Global Sourcing PDF

8/2/2019 Global Sourcing PDF

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topics

1.Global Sourcing - Reasons for global sourcing,progression in global sourcing as to how a

company may initially start sourcing and later it may join as a share holder or joint

venture partner like Pfizer- Strides Arco Labs JV, or Boeing - HAL JV and may also take

over the supplier company like Acquisition of Ranbaxy Labs by Daiichi Sankyo of Japan.

2 Responsible Sourcing - Examples of Responsible Sourcing Practices by Cummins.com

,Wal Mart ,Bose Corporation etc

3.Vendor Evaluation

4. Phases of negotiations

5.Planning for negotiations

6.Risks of Global Sourcing

7.Role of Power in Global Sourcing

8.Role of Global Sourcing Agents like Lifung and Samtelglobalsourcing.com

9.Role of certain Institutions in promoting International Trade

10.eProcurement - ntpctenders.com

11.International Commercial Terms


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E-PROCUREMENT

Definition

E-Procurement is the purchasing of goods and services using the internet.

It covers full life cycle of purchasing (indent to receipt of goods)

It connects buyers and suppliers through electronic exchange of Tenders, Catalogues Contracts,

Purchase Orders, Invoices etc

Definition of E-Procurement

E-Procurement or electronic procurement is an automated, Internet-based method for a company

to purchase the goods and services which it needs , to conduct

its business .

It is web based method of procurement.

eProcurement Includes all web enabled transactions in

Goods and services

Components

Raw materials

Special customized supplies

Or for maintenance and repair purposes

eAuctions

What is eAuction?

It is a part of the Sourcing Process.

It is a procurement tool using web based software

that allows suppliers to bid online for a contract to supply goods and services.

It is sometimes called Reverse Auction because bids are reduced and not increased as in a

traditional auction .The objective is to arrive at the lowest total cost.


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E-Tendering

Using E-Tendering, the suppliers can

Receive notification of the relevant tenders

Purchase tenders document

Submit Bids Online

Track the status of their bids

Benefits Of eProcurement

It is an open, transparent and non-discriminatory way, to fix the conditions for

purchasing.

It is cost efficient as it reduces the overall cost of purchasing/procuring goods and

services.

And to establish rules for tendering electronically.

All elements of the buying process can be included in E-Procurement .

eProcurement unites buyers, sellers and brokers, and offers many interesting procurement

possibilities, such as,

Procuring companies can search for the best suppliers globally,

All potential suppliers can access the same catalogue from every business location

worldwide, or to consult complex contract documentation especially in the case of

defense procurement and large infrastructure projects ,Government Projects, World Bank

aided projects etc

Internal approval steps, like purchase order requests, can be automated and linked

to the selected products

By electronically tracking and recording the purchasing transactions eProcurement

improves reporting and record keeping.

It helps to increase order fulfillment accuracy and eliminate untracked, off-contract

maverick "or unauthorized buying by certain groups in the company or organization.


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Subsequent buying transactions, such as purchase order processing and submission to the

supplier, can then be completed over the Web.

Follow-up and tracking of the orders, including the fulfillment, delivery, receipt and

payment, can all happen through Web applications, providing improved and real-time

control of order status, at any time.

eProcurement also increases the companys purchasing efficiency by automating many

routing tasks and eliminating redundant/obsolete internal procedures.

Therefore, administration costs are lower and the purchase cycle, from order initiation to

fulfillment, is much shorter

Successful eProcurement Implementation

Requirements For Success

Internal Sponsorship means that Management should adopt eProcurement Process as

eProcurement will have a significant impact on the company and its profitability.

Internal sponsorship is therefore a must for a successful implementation of this eProcurement

approach.

Companies must analyze its existing procurement operations and how they will be impactedby the introduction of eProcurement tools and processes.

The Project needs to be planned ,prepared and managed carefully ..

Training is an area that should not be underestimated. Procurement team needs to learn the

new applications and processes and to understand how new purchases should be requested,

approved, submitted by bidders/suppliers and followed up till the required goods and services are

received in the stipulated time lines , at the prescribed quality and quantity.


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How To Plan For Negotiations

What is a Plan ?

It is a method or scheme , devised for

making or doing something to achieve a desired objective

Negotiation Planning

It involves identifying ,

1.Who will negotiate ?

2.What are the key issues to be negotiated?

3.When and where the negotiations will take place ?

4.How to conduct the negotiation ?

Successful Negotiation Planning

Successful Negotiation Planning Involves

1.Developing Specific Objectives

2.Analysing Each Partys Strengths And Weaknesses.

3.Gathering Relevant Information

4.Recognizing Your Counterparts Needs

5.Identifying Facts And Issues

Establishing A Position On Each Issue

For Example Mittal Steels may have decided to offer only Euros per share to Arcelor atthe time of negotiations.

Briefing Each Member Of The Negotiation Team Before Going For Negotiations So

That Conflicting Offers Are Not Made By Each Member Of The Team.

Practicing The Negotiation


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Developing Specific Objectives

Objective To Reach An Agreement On A Fair

And Reasonable Price.

For Example, The Buyers Objective could be,

Achieve FOB Unit Price Of 10 $ Per Component

Achieve A Delivery Lead Time Of 4 Weeks

Improve Quality By Asking Supplier to reduce defects from 500 Parts Per Million To 50

Parts Per Million .

Developing Specific Objectives

Categorize The Objectives As Follows Based On Importance

Must Have Objectives Under Any Circumstances.

For Example Wal Mart May Decide To Offer Only

5 $ CIF Los Angeles Airport,USA For Each Toy

Sourced From A Supplier In China. Wal Mart May Plan

Not To Offer A Price Higher Than 5 $ Under Any Conditions At The Time Of Negotiations.

Would Like To Have Category Of Objectives

In This Case, Wal Mart May Plan To Be Flexible

During The Negotiations .

For Example ,Wal Mart May Stipulate Delivery

Of Toys Within 2 Weeks Of Placing Order .

Wal Mart May Plan To Have A Flexible Approach To Accept Delivery Time Of 2.5 Weeks If

Supplier Makes A Request .


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Successful Negotiation Planning

Developing Negotiating Strategy And Tactics

Strategy means that you have determined, in advance, an ultimate goal which you would

like to achieve .

Tactics are the things you do to achieve your goal.

For example a meeting Is scheduled In USA Between An American Company and a

Supplier Of electronic components from Japan. When The Supplier arrives, he is kept

waiting in reception for half an hour, without being told why. As he walks through the

door into the other person's office they indicate to him to sit down, but they don't look up.

Instead, they sit , leafing through the competitor's brochure, in silence, ignoring his

efforts to make conversation .This is a tactic employed to send a message to the Supplier

that the American Company would deal with his

Competitors if his prices are not acceptable to the American Company.

Understand The Power Relationship

It Refers To The Power Exercised By Parties At The Time Of Negotiations. Example

Pfizer Vs Strides Arco Labs.

Power Is The Ability Or Strength To Influence Another Person Or Organization .

Though Pfizer Is A World Famous Pharma Company, Strides Was Not Intimidated

During The Negotiations.

Finally Strides Was Successful In Finalising A Joint Venture Which Was In The

Interests Of Both The Parties.

Power Can Influence The Outcome Or Result Of Negotiation .For Example ,The Buyers

Ability To Reward Or Punish A Supplier Represents Use Of Power To Influence The

Outcome Of Negotiation

12. Brief Members Of The Team

13.Practise Negotiation .


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Power In Negotiation-

The Impact of Power

Power Influences the outcome or result of the negotiations in favour of the organization

exercising the power

Power is a part of the negotiation strategy

Sources Of Negotiation Power

1. Informational Power

2.Reward Power

3.Coercive Power

4.Legitimate Power

5.Expert Power

6.Referent Power

Informational Power

It is the power exercised by one party having complete information, data and statistics

about the other party , so as to restrict the options available to the other party.

