Advantages And Disadvantages Of Global Sourcing

Advantages Of Global Sourcing:

• Cheaper cost.

• A skilled workforce.

• Increased production capacity.

• Infrastructure.

• Technology.

Disadvantages Of Global Sourcing

• Language barrier.

• Local tariff and tax.

• Political instability.

• Shipping costs.

 

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.

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 the international 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 can 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 toward 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 benefit 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 to stay ahead of the technology curve.

Cons of Global Sourcing

Global sourcing is not without disadvantages. Companies have to face several challenges while engaging in international 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 communication gaps, organizations cannot carry out their manufacturing operations smoothly. Marketers will also face difficulty in communicating with suppliers. However, with the assistance of experienced international 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 communication. 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 to the overall cost equation.

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.