An alternative to Asia

By: | at 08:00 PM | Channel(s): International Trade  

Latin America presents advantages, disadvantages to traditional sourcing venues
By Peter A. Buxbaum, AJOTMost U.S. companies automatically think of China, Southeast Asia, and India when the subject of the sourcing of products comes up. But Latin America presents an interesting alternative to Asia and is a region American companies increasingly look for for product sourcing.
Deciding between Asia and Latin America as a sourcing venue is not an apples-to-apples comparison, nor, for that matter, necessarily an either/or alternative. Instead, different companies from different industries are likely to be attracted to either region for reasons particular to their own businesses.
Asia remains the overall lowest cost destination for manufacturing. But Latin America, given its proximity to the United States, makes a strong case for lower total supply chain costs. On the other hand, Latin American logistics networks and its manufacturing base tend to be fragmented and communications networks are less advanced than those in Asia.
“With its diversity within and across countries, Latin American provides an unique set of interesting entrepreneurial and sourcing opportunities,” said Julio de Castro, professor of entrepreneurship at Babson College in Babson Park, Mass. “We need to drill deeper and think not only of differences between countries, but differences and unique elements within countries.”
To that end, de Castro has developed a framework for a systematic analysis of sourcing opportunities n Latin America. Examining certain factors within and between countries in Latin America, he contends, can provide clues as to where the best sourcing opportunities can be found.
“The idea is to explore in depth the drivers of opportunities and to look for how those drivers operate within and across countries, with an entrepreneurial eye,” said de Castro. “Thus the emphasis is on which drivers allow for interesting sourcing opportunities. We want to know where and why sourcing opportunities exist, how behavior and country characteristics drive opportunities, and what structures can affect specific opportunities.”
Factors which de Castro examines within his framework include the organization and structure of the society, government policy and its implications, and the implications of technology usage. Examining these broad factors “tells us whether the opportunity would be transferable to another context,” said de Castro. “Areas in which individuals in those countries produce and or consume, are areas that are ripe for sourcing opportunities.” The key consideration in this regard is whether a given country or area has a growing middle class and whether businesses are marketing products that could capture a share of the growing level of disposable income.
The role and presence of government in a given country tells the potential sourcer the extent of government intervention in the economy and the degree of stability enjoyed by a given society. “Government can also act as a source, conduit, and interactive agent with respect to business sourcing opportunities,” said de Castro.
Examining technology patterns can discern the needs technologies are addressing and can reveal non- traditional patterns of technology adoption and unexpected uses of technology within market segments, according to de Castro.
An examination of sourcing opportunities in Latin America reveals that the region is very complex and diverse. “It all depends on what you are trying to do,” said de Castro. “The point of the framework is to look at the interaction of what firms and individuals are looking for and what different Latin American countries can offer that can help them find the best places to source. It may not be intuitive.”
Also counterintuitive may be the way importers calculate the costs of sourcing from different venues. Companies often source for the best product price, but Joe Barkai, practice director for IDC Manufacturing Insights’ Product Lifecycle Strategies research service, says they sh

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American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.