For example, the complete information gathered by Daiichi Sankyo on Ranbaxy Pharma

before starting negotiations to acquire Ranbaxy successfully.

For example a purchaser may do research on the other party's financial strength ,debts,

share value etc and prepare for a negotiation with relevant information. Such info

increases his power during negotiations.

Power To Reward

It refers to the power of one party to offer something of value to the other party.

For example a sourcing companys ceo may tell a potential supplier that the volume of

orders will be increased if supplies are as per agreed quality and time lines.

The other party should value the reward, only then the party offering the reward will have

power.

Disadvantage of reward

The other party may get conditioned or accustomed to the rewards


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Coercive Power

It is the power held by one party to punish the other party financially ,physically or

mentally.

For example, Purchaser may threaten to withhold business or reduce the price unilaterally

if supplier does not agree to certain demands.

Legitimate Power

Legitimate Power emerges from the position held by one party to the negotiation .

For example , a purchaser may have legitimate power because he or she represents a

prominent company. For example , the purchase executive from an internationally well

known company like Wal Mart may exercise power over a supplier located in China or

India by virtue of representing a well known company.

Referent Power

Referent Power Is the power exercised by an individual due to personal qualities like

Charisma,Honesty,Friendliness and Sensitivity.

He attracts the other party(Non Referent) who wants to be like the power holder.

The Non Referent wants the Referent to look favourably upon him or her .For eg,Mr

Ratan Tata Chairman ,Tata Group, Mr. Bill Gates of Microsoft, Mr. N.R.NarayanaMurthy,Founder of Infosys and Mr L.N.Mittal of Arcelor Mittal Steel. Their Presence at

the negotiation table radiates power by virtue of their personal qualities .

Expert Power

An expert is respected as having vast knowledge and mastery over a subject , with

Credentials to verify and evidence the mastery.

The presence of an expert with one party will strengthen its position, views and opinions

which cannot easily be refuted by the other party.

For example, a pharma manufacturing company may negotiate with a vender for raw

materials called Active Pharma Ingredients. The supplier may demand unreasonably high

price .If the purchaser is accompanied by a pharma expert who knows the process and

manufacturing cost of such raw materials, then it will be difficult for the supplier to quote

unreasonable price when confronted with the pharma expert .Thus , a party who is

accompanied by an expert exercises relatively more power over the supplier.


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Risks In Global Sourcing

1. Risk of not estimating the labour cost. The sourcing company has to study the prevailingcosts and wages in the target country from where it plans to procure the goods and

services ,failing which it may end up paying more than fair price for the products and

services,which will affect its profitability.

2. Estimation of Prevailing Wages For example, salaries in Northern and Western Chinaare 60% lower than Shenzhen. So if the sourcing company does not know this fact and

sources from Northern China,it may pay more for the goods and services thinking that

Northern China salaries are equal to Shenzhen.

Basis Of Estimations

Statistics on Labour Costs given by The International Labour Organization

www.ilo.org (Publications and Statistics) or by The Bureau of Labor Statistics In Each

Country,and other studies to benchmark labor rates in global markets could be relied upon to get

a clear idea about prevailing wage rates

Improper Product Classification

Different products attract different taxes & tariffs In the country of supply say China.

Different products attract different shipping charges In the Country of supply say China.

Different products attract different taxes,

& tariffs in the country of Import (destination) say USA.Proper Classification Facilitates

Proper calculation of total costs .otherwise the products which should attract lower tariffs may

attract higher tariffs causing loss.

Ambiguity In Terms Of Trade

The International Commercial Terms (Inco terms) were devised by Intl Chamber Of Commerce

so that there is uniform understanding all over the world about each of the terms.

Ambiguity or lack of clarity about the terms of trade in the agreement may lead to disputes

supply interruptions and expensive litigation.


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The agreement should mention whether the price offered and accepted is Ex Factory,FOB,CIF

Etc

Overlooking Packaging Process

Depending on the product shipped and transportation mode chosen, product packaging must be

given consideration for protection against damage, spoilage and corrosion.

The wrong packaging can negatively impact the cost savings potential of a global sourcing

model

In House Logistics Management

Sourcing Companies lacking In house experienced team, in supply chain management, may

invite the risk of losses by procuring the products through longer shipping routes ,delayed

arrivals, etc.

It is better to outsource the work to 3 PLs that is third party logistic companies which have the

expertise to ensure supply through the cheapest,quickest and most efficient mode and route of

transportation.

Product Quality

Deviations by supplier from prescribed quality causes multiple losses.

Rectifying the defect at destination plant or business also increases the cost .

Cost Of returning the defective parts to Supplier will also entail losses.Some multinational

sourcing companies station their quality control experts at suppliers plant to ensure quality of

production.

Sourcing Energy Intensive Products

Sourcing Products Requiring Intensive Electrical Consumption .

Electricity supplies in countries like India & China are prone to frequent interruption impacting

on cost . Frequent Black Outs (Power Cuts) In Suppliers Plant May Impact Supplies.So sourcing

companies should be careful while procuring power intensive products globally .

Fluctuations In Exchange Rates

Fluctuations In Exchange Rate may cause uncertainty In total costing .Usually Sourcing

Companies (Clients) And Service Providers (Suppliers ,Vendors) agree at the time of Contract


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,to renegotiate price if the exchange rate say between US $ and Chinese Yuan. rises above or

falls below, a certain level.

Fluctuations in Exchange Rate

Let us assume that Bose Corporation USA,sources a Chinese electronic component at US $ 100

.At the time of negotiation the exchange rate may be 100 $ = 682 Chinese Yuan Renmimby

(CNY).Then in the agreement, both the parties may agree that the price will not be renegotiated

in future if exchange rates do not rise or fall below 5 % of the above exchange rate.

Political Risks

Macro level risks all over the suppliers Country,such as unforeseen increase in customs

duty,value added tax(VAT),riots, strikes ,terrorism, coups,civil war etc..For example in the case

of Iran,during recent Presidential election, Iran`s embattled President Mahmoud Ahmadinejads

disputed re-election,unleashed the worst crisis in the Islamic republic`s history.

Micro Level Unrests

Micro level risks at the suppliers plant like strike by workers, change of ownership, wanton

default by suppliers,, their refusal to share financial data ,seizure of plant and equipment of

defaulting suppliers by financial institutions etc.For example The vast accounting scandal at

Satyam Computer Services increased investor nervousness about weak corporate governance inemerging markets and strained its relations with existing clients till Tech Mahindra Ltd ,took

over the company.

Risks Of IPR Violations

Supplier May Violate Intellectual Property Rights (IPRs) of sourcing company (Client). For

example, the product plans, specifications, drawings may be given for rival companies of clients.

The specifications, drawings could be given to another country Inimical To clients country

.India & China figure among major violators of IPR

Global Sourcing


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Question: What is Global Sourcing?

In an increasing competitive marketplace, firms are seeking new methods like global sourcing

for enhancing their competitive advantage.

Global Sourcing is defined as a disciplined, systematic process. wherein a business enterprise,

views the entire world as a potential source for components, services, finished goods and

Partners. It is also called as Worldwide Sourcing, Outsourcing orLow Cost country sourcing.

It can also be defined as the process of identifying, evaluating, negotiating and configuring

supply across multiple geographies or nations inorderto reduce costs, maximize performance,

mitigaterisks etc. Most companies report an average savings of up to 30% when they begin

global sourcing.

For example ,Toshiba of Japan ,which is a world leader in high technology and manufacturer

/marketer of advanced electronic and electrical products, spanning information &

communications equipment, systems, Internet-based solutions and services, electronic

components and materials, power systems, industrial and social infrastructure systems, and

household appliancesetc, has opened International Procurement Offices (IPOs) in 10 strategic

locations around the worldin San Francisco, Boston, London, Singapore, Taipei, Hong Kong,

Shanghai, Dalian, Shenzhen, andTokyo, to identify world class suppliers for all its requirements

at significant cost savings.

