Cheap sourcing may not live long

NEW DELHI: Global retailers could soon stop procuring from low-cost sourcing bases like India and China. The Deloitte 2007 Global Powers of Retailing report says a combination of political and economic forces will increase the cost of, and reduce the access to, imports coming into the US, Japan and Europe, forcing retailers to search for higher-cost domestic sources.

“China, Mexico, Brazil, India and even Vietnam are places that run large trade surpluses with the rest of the world that in the aggregate are no longer sustainable,” says the report.

In a bid to keep costs down, retailers have scouted for sourcing bases across the world. China alone accounts for about $60 billion worth of goods sourced by retailers, with Wal-Mart procuring about a third of it. Indian manufacturers supplying to global retailers believe India has no cause for worry as of now.

“India has barely scratched the surface. It is China which has run a huge trade surplus, driving corporations to spread their sourcing across the world. India continues to enjoy the preferred destination status,” said Orient Craft MD Sudhir Dhingra. Orient Craft is one of the leading suppliers to foreign brands like Gap and Banana Republic.

In fact, Wal-Mart has been using the sourcing plank to garner support for its India entry for long. While emerging markets could stand to lose their preferred sourcing destination status in future, they would become more attractive retail destinations as consumer spending declines in developed markets, says the Deloitte report.

Factors like the housing market slowdown in the US, higher interest rates in western Europe and greater political control over the industry in Russia could become areas of concern for retailers.

With an ageing population, the developed markets are also expected to see a shift towards greater spending on services like health and travel, compared to goods.

deepshikha.monga@timesgroup.com