Cost considerations when purchasing from China

• Main Authors: Måttgård, Erik, Håkansson, Marcus, Svensson, Rikard
• Format: Others
• Language: English
• Published: Växjö universitet, Ekonomihögskolan, EHV 2008
• Subjects: Purchasing; Sourcing; Business and economics; Ekonomi
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:vxu:diva-2083

Background: To be competitive on the global market companies see a chance to achieve success by using suppliers that can offer them the lowest prices. Because of low wages China is one of those countries that can offer very competitive prices for purchasers in our part of the world. But is global sourcing for everyone? Global sourcing can be proven to be more costly than anticipated if the total cost of ownership is not considered. Research questions: -Which costs do the investigated manufacturing companies consider in their estimation of costs when purchasing from China, and how do these estimations match up with the actual costing? -What is the explanation of potential differences between the estimation of costs and the actual costing? -How do the companies’ characteristics in terms of experience, size and product characteristic affect the formulation of the costing? Purpose: This thesis will investigate what kind of costs companies take into consideration when doing their estimation of costs before initiating trade with China. Further the thesis will study how these estimations match up with the actual costing that can be seen afterwards and investigate what the explanation of potential variations could depend on. The thesis will also answer how the characteristics of the companies and the products affect the costing development. Conclusions: The companies are mainly focusing on purchase price and costs for transportation in their estimation of costs and the match between the estimation of costs and the actual costing are good in terms of purchase price and costs for transportation. Other costs are mismatched or overlooked probably because of their complexity to estimate. Product characteristics are probably the main factor that affects the complexity and amount of time and effort companies spend on costing.