Sourcing complexity in the Chinese manufacturing sector: An assessment of intangible factors and contractual relationship strategies

Abstract

Over the past three decades original equipment manufacturers (OEMs) located in China and elsewhere have been aggressively sourcing from Chinese suppliers. This has significantly contributed toward the complexity of global supply chains. Generally, both tangible and intangible factors contribute to the complexity, with intangible factors being relatively more dominant compared with the tangible factors. Through an extensive literature review we identify several intangible factors associated with people, culture, and infrastructure; as well as policies and regulations on sourcing complexity. We investigate the impact of these factors and elements on sourcing complexity, using a sample of 101 OEMs based in China. Using importance–complexity matrix analysis we identify lack of knowledge, quality issues, price erosion, increases in comparative price levels, supply risk and demand volatility as critical intangible elements. We suggest appropriate supplier contractual strategies such as collaborative relationships as we predict that contractual relationships that benefit by trust, shared knowledge, skill development and direct purchase from suppliers or through international procurement offices would suppress or greatly diminish most of the intangible sourcing complexity elements.