Question: Explain the reasons for global sourcing with suitable examples?

1.Costs A global sourcing strategy is often used to benefit from lower labor costs abroad.

Global sourcing affords the opportunity to purchase goods, materials and services at

significant cost savings. Global sourcing allows companies to improve their financial

position through cost savings that contribute directly to profits. Companies are

increasingly using global sourcing to shift work to less expensive locals, cut costs, offer

more competitive pricing and grab market share. Global Sourcing does not mean sourcingfor the cheapest materials. In fact it means sourcing for materials and services which are

relatively cheaper in other countries than the costs in the sourcing country. Forexample,

Valeo, a leading French automotive equipment supplier, recently announced plans to source a

whopping 70 percent of its procurement from low-cost countries. It employs 52,200 employees

in 120 production sites, 21 research centers, 40 development centers and 10 platforms for

distribution in 27 countries .(www.valeo.fr)

2. Quality Requirements


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Global Sourcing is an important strategy to obtain goods and services of required quality either

in the form of raw materials, components or finished products and services,so as to offerthe final

products of high quality to customers , commensurate with the quality standards of the sourcingcompanies. Quality is the result of dedication and hard work, and an unyielding commitment to

excellence.

For Example ,Cummins Inc,is a global company which manufactures Power generation systems

and several other products of international quality .It serves customers in approximately 190

countries with reported sales of $10.8 billion US $in 2009.The Cummins Supplier Handbook

contains quality requirements plus other requirements that a supplier must meet to do business

with Cummins. The Supplier Handbook applies to all suppliers that provide direct materials to

Cummins and any of its subsidiaries, joint ventures, divisions, or affiliates .Cummins relies only

on high quality suppliers which it treats as Global Partners in quality.Global sourcing is a

powerful factor in developing a global competitive advantage. (www.cummins.com)

3.Availability of Materials orTechnology only from Global Sources

There are several firms even in developed countries like USA, Germany, and Japanetc which

do not get the raw materials, components andservices from their domestic markets. Hence they

have to source globally for their requirements as is evident from a study of the US Based

Company Leopold and Stevens (www.leupold.com)

Leupold& Stevens is a fifth generation, family owned company that has been in business for 102

years and employs over 600 American workers. All Leupold Golden Ring Riflescopes are

designed, machined, assembled, and tested in Leupolds state of the art manufacturing facility in

Beaverton, Oregon, USA. Leupold uses over one million pounds of aluminum, amounting to

over 100 miles of extrusion, in its facility every year. Leupold uses foreign sourced components

for some parts of Golden Ring products, primarily lenses. This is because at this time, there is

no American manufacturer which can supply the quantity of high quality lenses that Leupold

needs for its annual Golden Ring Optics production.

The second example is that of The National Aeronautics and Space Administration, NASA inUSA which had to source and use the Hasselblad cameras made in Sweden to take pictures of the

earth and the moon from the manned spacecrafts launched by NASA.

Hasselblad, the Swedish camera manufacturer, has a long and fruitful relationship with The

National Aeronautics and Space Administration, NASA (USA). On one of the first space

missions, NASA used a camera of another make that did not work to their satisfaction. One of

the astronauts, also a skilled photographer, suggestedthat Hasselblad cameras be used to their

extremely high standards and requirements. A standard Hasselblad camera was purchased in a

camera store in Dallas and in 1962 it was taken up into space for the very first time. Ever since,


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Hasselblad is to have had cameras onboard all manned American space missions and lunar

landings. The following are some of the photographs taken of the moon and on the moon by

Hasselblad Special Quality Cameras made in Sweden.(www.hasselblad.com)

.Another example is Swiss pharmaceutical giant Rochewhich wantedto produce the flu

medication Tami flu, which at that time, was the only medication effective against the deadly

H5N1 strain of avian flu. A key ingredient of Tami fluis shikimic acid, which is extracted from

wild star anise, which is only available from four provinces in China.

4. The fourth major reason for Global Sourcing is to establish additional sources of supply.

Shoe and athletic apparel giant Nike, is a prominent example. It contracts with more than 700

factories in 52 nations. Having such a broad supplier base ensures that supply chain disruptions

in one factory or region can be absorbed by suppliers in other regions, and thus minimize theimpact to Nike.

Nike contracts with manufacturers in China, Vietnam, Indonesia,Thailand, India, Mexico etc, to

produce virtually all of its footwear. One small exception is the Air-Sole cushioning components

used in its footwear. They are manufactured in Beaverton and Missouri in USA and are shipped

overseas to manufacturing plants.

5. Anticipation of actual material shortages

Global Sourcing is the only means to source and procure productslike oil and coal whose

shortage is anticipated in the domestic market .For example, the American energy industry

doesnt have the production capacity it needs to meet the energy requirements of this country.

Although America has vast resources of oil and coal, much of it remains untapped in regions that

are declared off limits to extraction or that are in difficult to access areas. The result is a

perennial shortage that forces the US Companies to import oil from Canada and the OPEC

nations, and to buy coal from Asia.

Till recently, India was a major exporter of refined sugar to the world markets .However due to

steep rise in the price of domestic sugar due to non availability of sugar from domestic sugar

industry, the Government of India permitted import of sugar in 2010, to tide over the crisis and

to contain the high domestic prices.

6. Expansion in the domestic market

A business enterprise which has been successful in its business in the domestic market with its

existing portfolio of products may resort to Global Sourcing, for acquiring andselling more

products under its brand name in the domestic market. Pfizer Inc, which is the worlds largest

research-based pharmaceuticalcompanyentered into a collaboration agreement with Strides

Arco Labs of India and announced on 6 th January 2010,thatPfizer will in license about 40 off-


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patent sterile inject able and oral oncological products from Srides Arco Labs for sale in USA

under Pfizers brand name .Oncology products are used to treat cancer patients.

7. Global Sourcing For Joint Ventures

Joint Ventures refers to enterprises which are set up by 2 companies or countries to take

advantage ofJoint ventureswhich may help firms to access local expertise and talent, promote

a product or take advantage of trade agreements.

The Boeing Company USA and India's Hindustan Aeronautics Limited (HAL) signed a 10-year

Memorandum of Understanding (MOU) on 10th January 2007, to bring more than US$1 billion

of new aerospace manufacturing work to India. It includes sharing key Boeing business and

manufacturing tools and technology upgrade with HAL.

The agreement will make Boeing products more globally competitive, while allowing HAL to

grow and expand its potential market around the world. Its a win win business for both the

companies.

Boeing will support HAL in developing manufacturing processes and capabilities needed for the

production of hardware for Boeing and/or its subcontractors. Boeing also will support the

training and transfer of Boeing best practices to HAL.Such joint ventures also promote the sale

of Boeing Aircrafts in India by creating a favourable impression about the company. Boeing

already won an order for 68 Boeing jetliners in Dec 2005 from Air India .It was the largest

commercial airplane order in India's civil aviation history in terms of price.

8. Global Sourcing for large variety and volume of products

It is not always possible for a business enterprise to procure different varieties of products in

huge quantities or volumes from the domestic market.Wal- Mart is a good example of this nature

of global sourcing .The worlds largest Retailer,Wal Mart sells a large variety of merchandise

such as toys, apparel, jewellery, electronic products etc from in equally large quantities sourced

from different parts of the world at lower prices. Wal-Mart is not just the world's largest retailer.

It's the world's largest company--bigger than ExxonMobil, General Motors, and General

Electric.Wal-Mart serves customers and members more than 200 million times per week at more

than 8,416 retail units established under 53 different banners in 15 countries. In fiscal year

2010,it posted sales of $405 billion.Wal-Mart employs more than 2.1 million associates

worldwide. It buysa wide variety of lower cost products from more than 60,000 suppliers in

70countries.

