By Andrew K. Reese
Western companies have been establishing international purchasing offices (IPOs) in Asia and elsewhere for a number of years, seeking to maximize savings opportunities by eliminating middlemen standing between them and their low-cost-country suppliers, among other potential benefits. But setting up shop in a foreign market takes more than a lease agreement on office space in Shenzhen or New Delhi and a GSM cell phone with an international calling plan. It also takes a new set of global skills, particularly for sourcing and procurement executives used to operating in the domestic market. If you're considering heading up a new IPO, it's worth asking first whether you have the skills you need to make the office a success.
In their survey of the literature on IPOs, Italian academics Guido Nassimbeni and Marco Sartor, writing in the July 2006 issue of Production Planning & Control, point to several benefits to be had from establishing an international purchasing office beyond simple purchase price reductions, including better quality control, risk reduction and the ability to address supplier-related issues more quickly. However, they also point to several frequently cited challenges in creating an IPO, including difficulties in staffing the office and cultural problems. The personnel challenge is noteworthy in hot emerging markets like India and China, where the best qualified local talent is frequently in high demand, and where turnover rates are significantly higher than in the West. "When you see attrition rates in the high double digits, a lot of Western companies get very alarmed," says Ravi Kumaraswami, vice president and managing director for Asia Pacific with spend management solution provider Ariba. "These companies get frustrated because they train people and then, within a year or two, those people leave."
Given this challenge, it would seem important for the head of an IPO to have experience recruiting and retaining high-level talent. And yet too frequently Western procurement executives bound for the East don't bring this sort of experience with them to their new jobs, according to Chris Foulkes, co-founder and chief product officer with Eqos, a provider of solutions for global sourcing and supplier management. "The people who end up in these roles are ultimately buyers," says Foulkes. "They very rarely have a background in corporate organizational method or management method. They're there because they're good at buying."
The lesson: Check your curriculum vitae to make sure that you have the necessary experience managing a dynamic, growing organization, and check your people skills to ensure that you have the relationship- and team-building experience required to keep your best staff focused on meeting the company's objectives and not on searching for their next job.
Managing local staff naturally requires a degree of cultural sensitivity, too. Local personnel might speak perfect English, and Berlitz might have given you an introduction to their language, but you must be fluent in the local staff's culture as well so that you understand how and why they make decisions that affect the business. For example, in a May 2007 report from Ernst & Young called "Investing in China: Working with Headquarters," author Jim Ruderman, with the Economist Intelligence Unit, notes that Western executives are frequently surprised to find that local Chinese staff seem to be renegotiating previously agreed-upon issues — not uncommon in China, but a point of frustration for managers new to the Chinese business environment. Anticipating these sorts of cultural quirks can help prevent a creeping atmosphere of distrust between local staff and expatriate executives.