Current trends in the sourcing of composite reinforcement products.

Today, when the economic realities and the geopolitical situation in the world are in a state of flux, businesses are forced to look for alternative solutions. For many companies the question of relocating production facilities and business as a whole to other countries is becoming more and more relevant.

Oftentimes, the new conditions within countries or regions no longer meet the current needs and requirements of the brand. And this is when an urgent need for sourcing emerges.

Based on our company’s sourcing experience, we are offering an opportunity to share useful information and insights in this field.

Introductory information:

The company: Galen Panamerica LLC. The main market – the USA.

The specialization- production of composite building materials for the “middle” and “premium” segments. Customization for virtually any project, development of non-standard solutions even for limited production runs.

Clientele– large distributors, construction companies, government agencies (objects of national importance and socially significant projects).

Focus – sourcing from Russia to Turkey. 

Sourcing – the big picture

Sourcing for a major company means the transfer of production facilities and often involves the relocation of some employees to other countries and regions. Global sourcing is always a challenging and complicated process.

Not only do we have to reevaluate the existing trading relationships, but we also have to rebuild our production and logistics processes. And yet, it is sourcing that often enables companies to expand, to increase market penetration and improve overall profitability.

The same transpired in the case Galen Panamerica LLC.

Below is a brief analysis of sourcing options and features of the most preferred geolocations.

PRC: former global outsourcing phenomenon

Until recently, China was probably the most popular country in the world to outsource to. The world’s major brands, as well as medium-sized companies, moved their production to China en masse.

The reasons:

The balance between rapid development and high profits. At one point, the PRC began to experience explosive growth in manufacturing, improved its infrastructure while keeping the cost of raw materials and production relatively low.

Logistical conditions. The government made significant financial investments in the development of the region’s economic attractiveness, and fast and sophisticated (but inexpensive) logistics chains became possible.

Future Potential. Many experts believed that the economic potential of the PRC would only grow over time and therefore gave the most optimistic projections.

By the time we made the decision to outsource, China had unfortunately lost much of its position. The country was no longer referred to as the “world’s factory”.

Due to COVID-19 and post-COVID restrictions, disruptions in transport chains, changes in the political vector, market volatility and other factors, there is still a serious outflow of production from the PRC.

Businesses leaving Russia

In parallel to the “Chinese boom” (and in part thanks to it), in the 2000’s there began an active growth of production in Russia. This was facilitated both by domestic players and by the entry of global brands into the Russian market.

In many ways, the reasons for the importance of advancing one’s business in Russia were similar to those in China, but there were also unique factors that apply specifically to the Russian Federation. For example, the high availability of affordable raw materials ready for use in various industries.

Unfortunately, the situation in Russia gradually began to deteriorate, as did the PRC’s. The tipping point was the year 2022, when the situation reached its peak:

• COVID-19 restrictions and associated problems.
• Deterioration of political and economic relations with a number of leading countries.
• The departure of many leading brands from Russia, the closure of production facilities.
• Disruption of supply chains and complication of deliveries to a number of regions.

As a result, Galen Panamerica LLC decided to outsource to other regions.

The process of exploring alternative locations

The company’s analysts have compiled a voluminous report on the advantages, characteristics and potential challenges of sourcing to other countries.  Below is a brief summary:

Europe. Not suitable due to the complexity of relocating leading Russian technologies.

Southeast Asia. The countries of Southeast Asia are partly repeating the “history of the PRC”: ever-increasing production costs, post-COVID restrictions, high risks.

Middle East. Potentially interesting, but the relocation of an already “well-oiled” business is hampered by poor logistics and lacking infrastructure.

Sourcing choice – Turkey

As a result, Turkey emerged as the most acceptable destination for outsourcing. The country was selected for the following key reasons:

• The relative ease of transferring high-tech production from Russia.
• High potential of workers and engineering personnel, their quick learning curve and conscientious attitude toward work.
• Developed transportation hub, quick access to raw materials and supplies.
• Excellent infrastructure, the availability of production spaces.
• Reasonable prices for energy resources, competitive labor costs for the company.
• Transparent and well-regulated logistics system, easy communication with and access to Europe and the United States, as well as Asian and Middle Eastern countries.

Turkey fits almost perfectly into the vision of Galen Panamerica LLC. Not only is it one of the world’s nexuses of technology and communications, but it also has high economic potential in the near future.

Now, after the completion of the sourcing process, the company has not only reengineered all production processes but also established more profitable and efficient transportation links.

Sourcing to Turkey has allowed the company to improve a number of production indicators, as well as create new partnerships and start implementing preplanned objectives.

Galen Panamerica LLC’s primary sourcing goal:

Development and support of the composite reinforcement industry. Industrial growth and support for composite reinforcing. About 5% of the total market for steel reinforcement in the USA is already open to being replaced by composite materials.

This is true for both non-critical and critical applications. In terms of figures, this is about $250 million a year. The company’s production facilities can currently handle 10 – 12% of this volume.

The main benefit of sourcing:

The well-developed logistics arm in Turkey has significantly improved the company’s competitive position relative to manufacturers from Southeast Asia and local North American brands.

Competitive shipping rates and relatively low local cost of raw materials and supplies have allowed the company to improve the competitive offering of base products for the entire U.S. market without any deterioration in the quality and characteristics of the end-product.

Transferring sourcing from one country to another is challenging and tests the organization’s processes for robustness and effectiveness. But it is also feasible and appropriate in the medium-term, given the current economic and geopolitical trends.