9. Global Sourcing to tap worldwide scientific talents and technological skills.

It is the strategic policy of manymultinational companies to source and tap scientific talents

and skills available worldwide.Boeing and Hindustan Aeronautics Limited (HAL) of India

signed an agreement for the production of flaperons for use on Boeings 777 series commercial


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jetliner. The work will be performed in Bangalore, India, tapping the vast scientific skills and

expertise of HAL.Working with Indias technology leaders helps Boeing assimilate new ideas

and innovative processes into our products and programs. This also is good for India because ithelps grow the capabilities of the Indian R&D community to meet the emerging needs in

country, stated the President of Boeing India.

Boeing Research & Technology-India center was also set up in Bangalore in India which will

help sustain the companys competitive technological edge while enhancing Indias aerospace

capabilities. The center marks another milestone of Boeings long term relationship with India.

This centre will carry out continued collaboration with Indian R&D organizations, including

government agencies and private sector R&D providers, universities and other companies.

Boeing is partnering with the best researchers around the world to find the best technologysolutions for our customers, and we look forward to working with our partners here in India on

some promising new technologies, said John Tracy, Boeing chief technology officer and senior

vice president Engineering, Operations & Technology.Boeings research in India will break new

ground in aero structures, aerodynamics and electronic networks with a team of senior

researchers, scientists and engineers. This is Boeings third advanced research centre outside the

U.S., the others being in Europe and Australia. The centre will also coordinate the work of more

than 1,500 technologists, including 100 advanced technology researchers, from across India on

projects that will help define the future of aerospace.

10.Global sourcing as a reaction to the sourcing pattern of competitors.

Many enterprises resort to global sourcing as a reaction to the global sourcing done by its

competitors because it has to survive in the domestic and world market.Many enterprises know

that if their competitors are looking offshore to find technology or process support for drastically

lower costs, they must follow suit. If their competitors are finding the skills they require through

an offshore outsourcing firm, they must do the same.

For example, Airbus, the France based Aircraft Manufacturing Company,

is a competitor to Boeing. Airbus also has presence in India since more

than 30 years. Established as Indias aircraft manufacturer of choice,Airbus is continuing to build long-term partnerships with the countrys

airlines, manufacturers, research organizations and IT companies to create

opportunities for mutually beneficial industrial cooperation well into the

future


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Airbus industrial cooperation with India began in 1988 when an agreement was reached

with Hindustan Aeronautics Limited (HAL) to manufacture passenger doors for the A320

aircraft. Today, HAL produces half of all A320 forward passenger doors. In addition,Airbus list of Indian partners and suppliers has expanded to encompass engineering, IT

services, training, technical publications, research and technology, and the manufacturing

of parts and some sub-assemblies.

Today, Indian companies and over 1,500 Indian employees contribute to virtually all

Airbus aircraft programmes. In recognition of the countrys strategic importance, Airbus

has made a long-term pledge to play a major role in the development of Indias aviation

sector. The Airbus Engineering Centre India Pvt. Ltd. (AECI) a 100 per cent Airbus-

owned subsidiary is a recent example of this ongoing commitment.

Specializing in high-tech aeronautical engineering, the India engineering centre works

hand-in-hand with other Airbus Engineering offices around the world, as well as with the

Indian aviation industry. The Bangalore-based centre focuses on the development of

advanced capabilities in the areas of modeling and simulation, covering such areas as

flight management systems, computational fluid dynamics (CFD), as well as digital

simulation and visualization which are critical factors in the design and production of

high-performance aircraft such as the A380 and the A350 XWB.

As part of AECI Research & Technology activity, Airbus is in negotiations with the

Indian Institute of Science, Bangalore, the Indian Institute of Technology and the

National Aerospace Laboratory to commence several projects during 2009.

In addition, Airbus Training India (ATI) initiated its operations in Bangalore and has

since provided maintenance training to Indian-based airline operators.

Airbus also works directly with Indian companies in the design and manufacture of aero

structures and strongly encourages its major Tier 1 partners to do so as appropriate.

Dynamatic Technologies Limited from Bangalore has partnered with Spirit AeroSystems

to manufacture a complex machining component and assembly (Flap-Track Beams) forthe A320, the worlds most popular single-aisle aircraft programme.

Through its Tier 1 suppliers, Airbus also is engaging local companies such as TATA,

HAL and Quest for the manufacture of sub-assemblies and detail parts. Additionally, the

Airbus Aero-structures Supplier Council has identified India as one of the top Cost

Competitive Country destinations for aero structure manufacturing.

Furthermore, Airbus has initiated several engineering projects with Indian companies.


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Infosys, HCL, CADES, Satyam and Quest have been selected to provide Engineering

Services to various aircraft programmes, including the A380 and A350. In addition,

Sonovision-Aetos in Bangalore and Infotech in Hyderabad have been set up as dedicatedcentres for work on Airbus Technical Publications.

Airbus continues to pursue other potential areas of cooperation with India, including air

traffic control/air traffic management and safety management.

From the commercial point of view, Airbus-built aircraft have become a key element in

the operations of Indian-based airlines. Starting with the 1976 delivery of an A300 to

Indian Airlines, the fleets of Indian carriers now include both single-aisle and wide body

Airbus aircraft, and will expand with the future introduction of A350s and A380s by

Kingfisher Airlines.

Making Global Sourcing Work in 5 Phases

By David R. Butcher

Analysts agree that strategic global sourcing offers the greatest opportunity for cuttingprocurement costs. While the value proposition for global sourcing has never been stronger,many businesses still simply don't know how and where to start.

Considering common reports at a minimum of prices 10 percent to 35 percent to 50percent lower than domestic sources, as well as the only-fractional added costs in building aglobal supply chain, it is no wonder that global sourcing has become so highly attractive.

Yet mid-market firms only now are waking to the reality of global sourcing they face. Suchsourcing allows firms to improve their financial position via cost savings that contribute directlyto the bottom line. A further benefit of global sourcing is the advantage it provides companies forbeating competition: enabling adopters to source a wide range of products from a bevy ofsuppliers greatly increases the portfolio of product offerings.

As global trade increasingly expands without an end in sight, it is only a matter of time before

global sourcing impacts all industries, notes a recent article from Supply & Demand ChainExecutive, and "the supply chain will never be quite the same again."

"The benefits that can be gained from global sourcing are real, and understanding thecompetitive impact of pursuing or not pursuing global sourcing is critical," says Gartner researchVP Helen Huntley. "However, the potential advantages of global sourcing won't materialize[sic.] overnight or without work."

As such, here we provide an introduction of five phases of the global sourcing process, as well assome basic pointers, courtesy ofSupply & Demand Chain Executive.


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1. Strategy & AssessmentThere are many ways to develop a global sourcing strategy. Global sourcing remains broad andcomplex, with many different vendors bringing different strengths to the table. For a U.S.

company to adopt global sourcing effectively, it first must identify why it wants to adopt.Strategy must be well defined, as different approaches are required based on different goals: costreduction, faster speed-to-market with products, competition differentiation, supply-sourceconsolidation or product-portfolio increase, et al.

Process and change management are critical. It is important to win the support of any functionsthat may be involved or impacted, including engineering, quality, marketing, HR and finance.

The defined strategy MUST be flexible, and it is imperative that contingency plans are in placeto cope with anomalies or failures in performance.

Companies also must be aware of, and comply with, specific legislation that may impact strategy(e.g., the U.S. Customs & Border Protection, Customs Trade Partnership Against Terrorism andthe Fair Labor Standards Act).

After defining the global sourcing strategy, one must scope the necessary resources: "positive,proactive and structured planning will be key to success," says Supply & Demand ChainExecutive. Evaluating the company's preparedness for adopting this new strategy is vital.

Lacking a predefined objective and strategy when moving into global sourcing can bring acompany to its knees.

