Global sourcing – definition and meaning
- 1 Global sourcing – definition and meaning
Global sourcing is a process that involves the sourcing of goods and services across all geographical boundaries. It is aimed at exploring the benefits of the international market. Skilled labor at low cost, affordable price of raw materials, as well as some other economic factors like low trade tariffs and tax breaks are some of the global efficiencies that companies are increasingly exploiting.
Some of the popular examples of such hotspots of global sourcing in the international market are the manufacturing of shoes and clothing in Thailand and China, call centers operating in the Philippines.
What is the global reality of contemporary times?
We are in the era of cutthroat competition and it is becoming more intense day by day. This has increased the demand for better and innovative goods and services. It has become a necessity for businesses to match the pace of the rapidly changing technology in order to outshine their competitors.
Along with this, the firms need to minimize their costing, enhance the quality and improve customer satisfaction with optimum services at every stage of the value chain.
How to start with global sourcing?
When companies are naive in global sourcing during their beginning years, they use an outsource solution. For this purpose, International procurement organizations (or IPOs) are agents that are used for sourcing from “low cost” countries.
These procurement service providers are capable of identifying key suppliers for businesses. They have knowledge of various sourcing categories in the emerging market sourcing of large and complex countries like Brazil and China.
Advantages of global sourcing:
Global sourcing can help a business person to learn a lot of new things. Some of them are learning to do business successfully in a new market, searching alternate supplier sources to minimize costs and survive in competition.
They receive the opportunity to find scarce skills and resources which can not be found in home markets or they are unproductive at home. This increases the manufacturing capacity and other technical capabilities of the companies.
Disadvantages of global sourcing:
Along with the brightness of global sourcing advantages, there is another side of the story too. There is the hidden cost involved which is often left unrecognized by most businesspersons. It is related to the time spent and efforts put in while learning about different time zones and cultures. Apart from this, the monitoring cost also rises during global sourcing, especially in the beginning.
Moreover, the companies get exposed to the political, legal and financial risks often when they get into the emerging economies. There is a risk of losing the grip of your intellectual property if you are functioning in service industries.
Global sourcing of manufactured goods
Sourcing manufacturing goods are not the same as raw materials. Many other variables come into the picture when you outsource manufactured good from foreign. Here, the supply chain is fragmented and long.
There are risks of disrupted transportation and the quality of the specified product is difficult to ascertain.
What are the challenges in global sourcing?
In global sourcing, the time taken for delivery is significantly longer in comparison of domestic sourcing. This cost has to be included in the selling price.
Other than this, the fluctuation of currencies happens on a daily basis. The currency and price have to be determined upfront as you have to make payment with the letter of credit when it comes to global sourcing.
The benefits of global sourcing were very well summed up by Walmart, an international retailer based in the US.
“ By realigning our resources, leveraging our scale, and restructuring our relationship with suppliers, we ……..can offer even more competitive pricing on merchandise and provide our customers a clear and compelling assortment of better quality products at lower prices.”
The companies that have turned to a procurement service provider to fulfill their business requirements have outshined the others by reducing the cost of goods, improving quality constantly and increasing the speed of the market.