What is Global Sourcing and How Can It Affect Your Business?

Date: July 4, 2014

What is Global Sourcing and How Can It Affect Your Business?

Technology is constantly reshaping the business strategies of the global marketplace and thus affecting the decision-making process, be it in manufacturing, procurement, management or marketing. As a result, the competition in various industries is increasing, whilst companies are forced to think of innovative ways to keep up with latest trends, utilize the available resources, and find the lowest costs in manufacturing their products.

This effort has resulted in the historic emergence of global sourcing, which is now practiced by international companies in order to enhance their competitive advantage and provide high-quality products and services to their target markets. Three main areas can be included in sourcing: manufacturing, telephone call centers, and international sourcing of skilled services. For retail companies, the goal is to find low-cost suppliers and manufacturers to be part of the supply chain. China, a frontrunner with some of the lowest labor costs in manufacturing and lowest prices of wholesale goods, is an example of a go-to country for US companies.

[Global sourcing in China? Search the Tradegood Directory now]

Although global sourcing provides companies with a faster time-to-market and a more comprehensive supply chain, it is cost that is the ultimate driving factor. In its simplest definition, companies look for suppliers around the world that offer competitive prices and high-quality goods. However, as companies approach it with a strategic objective, according to a PricewaterhouseCoopers report, in which authors Monczka and Trent have redefined global sourcing as the integration and coordination of procurement requirements across worldwide business units, looking at common items, processes, technologies, and suppliers.

An integrated strategy with proper planning and implementation of global sourcing yields a rewarding income stream and competitive advantages. However, such a strategy also requires comprehensive internal assessment as to whether the company is ready to adopt such practices or not.

Companies that use this strategy are most likely to:

Access new technology, designs, and specialized skills

Global sourcing provides more options in technology platforms, product designs, and the opportunity to innovate. There are technologies and specialized skills that a certain region, city, or country may have that local US manufacturers or suppliers do not have, and thus to complete a particular product design or facet, sourcing elsewhere is the best option.  

Increase the number of their suppliers

Implementing global sourcing provides a continuous flow of goods within the supply chain.  There are companies that adopt it by intentionally choosing strategic places to balance their proximity to raw materials or to wholesale goods to mitigate any supply shortage as demand increases. See why back-up sourcing is important.

Superior goods with low-cost production

Labor cost is the major driver of global sourcing, especially in mass production of electronic products by companies such as Apple, which is known for its international sourcing when it comes to smartphones and tablets manufactured in China. This is also applicable to apparel, toys, and other consumer products, where western companies take advantage of an emerging market’s economy, cost of living, labor force, and specialized skills. Burma and Cambodia are two new stars for low-cost manufacturing.

Tax optimization

The latest survey of retail and consumer companies by PricewaterhouseCoopers on global sourcing shows that 46% of the companies surveyed—59 mature companies from 8 different countries—consider tax optimization as part of their international sourcing initiatives, whilst 39% don’t consider tax costs or have limited possibilities of making strategic plans.

However, as the global-sourcing arena develops, there is a significant opportunity for a company to be a frontrunner in supply-chain tax optimization. If the company deals with tax compliance procedures, complies with legislative requirements, monitors changes faithfully, uses performance metrics and links them with tax efficiency, then they are likely to stay ahead of the game, PricewaterhouseCoopers said.

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