Advantages And Disadvantages Of Global Sourcing
A large number of modern-day organizations resort to sourcing activities to reduce their
manufacturing costs. If the production costs are reduced, the prices of goods and services will also
be lowered. This will intrigue more consumers to buy a particular product or service. One cannot
deny the benefits of conducting sourcing activities in foreign destinations. If organizations decide to
conduct their manufacturing operations in their native country, it will lead to an increase in
production costs. Much of it depends on the economic condition of the organization’s native
country. New-age business firms seek assistance from procurement outsourcing agencies to
channelize their sourcing activities.
Pros of Global Sourcing
If you run a business, you must have thought about global contract manufacturing to minimize your
manufacturing costs. Outsourcing your firm’s production operations to low-cost countries like China,
India, or Taiwan could save your business plenty of money. The advantages of conducting sourcing
activities in a foreign destination are listed as follows:
Cheaper Cost:
No doubt, the labor costs in countries like China, India, and Taiwan are significantly cheaper than
labor charges in the U.S. and the U.K. Every marketer wants to get hold of quality products while
spending the minimum. This is increasingly possible with global sourcing activities of organizations.
Most marketers look for optimum utilization of manufacturing labor in these countries. Added to
this, marketers can also be assured of the quality standards of these products. This is indeed an
added advantage for organizations. By cutting down labor costs, you have the option to allocate that
money elsewhere
A Skilled Workforce:
Every marketer wants skilled professionals to manufacture their products. Hiring an experienced
professional will keep marketers free from all sorts of headaches. The workforce in countries like
China, India, Taiwan, Vietnam, Indonesia, etc. are aware of the latest trends in production
techniques. They also know how to implement these advanced manufacturing techniques in their
operations. This enables them to manufacture products that conform to global quality standards.
The presence of a skilled workforce and low labor charges in certain countries intrigue marketers to
engage in sourcing activities in these nations.
Increased Production Capacity:
This is another major benefit of global sourcing. Because of huge investments in the manufacturing
sectors in countries like China and India, the production capacity of these countries has increased
manifold. Most of the sourcing destinations that organizations select have dedicated huge portions
of their economy and investments towards manufacturing. These countries also have the technical
labor force needed to run the manufacturing plants. The technical labor force of these countries also
has a higher skill set when compared to the U.S.
By conducting sourcing activities in these nations, organizations can also increase their production
capacity quite smoothly. This is particularly helpful in times of increasing consumer
demand. Procurement outsourcing firms give effective suggestions to organizations regarding how
to align their production operations with the spikes in consumer demand
Infrastructure:
Countries with excellent infrastructure and superior transportation options catch the eyes of
marketers. If a company decides to conduct its procurement activities in a destination that has
excellent infrastructure, it is very likely to be benefited from shorter lead times. Marketers can get
hold of the finished products within a short period.
Technology:
Huge investments are being made ensuring production plants are equipped with the most up-to-
date technology in the world. Technology also has an important role to play when it comes to the
quality standards of products. It is always recommended to select a sourcing destination where the
condition of factories is good. Most factories in China, India, and Taiwan have dirt floors and leaking
roofs. If this is the case, it is bound to affect the manufacturing operations of organizations. Though
these countries are sourcing hotspots, they need to consider this aspect for staying ahead of the
technology curve.
Cons of Global Sourcing
Global sourcing is not without disadvantages. Companies have to face several challenges while
engaging in global sourcing activities. The disadvantages of conducting sourcing operations in a
foreign destination are listed as follows:
Language Barrier:
It is undoubtedly the biggest obstacle when it comes to conducting sourcing activities in a different
destination. For example, if a U.S. based firm wants to operate in China, it has to be familiar with the
Chinese language and the local codes. There are hardly any similarities between Chinese and English
languages. If there are gaps in communication, organizations cannot carry out their manufacturing
operations smoothly. Marketers will also face difficulty in communicating with suppliers. However,
with the assistance of sourcing agents, organizations are minimizing this problem.
If you want to maintain positive relationships with your business partners, you need to have quality
customer support as well as an effective channel for communications. Before operating in a
challenging environment, organizations need to adopt all the necessary measures for its effective
functioning.
Local Tariff And Tax:
Most organizations are not aware of the local tariff and tax structures relating to their sourcing
destination. To combat this problem, most companies take suggestions from local sourcing
agencies.If you are not familiar with the tariff and tax structure of your sourcing destination, you
may not be saving on your production costs.
Political Instability:
Political instability, both internal and external, can halt supply lines. When there are instances of
protests, riots, pirate activity, or airport closures in a particular destination, the sourcing activities of
organizations are very likely to be affected. Political instability also causes disruptions in the supply
chain in more ways than one.
Shipping Costs:
No doubt, shipping can be a fairly economical method but it can also prove to be costly sometimes.
Organizations need to perform the overall cost analysis of low-cost country sourcing and domestic
sourcing .
Organizations need to consider both sides before engaging themselves in global sourcing activities.
Agencies that provide services of procurement outsourcing address the needs of their clients
precisely. Conduct your organization’s sourcing activities in a different destination to reap increasing
benefits.
