GLOBAL SOURCING
By:Ashok Rawat - 13
Burhanuddin H D - 15Chetan Gandhi - 16
GLOBAL SOURCING
The procurement of products or services from
independent suppliers or company owned subsidiaries
located abroad for consumption in home country or third
country.
MAKE OR BUY DECISION Decide between internalization/externalization
What is your core competency?
Also decide buy local-or-global
Adopt global sourcing when:
• Low cost
• Improve quality
• Increase reliability of supply
• Establish presence in foreign market
• New technology
• International PLC
• Reacting to sourcing patterns of competitors
SOURCING CONFIGURATION Vertical integration
• Focus on internalization of value chain
• Ownership of suppliers
• Reduction in transaction costs
Industrial clusters outsourcing
• Buyers and suppliers locate in close proximity
• Reduction of transportation and transaction costs
Japanese Keiretsus
• Buyers and suppliers located in close proximity
• Buyers have an ownership interest in suppliers
e.g. Toyota
STRATEGIC IMPLICATION
DRIVERS OF GLOBAL SOURCING
Technological advances
Declining communication and transportation costs
Entrepreneurship and rapid economic transformation.
GLOBAL SOURCING
Strategic Benefits
Cost Efficiency
Faster corporate growth.
Access to qualified personnel abroad.
Improved productivity and service.
Business process redesign.
Increased speed to market.
Access to new markets.
Technological flexibility.
Improved agility by shedding unnecessary overhead.
Challenges/Risk
Vulnerability to exchange rate fluctuations
Partner selection, qualification, and monitoring costs
Increased complexity of managing a worldwide network of production locations and partners
Complexity of managing global supply chain
Limited influence over the manufacturing processes of the supplier
Potential vulnerability to opportunistic behavior or actions in bad faith by suppliers
Constrained ability to safeguard intellectual assets
Local Manufacturing
RISK OF GLOBAL SOURCING
Less-than-expected cost savingsConflicts and misunderstandings arise because of differences
Environmental factorsExchange rate fluctuations, labor strikes, adverse macro-economic events, high tariffs and other trade barriers, and high energy and transportation costs.
Weak legal environmentMany popular locations have weak laws and enforcement regarding intellectual property, which can lead to erosion of key strategic assets.
RISK OF GLOBAL SOURCING
Over-reliance on suppliers
Unreliable suppliers may put earlier work aside when they gain a more important client.
Erosion of morale and commitment among home-country employees
Global sourcing can create a situation in which employees are caught in the middle between their employer and their employer’s clients.
RISK OF GLOBAL SOURCING
Risk of creating competitors
As firms share its intellectual property and business-process knowledge with foreign suppliers
Inadequate or low-skilled workers
Employees may lack KSAs or high rapid turnover of skilled employees.
STRATEGIES FOR MINIMIZING RISK IN GLOBAL SOURCING
Firms ought to go offshore for the right reasons
Need to get employees on board
Choose between a captive operation and a contract with outside specialists carefully
Choose countries and suppliers carefully
The focal firm needs to invest in supplier development and collaboration
JiJun Xia & Yaching Chang 12
13
DELL’S MODEL
14
OUTSOURCED
15
SUPPLY CHAIN
APPLE(US)
Basic & Applied R&D,Product Design, Commercialization
ARM HOLDINGS(UK)
Chip Design
BALDA(GERMANY)
Touch screen
SAMSUNG(KOREA)
NXP SEMICONDUCTOR
(NETHERLANDS)
Chips
INVENTEC(TAIWAN)
Assembly
18
A WORLD MAP OF SERVICES OFFSHORING
19
REFERENCES
• “Global Sourcing of Services and Market Performance: An Empirical Investigation," Journal of International Marketing,6 (1998):10-31.
• International Journal of Global Logistics & Supply Chain Management Vol. 1, No. 2, 1 November 2006, 90 – 97.
• Globalization of Work :Outsourcing and Offshoring,Global Executive Forum,2005,6-7
• The Real Cost of Offshoring,Michael Mandel,Business Week, June 18,2007
• “Outsourcing: Time to Bring it back Home?” Economists, March 5,2005,63
• “Outsourcing: Pros and Cons", Murray Weidenbaum,Executive Speeches 19(2004):31-35
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