Advantages and Disadvantages Of Global Sourcing
Global sourcing is a highly viable solution for facilitating the development of goods and services requiring intensive labor, high production costs, technological proficiency, language proficiency, and other high value skillsets. If an organization’s native country does not provide a conducive ecosystem for ideal outcomes, it tends to rely on sourcing from a foreign destination instead.
When compared to local sourcing, a foreign alternative can be beneficial for high-cost countries such as the US, UK, Australia, Canada, and Western Europe. Global sourcing networks for procuring raw materials, resources, and services from countries such as China, India, Brazil, and Bangladesh help businesses in high-cost counties to ensure a comfortable bottom line.
Advantages of Global Sourcing Networks
With digitalization at the forefront of nearly every business, global sourcing has become far more convenient. Collaborating with global suppliers and partners can be facilitated through traditional online conferencing tools, as well as dedicated software. Current supply chain software solutions provide avenues for real-time collaboration and transparency, providing a number of benefits:
For high-cost countries, the comparative cost in developing nations can be financially beneficial in terms of procuring raw materials, skilled workers, and equipment. Economies of scale in these countries further enable higher savings and a potential reduction of labor costs.
Companies investing in the development of global sourcing networks can expect to encounter new markets and suppliers. These opportunities provide exposure to different types of supplier portfolios, enabling businesses to truly become global players.
Businesses headquartered in high-cost countries are not all based in locations with adequate infrastructure facilities. International sourcing may provide a viable alternative for meeting high demand, allowing for a viable alternative with increased production capacity. This helps meet consumer demand whenever it rises beyond an organization’s scalability threshold.
Filling Skill Gaps
In many instances, certain overseas locations may possess particular skill sets which do not exist in high enough quantities within an organization’s home country. Global sourcing allows organizations to fulfill the need for these requisite skills, often at a fraction of the cost.
Large conglomerates venturing into global sourcing can also drive better relationships between national governments. The exchange of goods and services across geopolitical boundaries can open up opportunities for driving increased bilateral trade partnerships.
Disadvantages of Global Sourcing Networks
International procurement must occur from locations outside the organization’s home country, and with that, issues may arise. While some of these are cultural hindrances, others relate to the regulatory and industrial framework within sourcing countries. Disadvantages of global sourcing may include:
Local Regulatory Hurdles
When procuring raw materials from a particular geography, there may be local tariffs and regulatory compliance which must be followed. Companies need to ensure that all local and national laws and regulations must be followed.
It’s often difficult to ensure that overseas suppliers have the necessary quality control measures in their supply chain. Consumer expectations of product quality may not always be met if sourcing globally. Quality assurance may suffer if done through proxy measures, and organizations should take great care to work with reliable quality assurance partners.
Organizations are often faced with political instability across their supply lines when working with international sourcing options. Political unrest can lead to protests, riots, and goods getting stuck at ports, in addition to criminal elements taking advantage of times of political instability. Businesses can face millions in losses during these situations, especially when raw materials are sourced exclusively from an unstable country’s resources.
Miscommunications should be avoided to ensure that the supply chain functions smoothly. Potential problems can arise if a sourcing agency or business speaks a language different from your own. Fortunately, there are high quality translators and interpreters who can understand the nuances of both the supplier and your organization’s native languages.
Businesses can get access to new markets, cut expenses, and source a wider variety of goods and services by sourcing globally. However, it is crucial for businesses to carefully examine any hazards, such as linguistic challenges, lengthier lead times, and cultural differences. Companies may successfully traverse the difficulties of global sourcing and enjoy the benefits of a more varied and dynamic supply chain by implementing effective communication and risk management systems.
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