2. Start-UpOnce the potential adopter has comprehensively defined, assessed and accepted its globalsourcing strategy, it is time to implement. During this start-up phase, according to Supply &Demand Chain Executive, it is essential to adopt a strategy that "covers both near- and mid-termplans, leverages existing supplier relationships; allows process and change management to behandled in a structured way, and gently eases the business into the new global sourcing strategyso that benefits can be appreciated from an early stage."

Resourcing both corporate home-based and overseas sourcing office teams with appropriate skillsets is paramount.

Says Supply & Demand-Chain Executive:

Local staff can make a significant contribution to the entire enterprise by providing cultural

understanding and knowledge of local supply markets. These will be the people responsible for

purchasing and moving the sourced products. However, recruitment can be a lengthy and

difficult process, as fluent English-speaking staff is hard to find. Even harder to recruit are very

senior individuals who are much in demand from other companies. In addition, the complexities

related to training staff in a new culture must be addressed.


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3. FormalizationThe many variables that accompany global sourcing decisions demand a data-collection andanalytics approach different from that during the start-up phase. A robust and scalable global

sourcing solution enables greater flexibility now and in the future, specifically regardingdynamic evaluation of sourcing options.

Prerequisites of a global sourcing solution include the following:

It must be proven successful by similar-sized organizations for similar operations; It must be flexible to cope with the ever-changing global sourcing marketplace and processes;and It must be capable of evolving as the business itself evolves.

Such a system should also provide meaningful, up-to-date reports for analyzing the benefits and

pitfalls of global sourcing.

4. ScalingNow it time to "ramp up operations and reap even greater benefits."

A first step is to extend the proven global sourcing solution to more suppliers. This makes clearertheir role and reinforces the trading relationship. It is also a good idea to leverage any particularsuccesses with certain buyers, categories of product or suppliers. Consider doing the following:

Increasing volume of products you buy from these suppliers; Buying new products from them for existing customers; or

Using reliable suppliers, breaking into new markets with new or existing products.

It may also be appropriate to set up strategic alliances with companies similar to your own, inorder to source greater volumes of products or maybe even altogether different products.Strategic alliances can bring greater buying power with shared costs and reduced risk.

5. ExpansionThe marketplace is dynamic, so tying your company to one region ultimately could bedetrimental to operations.

The most obvious way to expand is to source from other countries or continents. Today's hot

areas include China, South America and Eastern Europe (Generally, it is accepted that theseareas will remain good sources for the next 10-15 years.). When evaluating other countries,however, consider geopolitical issues, currency fluctuations and economic growth potential.There is a great variation in infrastructure, local laws, customs and attitudes toward businessfrom country to country. Each country has its own set of business practices, cultural issues, legalrequirements, and political, environmental and infrastructure risks.

Be aware of and understand such issues. Do your research.


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Developing software is a complex process and it is not always easy to make new software

compatible to previous editions and other programs. You cannot simply order a certain software

tool and expect to get the exact product desired. However, Indian software programmers are

significantly cheaper to employ than their Western counterparts. In order to exploit this

advantage global sourcing is often chosen. As said before, this involves some kind of ownership

allowing for a higher degree of control and cooperation than an import-export strategy could

provide.

The decision what is the best option for a company is not always that straightforward. It requires

a thorough assessment of a company's needs and business focus. With globalization proceeding,

taking those kind of decisions will become increasingly important and contribute to the

performance of global companies.

REASONS FOR GLOBAL SOURCING

Made in America. The imprint means innovation, high quality, safety and reliability. So why

should companies even consider exchanging that stamp for Assembled in USA andcomponents manufactured in other nations? Not so long ago, the main reason was to gain lowerprices for labor-intensive goods. Thats still a good reason, but there are several othercircumstances in which Made in America isnt the best choice. Here are ten, culled from theexperience of Mark Thompson, global commodity leader at Pioneer Hi-Bred International, aninternational leader in plant genetics.

Material is available only from global sources

Swiss pharmaceutical giant Roche experienced this a few years ago to produce the flumedication Tamiflu, which at that time, was the only medication effective against the deadlyH5N1 strain of avian flu. A key ingredient of Tamiflu, shikimic acid, is extracted from wild staranise, which is only available from four provinces in China. Star anise from other countriesprovides lower yields and inferior purity, according to Roche spokesman Darien Wilson.

For a historical example, consider diamonds. Once found only in India, nearly 50 percent of thediamonds mined today come from Africa, although significant deposits are being mined inBrazil, Canada, Australia and Russia. The U.S. has no reliable source of industrial or consumer-grade diamonds. (Colorados Lake Kelsey diamond mine opened in the 1990s with sporadicoperations, and Arkansas boasts a public diamond fieldCrater of Diamonds State Park near


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Murfreesboro, Arkansasthat has yielded some multi-caret stones.)

Sometimes the issue isnt materials, but expertise and geography that cant be found in the right

combination in the U.S. Ireland, for example, has become a primary location for call centers,especially for European operations. The country is attracting a young, multi-lingual population ofnative speakers that can serve all of Europe and much of America during normal business hoursbefore handing off calls to their North American counterparts.

Call centers are tapping into linguistic expertise, while technology companies are accessing highlevel scientific knowledge. With the economic collapse of the Soviet Union and the Warsaw Pactnations in the early 1990s, many Eastern European scientists who had been assigned togovernment-funded, generally defense-related projects, found themselves out of work orwoefully under paid. Western companies were able to thus hire some of the brightest scientificminds for their commercial applications at lower salaries than comparable U.S. scientists would

command, if they were willing to work commercially, and to use the time difference to theiradvantage.

This follow-the-sun working strategy lets teams in different time zones provide round-the-clock service. Some firms, including Xerox, split some project teams among time zones,ensuring that a particular technical challenge is resolved faster because someone is alwaysworking on it.

Technology is available only from global sources

Its hard to believe, but there actually are some things the U.S. doesnt make. Except for afirms core, strategic technologies, access to materials and process technology is gained throughthe supply chain, according to Richard Weissman, assistant professor at Endicott College inBeverly, Massachusetts. Its also true, though, that bright ideas originating offshore may beadapted to improve products, services and efficiency, developing broader appeal or additionalapplications.

Maglev trains are a good example. The U.S. abandoned maglev transportation research in the

1960s. Germany and Japan carried on. So when the U.S. Transportation Administration beganconsidering high-speed maglev trains, the technology had to come from Germany, Japan orKorea, which began research somewhat later.

German firm Transrapid pioneered the technology, opening an exhibition line in Hamburg in1971 and repeatedly winning world maglev speed records. It designed and built the onlycurrently operating commercial maglev transportation system in existence, in Shanghai, China.So, when Lockheed Martin became involved in maglev transportation in 2000, it teamed withTransrapid International, the U.S. subsidiary of the German firm. Under their agreement,Transrapid provides the technology and Lockheed Martin oversees the projects, ensuring theymeet U.S. specifications and codes. Marketing is being conducted jointly.


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Likewise, in the 1970s, Gummi Bears candy was only made by Haribo in Bonn. It became aglobal hit. Later, Trolli and a few other German manufacturers acquired the gummi technology

and began making other shapes including, in the U.S., gummi worms. Notably, Thompson says,it was the last new candy product category. Since those early days, the technology has beenexported to the U.S. and Mexico, he says.

For Oregon-based Leupold & Stevens, need for high quality combined with cost pressures wasbehind the decision to find Asian sources for the optical glass it uses in his rifle scopes andbinoculars. The glass is mainly found in Asia, with a few very high end manufacturers in theU.S. and Germany. Sourcing in Asia allowed the company to have the desired level of quality ata price its customers can afford.

Lower total cost of goods

Even with the price of the goods, transportation, taxes and import duties, some goods can beacquired cheaper abroad, as Leupold & Stevens found with optical glass. This is one of the majorreasons companies first consider offshore sourcing. Generally, any labor intensive item can beproduced abroad and delivered to the U.S. for less than the cost of making it here and deliveringit domestically.

