February 2006 | Commentary | Supply Chain Technology

Sourcing Out of Africa

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It's easy to say that world trade will expand based on available global resources, but it's harder to do. We have become all too used to thinking of Asia as the prime—and almost exclusive—new supply chain market.

But it is a big world, and suppliers will need even more resources if trade is to double in the next decade, as many experts warn it will.

Surprisingly enough, some suppliers are finding additional resources in Africa, a rising new supply chain market, according to Sue Welch, CEO of TradeStone Software, a Gloucester, Mass.-based global sourcing and supply company.

"It may take only five to seven years for Africa to become a significant player, but it took 25 years for China to become the trading power it is today," she notes. "This does not mean Africa will bounce China out, but it will become a major supplier.

"Smart retailers protect their supply chains by hedging their bets and developing alternate sources of supply," Welch notes. "Buyers are all too aware of quota problems encountered when trading with China, or the catastrophic effects of natural disasters such as a tsunami or Hurricane Katrina.

"Procurement chiefs and CIOs, in particular, are interested in exploring new sources of supply in areas such as Kenya, Mozambique, and South Africa."

A country's trade development usually follows the course of cheap labor, ample real estate space, and available resources. Japan, Taiwan, Korea, and China each, at their own pace, climbed the same basic set of steps: serve low profit margin/high-volume industries at first, then more select markets such as electronics and automobiles. Africa still falls in the low-margin/high- volume zone—apparel, fabrics, and footwear are the major commodities Africa currently trades. One exception is South Africa, which has a substantial stake in automotive manufacturing, but all by foreign-owned companies.

South Africa, Egypt, Algeria, Nigeria, and Morocco are the five largest African economies. But some smaller economies such as Kenya and Mozambique may become the more vital connection for global trade.

Several ports operate in Mozambique and the country is working to improve its infrastructure. The capital and major port city of Maputo, for example, is being upgraded, as are the rail and road systems serving the port.

Infrastructure Challenges

But though Africa offers many resources necessary to become a global trade center, it still faces substantial challenges. Africa is three times the size of China, with a population nearing 900 million. In most instances, wage rates are lower than in China.

While the infrastructure of many ports in South Africa, Egypt, Algeria, and Kenya is already operational (South Africa dominates with six commercial ports—Durban, Richards Bay, and Cape Town among them), the roads serving those ports are not always operable because they are priority targets in civil and political strife.

Those who trade in the region have to acknowledge this unrest, as well as graft, corruption, and the looming presence of AIDS, tuberculosis, and malaria. No one says it will be easy.

To help manage the complexities of global sourcing in new markets such as Africa, many companies turn to software solutions.

TradeStone, for example, offers the Unified Buying Engine, the core component of its sourcing solution that provides companies a unified way to view and interact with the buying process. Sourcing intelligence embedded in the engine lets users create, plan, price, collaborate on, and track transactions.

It also manages reporting and queries, alerts for exceptions, and offers visibility throughout the supply chain. Its embedded workflow processes foster collaboration among far-flung buyers and suppliers throughout the collaborative commerce community.

If users want to send suppliers a request for quote, for example, TradeStone's software takes them through a series of steps that specify commodity, materials, pricing, quantity, and other purchasing factors.

Using the same system, the supplier can return data on costs, currency requirements, minimum orders, lead time, and other factors. The buyer then can make supplier decisions and start the order process.

As China reaches the limits of its supply capability, the needs of retailers and consumers will drive business to emerging markets such as Africa. Software systems, mobile communications, and a large (although not always healthy) labor market exist already in Africa, though stable nations, economies, and well-established infrastructures do not.

It remains to be seen whether need will overcome obstacles.

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