Global sourcing is the practice of
sourcing from the global market for goods and services across
geopolitical
Geopolitics (from Greek γῆ ''gê'' "earth, land" and πολιτική ''politikḗ'' "politics") is the study of the effects of Earth's geography (human and physical) on politics and international relations. While geopolitics usually refers to ...
boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material, extreme international competition, new technology and other economic factors like tax breaks and low trade tariffs. A large number of Information Technology projects and Services, including IS Applications and
mobile phone app
A mobile application or app is a computer program or software application designed to run on a mobile device such as a smartphone, phone, tablet computer, tablet, or smartwatch, watch. Mobile applications often stand in contrast to desktop appli ...
s and database services are outsourced globally to countries like India and Pakistan for more economical pricing.
Common examples of globally sourced products or services include labor-intensive manufactured products produced using low-cost Chinese labor,
call centers
A call centre ( Commonwealth spelling) or call center ( American spelling; see spelling differences) is a managed capability that can be centralised or remote that is used for receiving or transmitting a large volume of enquiries by telephone ...
staffed with low-cost English speaking workers in the
Philippines
The Philippines (; fil, Pilipinas, links=no), officially the Republic of the Philippines ( fil, Republika ng Pilipinas, links=no),
* bik, Republika kan Filipinas
* ceb, Republika sa Pilipinas
* cbk, República de Filipinas
* hil, Republ ...
,
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
and
Pakistan
Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's List of countries and dependencies by population, fifth-most populous country, with a population of almost 24 ...
, and
IT work performed by low-cost programmers in India and Pakistan and
Eastern Europe
Eastern Europe is a subregion of the Europe, European continent. As a largely ambiguous term, it has a wide range of geopolitical, geographical, ethnic, cultural, and socio-economic connotations. The vast majority of the region is covered by Russ ...
. While these are examples of
Low-cost country sourcing
Low-cost country sourcing (LCCS) is procurement strategy in which a company sources materials from countries with lower labour and production costs in order to cut operating expenses. LCCS falls under a broad category of procurement efforts called ...
, global sourcing is not limited to low-cost countries.
Global sourcing initiatives and programs form an integral part of the
strategic sourcing plans and
procurement
Procurement is the method of discovering and agreeing to terms and purchasing goods, Service (economics), services, or other works from an external source, often with the use of a tendering or competitive bidding process. When a government agenc ...
strategies of many
multinational companies
A multinational company (MNC), also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation with subtle but contrasting senses, i ...
. Global sourcing is often associated with a centralized procurement strategy for a multinational, wherein a central buying organization seeks
economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
through corporate-wide standardization and
benchmarking
Benchmarking is the practice of comparing business processes and performance metrics to industry bests and best practices from other companies. Dimensions typically measured are quality, time and cost.
Benchmarking is used to measure performan ...
. A definition focused on this aspect of global sourcing is: "proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations (p. 304)".
The global sourcing of goods and services has advantages and disadvantages that can go beyond low cost. Some advantages of global sourcing, beyond low cost, include: learning how to do business in a potential market, tapping into skills or resources unavailable domestically, developing alternate supplier/vendor sources to stimulate competition, and increasing total supply capacity. Some key disadvantages of global sourcing can include: hidden costs associated with different cultures and time zones, exposure to financial and political risks in countries with (often) emerging economies, increased risk of the loss of intellectual property, and increased monitoring costs relative to domestic supply. For manufactured goods, some key disadvantages include long lead times, the risk of port shutdowns interrupting supply, and the difficulty of monitoring product quality. (With regard to quality in the food industry, see Roth et al. (2008).
[Roth, Tsay, Pullman, Gray. 2008. Unraveling the Food Supply Chain: Strategic Insights from China and the 2007 Pet Food Recalls, ''Journal of Supply Chain Management'', 44(1), 22-39.]).
International procurement organizations (or IPOs) may be an element of the global sourcing strategy for a firm. These procurement organizations take primary responsibility for identifying and developing key suppliers across sourcing categories and help satisfy periodic sourcing requirements of the parent organization. Such setups help provide focus in country-based sourcing efforts. Particularly in the case of large and complex countries, such as China, where a range of sub-
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
s exist and suppliers span the entire value chain of a product/commodity, such IPOs provide essential on-the-ground information.
Over time, these IPOs may grow up to be complete procurement organizations in their own right, with fully engaged category experts and quality assurance teams. It is therefore important for firms to clearly define an integration and scale-up plan for the IPO.
See also
*
Domestic sourcing
Domestic sourcing is the activity of contracting for goods or services that are delivered or manufactured within the buyer's home country borders. Domestic sourcing is becoming central to the discussion of "Buy American" or the protectionist debat ...
*
Low-cost country sourcing
Low-cost country sourcing (LCCS) is procurement strategy in which a company sources materials from countries with lower labour and production costs in order to cut operating expenses. LCCS falls under a broad category of procurement efforts called ...
*
Offshore company
The term "offshore company" or “offshore corporation” is used in at least two distinct and different ways. An offshore company may be a reference to:
* a company, group or sometimes a division thereof, which engages in offshoring business pr ...
*
Offshore outsourcing
Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
*
Offshore software R&D
*
Offshoring Research Network
The Offshoring Research Network is an international network of researchers and practitioners studying organizations in their transition to globalizing their business functions, processes and administrative services. The ORN conducts annual survey ...
*
Offshoring
Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state gover ...
*
Outsourcing
Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
*
Sourcing advisory
*
Strategic sourcing
References
Further reading
Gerd Kerkhoff et al.: ''Global Sourcing: Opportunities for the Future'' Wiley-VCH, Weinheim Düsseldorf 2006,
{{DEFAULTSORT:Global Sourcing
Procurement
International trade
Outsourcing
Business terms
Global business organization