Early in his career, Thompson found this was true with toys and birthday cake novelty items. Itsstill true today with a wide range of goods, including stone tiles from India and garments fromsoutheast Asia and Central America and computer components from Korea.

You really have to be careful in determining total costs, though, Thompson emphasizes. Itsmore than just the cost of the goods plus transportation. Total costs include direct and indirectcosts like insurance, carrying excess inventory, which Thompson says is needed because of theincreased shipping time, as well as quality and communications with suppliers.

Additional factors may also come into play, though, that obviates any advantage in cost. Forexample, one electronics manufacturer a few years ago found that air pollution in Shanghai

registered 800 ppb of hydrogen sulfide. Inside its suppliers factory, the level nearly doubled to1500 ppb, versus 7 ppb in the U.S. Such high levels of hydrogen sulfide corrodes electronics,substantially shortening the lifespan of computers and other electronics coming from that area.

The total costs of goods may also include direct and indirect costs throughout the items life.Germany, for examples, requires cradle-to-grave attention, with plans for recycling at the end ofthe items life. So, if components arent recyclable, a lower upfront cost may result in higher endof life costs. Also consider the risks to intellectual property, a concept that often isnt fullyunderstood even by high level execs. To guard against that, Leupold & Stevens, Coca-Cola andother firms keep their most valuable intellectual property at home.


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To meet quality requirements

Sometimes quality matters, and sometimes good enough is just fine. Its important to know thedifference. A slipped stitch on a $6 shirt doesnt really matter. Corroded circuit boards or inferioroptics, however, make a big difference.

NASA knew when it sent astronauts into space that the quality of the still photos they took trulymattered, not only for science but to capture the imaginations of people throughout the world andthus garner support for continuing the space program. For those missions, the Polaroid camera

that was fine for backyard barbeques wouldnt do. Neither would the Nikons or Leicas used byprofessional photographers. NASA needed the best of the best. It needed Swedish-madeHasselblad, the Stradivarius of cameras. Perfection, of course, isnt cheap. The digital, SLRH3DII model, released September 2007, retails for just under $34,000.

The tradition of quality that surrounds Hasselblad extends to other industries, too, and othercountries. The printing industry typically sources its presses from companies like GermanysKoenig & Bauer AG. For centuries, the finest analog watches, like those from Phillipe Patek,were handmade in Switzerland.

Its important to note, though, that the definition of the term quality may vary by country and

by region, as Mickey North Rizza, Boston-based analyst at AMR Research, points out. So, whendiscussing quality issues with suppliers, it may be better to discuss specifications and the reasonsfor such exacting specifications as well as the definition of any confusing words, as it is betterto error on the side of clarity, she says. Also look at the suppliers track record to ensure thatcompany really does understand your product, specifications and overall business goals.

To establish additional sources of supply

From childhood, weve been admonished, Dont put all your eggs in one basket. Thats whywe make contingency plans, and thats why working with multiple suppliers is a good thing.

When Thompson was a buyer in the food industry in the 1990s, a California drought severelyhurt the garlic industry. He and other American buyers turned to China and to obtain the suppliesthey needed. That was a good stop-gap strategy, but since then, China has been charged withdumping garlic onto the U.S. market. The U.S. Department of Commerce is investigating.

Pistachio growers did this in reverse in the 1970s. At the time, Iran was the sole source ofpistachios, Thompson says. American growers planted their own trees and have since become a


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dominant player in that marketa smart move in light of the Iranian Revolution and oursubsequent embargo against Iran.

Shoe and athletic apparel giant Nike, is another example. It contracts with more than 700factories in 52 nations. Having such a broad supplier base ensure that supply chain disruptions inone factory or region can be absorbed by suppliers in other regions, and thus minimize theimpact to Nike.

There are indirect benefits, too. These contracts employ some 800,000 workers throughout theworld, decreasing the influence of any one supplier or region while increasing the base of skilledworkers and making it possible for plants suppliers to work together to develop their own bestpractices and therefore continue to improve product quality, factory productivity and workersquality of life.

Anticipation of actual material shortages

Right now, the American energy industry doesnt have the production capacity it needs to meetthe energy requirements of this country. Although America has vast resources of oil and coal,much of it remains untapped in regions that are declared off limits to extraction or that are indifficult to access formations, like oil sands. Wind energy, one alternative, too often meets aNIMBY mentality, as evidenced by last autumns debacle off Cape Code. The result is a

perennial shortage that forces us to import oil from Canada and the OPEC nations, and to buycoal from Asia.

Although that particular shortage is imposed by politics and technological hurdles, othershortages may be sparked by labor unrest, bad weather, warfare, disease, industrialization ofother countries and other issues, which may cause delays in the supply chain or put regionstemporarily out of the market.

For example, when mad cow disease (bovine spongiform encephalopathy) threatened theCanadian been industry in 2003, grocery store meat sections augmented their selections withAustralian beef. And, when U.S. citrus crops are damaged by periodic freezes, buyers can

augment their supplies with produce from Mexico or India and, during the shoulder seasons,from Australia and Brazil.

Sometimes, though, a shortage is global, making good relations with multiple suppliers evenmore important. Right now, theres a global shortage of steel and, according to Tom Johnstone,president and CEO of Stockholm-based SKF, it will likely continue into 2008. For the worldslargest bearings manufacturer, the shortage leads to steadily increasing costs and negativeeffects on production, service to the market and operating margins, Johnstone said in the thirdquarter report.

Texas general contractor Brasfield & Gorrie planned for steel shortages, buying 4,200 tons of


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concrete reinforcing steel in advance, to help minimize delays while building a $169 millionGalveston condo complex. Thats the same strategy companies used during the steel shortage of2004 and during the 2005 shortage of tires for construction equipment. Sometimes thats all you

can do, but its easier if you have multiple suppliers.

Support in global markets for domestic products

The imprint Made in America isnt as important as it once was, as other nations developincreasingly sophisticated, high quality products. And, the backlash against globalizationencourages consumers and manufacturers to buy locally. An American-made product that

incorporates components from the local country increases its local acceptance and support. Or, asThompson says, Buying from other nations helps you sell your own products there. In somecases, it may be required, he adds. Its also a way to create awareness and to reduce costs,Rizza adds.

The globally-sourced, Made in America business model is particularly true in the aviationindustry, Thompson says, which uses it as a sales point. Boeing Corporations 787 Dreamliner,for example, is being constructed in Everett, Washington, but includes components from 43 ofthe worlds top aviation suppliers and electronically inks more than 130 supplier sites around theworld. Major orders have been placed by airlines throughout the world.

NASA took the same approach in developing the International Space Station. Dominated by theU.S., its built from modules developed in many countries. The Canada Arm, for example, hasbeen a source of Canadian pride for nearly three decades and appears prominently in manyphotos of the station. Last October (2007), NASA was preparing to launch an Italian componentcalled Harmony to link the U.S-made Destiny lab with the European Space AgencysColumbus module and Japans Kibo module. International cooperation, in this instance, sharesthe glory as well as the financial costs of exploring space.

Support in global markets for domestic products

The imprint Made in America isnt as important as it once was, as other nations developincreasingly sophisticated, high quality products. And, the backlash against globalizationencourages consumers and manufacturers to buy locally. An American-made product thatincorporates components from the local country increases its local acceptance and support. Or, asThompson says, Buying from other nations helps you sell your own products there. In somecases, it may be required, he adds. Its also a way to create awareness and to reduce costs,Rizza adds.


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The globally-sourced, Made in America business model is particularly true in the aviationindustry, Thompson says, which uses it as a sales point. Boeing Corporations 787 Dreamliner,for example, is being constructed in Everett, Washington, but includes components from 43 of

the worlds top aviation suppliers and electronically inks more than 130 supplier sites around theworld. Major orders have been placed by airlines throughout the world.

