and material. MOQ = 1 is possible.
- Sustainability: The respective carbon footprint – required for calculating the EU environmental tax since 2020 – is determined precisely, and the origin of most important materials used is absolutely transparent. The elimination of 90% of physical samples means 40,000 units no longer need to be produced. 70,000 metres of fabric are not used, 10 million litres of water are not used and 500 million flight kilometres are avoided – in Maurer’s company alone.
While Maurer looks at this range of benefits once again, the consistent next step of this technology becomes clear to him: “Ultimately, the Hu approach means the final stage of a complete verticalisation. It always requires a producer and it always needs a customer – everything in between can be organized differently. If you don’t create value and benefit, you’ve lost your “Why”.
In many respects, the 2019 scenario is more pessimistic than the 2011 scenario. The direction of globalisation has shifted to China. The political, economic and ecological framework conditions are tense. Negative trends have intensified, and the outlook for the entire consumption system must lead to a drastic rethink, especially in our industry. But there are also opportunities, it doesn’t have to end up that way, and especially the last scenario – the failure of digital transformation – can be averted.
Customer proximity is the key. Why should companies on the other side of the world better understand and address consumers on our doorstep? But well integrated technology will be a prerequisite. And in a dynamic and modern corporate culture that can be connected to the next generation of workers and consumers. Against this background, my article “Learn Mandarin! – A study trip with self-experimentation in transformation” is recommended reading for approaches to solutions.
Would like to play an active role over the next few years in ensuring that some of the scenarios described here do not occur in our industry. That’s why he supports managers in the transformation of products and procurement.