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Global Sourcing Advantages and Disadvantages

Updated on June 26, 2012

Globalization

“Made in Jordan” or “Made in China”. How many times have you come across that line while buying products in your sundry shopping, may it be clothes or stationery? Quite a few times, isn’t it? It is actually hard to find a product made in the country you may be residing in.

That is the punch line of the story called Globalization.


Source

For mere survival in this fast paced and highly competitive world, companies are doing what is absolutely necessary to keep the business going everyday and that is- collaborating with folks across their geographic borders. With manufacturing happening in country A, headquartered in Country B and Support operations in Country C, we are witnessing a common phenomenon of today’s age called Global Sourcing. This simply defined is the state when buyers and sellers albeit existing in the same market yet are located in different geographical areas.


Global Sourcing Model : An Example

Global Sourcing
Global Sourcing | Source

Some of the factors for conducting business in this manner have been an increasing pool of skilled resources available at a lesser cost than in domestic markets, enhanced technology and communication sources that breaks down barriers of distance and faster results with work being done virtually around the clock in different parts of the world.

The most common example of course is China becoming the manufacturing hub for almost everything on this planet! Another example is the Information Technology and Business Process Outsourcing boom in India, Philippines and countries in Eastern Europe.

So what are the pros and cons of Global Sourcing?


Some advantages..

Companies get to tap into skills of resources that are not locally available
The supplier base is not restricted to the domestic market, giving companies the opportunity to transact with more competitive suppliers.
Time difference between countries can be used as a huge advantage where processing times are of high importance
Companies get to focus on their core processes and have more capital to invest in the same.

Top 10 Business Process Outsourcing Companies

Source : Supply Chain Digital, 2012

1. Accenture

2. IBM

3. Wipro Technologies

4. Affiliated Computer Systems (ACS, now a Xerox company)

5. Sodexo

6. Colliers International

7. Computer Sciences Corporation

8. Infosys Technologies

9. ISS

10. Capgemini

When companies in the US get work done by businesses in Canada or Mexico, it is called Near Shoring. When similar sort of work is done by their partners in Asia or China, it is called Off Shoring.

For most big corporations nowadays, sourcing globally is not a matter of choice but a necessity. Global sourcing is a vital aspect of their Strategic Sourcing & Procurement Policy. Gone are the days of simply finding the best contract with suppliers you interact with a number of times a month. Now you seek suppliers from across the globe, those who promise good rates, are professional to work with, draw out attractive agreements detailed with service levels, pay per milestone crossed options and even offer returning fees or no pay if targets are not met. All this, with the least amount of face to face interaction with your supplier!

Yes, the world has shrunk and most of us do business with folks from around the world. This practice is only increasing in popularity and companies are now working towards mitigating the cons listed in the table above.


Some disadvantages

Existence of ‘hidden costs’ that arise due to cultural as well as time zone differences.
There may also be increased ‘monitoring’ costs when work is near shored or off shored when compared to domestic suppliers.
There is an increased risk of loss of data as well.
Increased risk of shut down of operations due to conditions arising in the supplier country

To overcome some of the cons listed above, Off shore Service Providers ( as they are commonly known as) take a number of measures such as -having culture orientation classes for their employees serving a client in say Australia. They have voice and accent training for their teams to increase communication satisfaction levels. For better confidence as well as trying to reduce the distance barrier, many Service Providers of business outsourcing services now have ‘onsite’ program managers who act as liaisons between the onsite Client and the Off shore business unit. This has helped in instilling confidence and reducing issues and conflicts that arise in day to day operations.

Earlier days of ‘lost in translation’ and with Asians using English ‘work names’ is all history and Global Sourcing has come of age. It is a fact of life that the world is grappling with today.


Let alone corporations, my father is most disappointed when we get him a golf shoe from US which says ‘Made in China’. He rather it said ‘Made in USA’. So now we go in search for gifts that are indeed made in USA and trust me that is quite a challenge!

Read more on the History of Off Shoring


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    • krsharp05 profile image

      krsharp05 4 years ago from 18th and Vine

      I love when I read a hub and learn something new. This is very interesting and important. You've done a nice job of explaining both views of off shoring and it does seem more difficult to find "home grown" products. Thanks for sharing. -K

    • Riverfish24 profile image
      Author

      Riverfish24 4 years ago from United States

      :) Thanks for visiting K !

    • tamarawilhite profile image

      Tamara Wilhite 4 years ago from Fort Worth, Texas

      Another disadvantage of global sourcing is disruptions to the supply chain. If a major component your product is manufactured overseas, you cannot get your parts if a natural disaster shuts down shipping from that region, even if the supplier is intact and has your parts sitting on the dock. This happened in Japan after the Fukishima disaster - even plants that had stock to send couldn't get it out to international customers because aid was coming in.

    • Riverfish24 profile image
      Author

      Riverfish24 4 years ago from United States

      Yes, that's right, I recall the impact of the Japan disaster on certain manufacturing companies and delay in part shipment. Inspite of Business Continutiy and Disaster Recovery Plans in place, some times planning for natural disasters is rather difficult.

    • pramodgokhale profile image

      pramodgokhale 4 years ago from Pune( India)

      The basic of Globalization is to cut expenditure and outsource partly to other country where wages and manufacturing cost is low.

      Economies of G-7 , there was no further scope to expand and grow then they turned to developing and emerging nations with ready infrastructure to try their processes and found that service and skills are available at low cost ,has had immense benefits, Developed nations started investing in those countries.

      Many poor nations could not take advantage of globalization because of resource-deficit and their economies went to bankruptcy

      Survival of the fittest is a jungle law but in human society it can not be implemented so that will bring inequalities across the globe

      Useful interdependence is a good concept but finally levers of this game are in hands of strong nations.

      At present in India we enjoy globalization because our over restricted democracy was conservative in business and lack of creativity and productivity and routine oriented government bureaucracy, in 1991 we were on verge of collapse but opening of economy yielded results within two decades we are known as powerful economy and Indian corporates are investing in developed and emerging nations , buying loss making companies there and turning around them.

      Our latent force was released and we became vibrant economy.

      Thank you,

      pramod gokhale

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