NASA took the same approach in developing the International Space Station. Dominated by theU.S., its built from modules developed in many countries. The Canada Arm, for example, hasbeen a source of Canadian pride for nearly three decades and appears prominently in manyphotos of the station. Last October (2007), NASA was preparing to launch an Italian componentcalled Harmony to link the U.S-made Destiny lab with the European Space AgencysColumbus module and Japans Kibo module. International cooperation, in this instance, sharesthe glory as well as the financial costs of exploring space.

Support to other organizational global operations

Setting up factories helps you get local buy in and support, too, Thompson says. Arrangingjoint ventures and research partnerships also can help swing buying decisions in your direction.

Boeing is a case in point. That company has a 60-year relationship with India and has becomethe mainstay of the countrys domestic and intercontinental commercial fleets, according to

Boeings news releases. Air India bought its first Boeing jetliner in 1960 and within two yearsbecause the worlds first all-jet airline. It continued adding Boeing jets to its fleet, and so didother Indian airlines. The market was strong enough that by 2003, Boeing established asubsidiary in India to strengthen its local presence and to find new ways to pursue growth andproductivity initiatives. Those ways include projects with Indias leading companies andresearch organizations.

Even before it established a subsidiary, Boeing began working closely with Indias leadingsoftware development companies on information technology projects and engineering dataanalysis projects. It since has partnered with the Indian Institute of Science to conduct researchon aerospace materials, structures and manufacturing technologies, which are then integrated

into Boeings aircraft. Some 2,000 Indian researchers are actively involved. Boeings R&Ddivision also is collaborating with Indias national Aerospace Laboratory and has contracted withHindustan Aeronautics Ltd. to manufacture some components and assemblies and to digitizeengineering drawings.

Additionally, Boeing plans to invest up to $75 million for training facilities, mainly for Indianpilots and, working an Indian partner, another $100 million to build a maintenance, repair andoverhaul facility in central India for Boeing planes.

Boeing is there because the market is strong the company can benefit from Indian expertise. Acase can be made that India would have purchased Boeing planes anyway, so perhaps its


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coincidental that in 2006, Air India ordered 68 Boeing commercial jetsthe largest commercialairline order in Indias history, worth $11 billion. Between now and 2026, Boeing projects thatIndia will need 856 new commercial jets at a price tag of about $72 billion. Boeing

spokespersons wont draw any linkages between the companys investment in India and sales ofplanes. Draw your own conclusions.

Global sources can be more reliable

This isnt a given, but its always a possibility, Thompson says. Reliability has two aspectsthat of the product and that of the supplier.

I was buying candles from a supplier in China, and the order always arrived on time and in theproper quantities, Thompson says. This really is about finding a good supplier with a goodreputation and then working with them to develop a deep understanding of your needs and theirconstraints and, oftentimes, a personal relationship.

The relationship can be at least as important as the actual business deal, particularly in countriesin which the rule of law is still evolving, and suppliers will take care to get to know the potentialbuyers and their values. Without strong courts to enforce decisions, the deal is enforced by therelationship. You have to travel and meet with them, and lay out your expectations, heemphasizes. With that in mind, dont expect to confine your conversations to the phone and

Internet.

Sometimes the product itself is more reliable. Take the coatings industry as an example. Rightnow, red lead paint is the standard for coating steel to prevent corrosion. There are somechallenges, though. Lead-based paint isnt accepted in all locations because of environmentalconcerns. Additionally, steel that needs to be coated while in servicebridges, for examplecant necessarily be cleaned sufficiently to allow the paint to adhere, and the paint also cantalways penetrate the crevices, joints and overlap points inherent in construction.

To address those problems, the Swedish firm Introteknik AB developed a coating system calledIsotrol that penetrates the existing paint, rust and grime to protect the steel. Independent tests

indicate the coating protects for 15 to 20 years in highly corrosive environments, which is farlonger than competing products, according to the just-released Frost & Sullivan report,Advances in Corrosion Protection Technologies.

Joint ventures

Joint ventures may help firms access local expertise and talent, advance a product or take


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advantage of trade agreements. Theyre a mainstay in the pharmaceutical and biotech industries,which rely on joint ventures to get innovative products to market. In those industries, typicallythe biotech firm develops a drug into or through the clinical trials stage and then partners with a

larger pharmaceutical company to bring the drug to market. In recent news, Germanpharmaceutical giant Boehringer Ingelheim and U.S. biotech firm Vitae Pharmaceuticals, Inc.,launched a collaboration to develop and commercialize a compound to treat diabetes and othermetabolic diseases.

The benefit to Vitae Pharmaceuticals is the upfront and near-term payments of $35.6 million, inthe form of cash, research funding and an equity investment, plus the possibility of up to $300million in future payments as predetermined milestones are met, with royalties also coming fromfuture sales as Boehringer Ingelheim leads the development and commercialization of thecompound. Vitae Pharmaceuticals maintains the right to develop the research for otherindications. In exchange, Boehringer Ingelheim gets access to an innovative compound without

the intensive, early stage development work.

Collaborations like the Boehringer Ingelheim/Vitae Pharmaceuticals agreement make businesssense because they exploit the skills of both companies to do something neither could do easilyalone.

When joint ventures are formed mainly to access local markets, however, they may not be suchgood deals. As companies become increasingly globalized and source from many nations,international joint ventures can actually muddle operations. Research from Harvard Universityand the University of Michigan indicates the value of working alone has a better financialoutcome than collaborating when companies have global production or sourcing operations or

when they want to leverage a global network of affiliates.

In those scenarios, the interests of the local partnergetting more business from the companymay conflict with those of the multinational firm. Oftentimes, the expertise companies seekthrough joint ventures can be accessed through other vehicles that allow the firms to retainownership. So, before forming a join venture, look carefully at what each partner offers as wellas at the potential pitfalls before proceeding. wt

Sidebar: The Sweet Life

Mark Thompson is the global commodity leader for Pioneer Hi-Bred International, the worldsleader in advanced plant genetics. His background, though, is in candy.

Practically all candy comes from outside the U.S., Thompson says. Look at the fine print onthe candy bag or box. It usually says distributed by rather than made by, he says.

That change occurred shortly after Thompson entered the candy business in the late 1980s. U.S.subsidies to sugar farmers drove the price up, he says, so that it was nearly double world prices.


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Candy companies balked, but Congress didnt budge. Consequently, most U.S. candy companiesclosed their U.S. factories and moved offshore. As purchasing manager for the aptly namedForeign Candy Company, he purchased candy mainly from Mexico, which he says is still a

major supplier for the U.S. candy market.

But eventually, Thompson decided that man could not live by candy alone. He needed somespice in his life. What he found was the world of garlic, vanilla, cinnamon, which he sourced forTones Spices, searching out the combination of quality and price that has made Tones Durkee,Spice Islands and Frenchs brands household names. Many of these spices grow only in well-defined regions, but plant geneticists have been working for decades to extend their growingconditions. Thompson is working with them now, at the world leader in advanced plant genetics,Hi-Bred International, Inc., which conducts research in 25 countries and production facilitiesthroughout the world. Ironically, he says, Now I dont do a lot of global sourcing.

Global Sourcing: Is It Really Worth It?

Five key questions to ask throughout the product lifecycle

By John Brockwell

New York October 19, 2007 "Is global sourcing really worth it?"

For a variety of reasons, executives at many companies are reconsidering whether or not theyshould be buying products from international sources. Companies are facing higher than

expected costs of materials and labor, a declining U.S. dollar and rising fuel prices, while someare experiencing the persistent quality issues that we continue to read about in today's headlines.

