Global Sourcing is done as part of the buying process for getting materials and products from other countries outside the home country for availing special benefits. This is due to the fact that different countries have a different price for the same products and services due to the extent of development. Another factor that contributes to the lower price will be the availability of raw materials in the specific country in abundant quantity.
In today’s day and age, companies are looking for cheaper and more convenient ways to produce their products as well as maintain dominance in the market in terms of trends as well as monetary aspects to remain relevant in the market for the long run. Due to this, companies find ways to implement new strategies that will boost their business. One of these strategies is called
- Global Sourcing is a procurement strategy that includes getting materials and products from other countries outside the home country for availing of special benefits.
- In recent times Global Sourcing has helped businesses develop and advance to meet bigger goals and make more enhanced sales.
According to Deloitte, ‘Outsourcing is still seen as an enabler of business transformation’. There are many reasons why international businesses outsource:
Lower Cost
Certain tasks that are cheaper in other countries can be outsourced for economical reasons. However, the quality of the service offered must be checked for meeting the standards while choosing global supplies of labor. According to Deloitte Global Outsourcing Survey conducted in 2020, 70% of the respondent’s agreed-upon cost saving as the primary objective for outsourcing, mostly because certain tasks and assets are cheaper in other countries.
- Hence companies find themselves cutting a great deal of cost through outsourcing. For example, labour cost is cheaper in developing countries because the cost of living is cheaper in that region. This adds to lower training costs as well.
- Since the countries like China and Japan have notably low labour costs, they have the luxury of facilitating their research and development team with monetary funds and assets without compromising on the product/service quality.
- Along with this, the manufacturing cost is also lower in low-cost regions, hence businesses can produce products (often in bulk) at a very reasonable cost. This is greatly beneficial to businesses who are financially struggling or don’t have enough funds to locally produce the product.
Accessibility of Raw Materials
If the raw material available for the manufacturing is available in other countries it is good to depend on global sourcing for the supply. Possibilities for economical factors also need to be considered while contacting global sources for the requirement of the materials.
Reciprocal Service
- In certain cases, global sourcing can be done on mutually agreeable terms. Reciprocal Services means that a seller of service could be the purchaser of another service.
- For example, a maintenance department in a local company lends out a helping hand by providing service to a company in a country abroad, then the company in the country abroad can reciprocate this by helping them in the administrative department.
- In this case, both import and export can be done as long as both companies are in a mutually beneficial agreement while adhering to the trade laws of their respective nations.
Competitive edge
Global Sourcing can bring a competitive edge to international businesses and help elevate them in the market.
- By introducing a product in the market that the local competitors haven’t produced yet; the business can attract a lot of customers and create a buzz in the market about the product that’ll help them stand out among local competitors.
- Major companies like Alibaba, Slack, and Skype have all used global sourcing to gain a competitive advantage that has helped them gain dominance in the market.
- In conclusion, there are many reasons why Global Businesses consider global sourcing, and almost all reasons are connected to the idea of making the business as feasible and as efficient as possible while maintaining a good yield of profit. Global Sourcing not only is responsible for helping businesses become successful but also helps sustain themselves in the market.
Westford University College’s MBA in International Business is designed to provide students with a comprehensive understanding of the global business environment and equip them with the skills needed to succeed in international markets.
