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