Concerns regarding quality affect consumer choices. A Reuters/Zogby poll recently released onSeptember 19 found that 78 percent of Americans worry about the safety of Chinese imports, and25 percent have stopped buying food from China. In the poll, 35 percent of respondents were"very worried" and 43 percent were "somewhat worried" about the safety of Chinese goods.

Not only must executives be concerned with the quality and reputation of their own products andbrand, but now there are risks of being associated with a larger brand "Made in China ". At atime when China has become the largest source of imports for the United States, company

executives are evaluating their reliance on China-based suppliers. Though the government ofChina is working to improve their brand image by instituting and enforcing quality standards, itmight not be enough to stave off buyers from reconsidering their sourcing decisions.International sourcing and procurement can have high rewards, but those rewards bringadditional high risks.

Advantages of Global Sourcing

Many companies are still making procurement decisions based primarily on unit cost. The globalexplosion of connective technologies, well-educated workers and capital has made it possible to,almost literally, have the entire world compete for the opportunity to sell to your business. And


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Responsible Sourcing

Global Sourcing, which is also called as World Sourcing or Low Cost Country Sourcing isSourcing for required goods and services from countries around the world where the sourcing

company hopes to procure the products and services at relatively lower costs without

compromising on quality, time lines and other laid down criteria for delivery of the products and

services. The Client has long run business relations with the supplier who manufactures the

products or provides the services as per clients specifications unlike regular imports where

ready-made products are purchased. When Global Sourcing is done with recognition of the

Companys and Suppliers Corporate Social Responsibility to preserve, protect and promote

ethical values in the society and the environment, without causing any damage to them, then it is

called Responsible Sourcing.

Many Multi National Companies adopt, support and implement Responsible Sourcing as

conscious corporate policy .The standards for responsible sourcing are prescribed by the

companies (clients) in the forms of Standards or Codes Of Conduct and are expected to be

followed in letter and spirit by the clients and suppliers, business partners etc. Business Partners

are expected to work with integrity and continually improve their ethical, social and

environmental performance and to fully comply with the standards/codes throughout the supplychain. The standards consist of 6 main categories

1. Suppliers must follow the law of the countries in which they operate and with which theyhave business relations.

2. Suppliers must treat all people with dignity and respect

3.Suppliers must do business fairly and honestly and avoid conflict of

Interests.

4. Suppliers must protect the environment

5. Suppliers must provide a safe working environment to their workers.

6. Suppliers must protect the technology, information and intellectual

property rights of their clients.


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are working or are at least 14 years old, whichever is greater, may be hired by a supplier.

Additional standards include the following:

B. A supplier must comply with all applicable child labour laws, including those related to

hiring, wages, hours, worked, overtime and working conditions. Vocational or developmental

programs for young people may require an exception to the age requirements.

C. The supplier must maintain official documentation that verifies a workers date of birth,

employment history and training history. The client reserves the right to review this information

if necessary.

Supplier Code of Conduct

D.Wages and Hours

Suppliers must follow all applicable laws regarding working hours, wages and overtime pay.

Workers must be paid at least the minimum legal wage or a wage that meets local industry

standards. Suppliers should conduct operations in ways that limit overtime to a level that ensures

humane and productive working conditions. The supplier must pay overtime and any incentive

rates that meet all legal requirements or the local industry standard. Hourly wage rates for

overtime should be higher than the rates for the regular work shift. Workers should receive

necessary time off, paid annual leave and holidays as required by local laws.

E.Commitment to Freedom of Association

Suppliers must respect employees freedom of association, right to bargain collectively and all

other workplace rights. Employees should be able to choose whether or not to join a union and

should not be subject to discrimination based on that choice.

F.Reporting of Concerns

The supplier should have a policy that prohibits inappropriate conduct and a policy giving

employees a way to raise concerns without fear of retaliation and a process for investigation and

resolution of incidents. Where allowed by law, the supplier should have a system that allows for

anonymous reporting of concerns.


3.Suppliers must do business fairly and honestly and avoid conflicts of interest


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Suppliers must do business in a way that is open, transparent and with the highest integrity.

There is the potential for a conflict of interest if a suppliers employee or his or her family

member has a close relationship with the clientss employee who can make decisions that will

unfairly benefit the suppliers business. For that reason, the supplier must disclose these types of

relationships to client before entering into negotiations. The supplier should notify the client if

any of its employees or its employees family members work for the client or have any kind of

past or present business relationship with it.


4. Suppliers must protect the environment

Suppliers must comply with all applicable environmental laws and regulations. If these

requirements are less stringent than clients requirements, the supplier will be encouraged to

meet the standards outlined below:

A. The supplier should work to minimize environmental impact through a program similarto ISO 14001.

B. The supplier should have procedures for notifying local community authorities in case of

an accidental discharge or release of hazardous materials into the environment, or in the case of

any other environmental emergency.

C.The supplier must store hazardous and combustible materials in secure

and ventilated areas and dispose of them in a safe and legal manner.

D.The supplier should monitor, measure and reduce greenhouse gas

Emissions .

E.The supplier should establish programs to minimize industrial waste and

promote recycling.

Code of Conduct

5. Suppliers must provide a safe working environment


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A safe working environment is a critical component of an effective partnership between client

and a supplier for which the following guidelines apply:

A. The supplier must comply with all applicable laws regarding working conditions, including

worker health, and safety, sanitation, fire safety, risk protection and electrical, mechanical and

structural safety by

implementing an employee safety management system such as OHSAS 18001.

B. The work environment should be well lighted, ventilated and free from temperature extremes.

C. There must be sufficient, clearly marked exits that allow workers to evacuate in an orderly

fashion in the event of a fire or other emergencies. Emergency exit routes should be posted and

clearly marked in all sections of the suppliers factory. Fire alarms and extinguishers should be

placed on each floor, along with emergency lights above exits and on stairwells.

D.Production machinery must be equipped with operational safety devices, and must be

inspected and serviced on a regular basis.

E.The supplier should have strict procedures that prevent the use of illegal drugs or alcohol in the

factory and that prevent impaired employees from working.

F.Appropriate personal protective equipment, such as gloves, rubber boots, safety glasses,

goggles, earplugs and ear muffs should be used where applicable and made available to all

workers at no cost.

G. A supplier must provide safe and accessible drinking water for all workers and allow

reasonable access to clean and sanitary toilet facilities throughout the working day.

H. The supplier must have procedures for dealing with injuries that require medical treatment

inside of the facility, as well as procedures to manage serious injuries or emergency cases that

require support from


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outside organizations.


6. Suppliers must protect clients technology, information and

intellectual property.

The secure use and distribution of information and data in the workplace is critical to clients and

a suppliers success in a competitive marketplace. Both parties must maintain physical and

electronic security for all confidential information. Each partys employees should use extreme

care in protecting confidential or proprietary information of any kind. Face-to-face confidential

discussions should be conducted in a secure location.If confidential information is to be

discussed or exchanged between client and the Supplier, or the Supplier and a Third Party, the

parties must first ensure that a Confidentiality or Non-Disclosure Agreement has been signed and

is being complied with.


Suppliers must assist client in enforcing this Code

Any code of conduct is only as effective as the efforts to enforce it. In that spirit .The client

expects its suppliers to comply with the conditions of the Supplier Code and maintain a system to

monitor compliance. Suppliers also must make an effort to communicate the principles of the

Supplier Code to their employees and take the necessary steps to ensure understanding and

compliance including communicating the details of the code to employees annually in the local

language of the business. If client determines that a supplier has violated this Code, the supplier

must provide information relating to the incident(s) and show within 30 days the actions taken to

correct the condition. The client will follow up to make sure the condition has been corrected.

The client reserves the right to conduct a full audit if necessary to

ensure compliance. At the same time, The client recognizes that many of its suppliers have codes

of conduct that cover most or all of the principles above. In those cases suppliers can provide

evidence of their own Code of Conduct to meet the intent of this requirement. The client Law

Department will decide if the Suppliers Code meets the requirements of this document.


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