Question

Global sourcing has become commonplace. Many companies have now expanded their supply base to include foreign suppliers. List three reasons why companies may choose to source their products and/or materials globally.

Answer 1

1. Cost saving from Cheap labour available from the global market:

A firm which is sourcing cheap labour from the global market is able to cut down its costs and increase profits without compromising on the quality delivered to its customers. Best location to outsource the manpower and getting cheap labour is India, where many of the BPO backend operations are located.

2. Skills and resource quality with diversity: While the firm does not have to compromise on the quality delivered, the diversity of work & skilled manpower gives way to increased flexibility and eased operations.

3. Flexibility: The company does not have to shut its operations at off-working hours as the outsourced team of them will be working as per the day-night complimentary timing differences. This gives flexibility of operations and timely completion of the projects. For example - USA-India Process.

4. Focus on core business: By outsourcing the backend activities from the global market, the firm can actually focus o its core competencies better and can create more value. for example, the sportswear company Nike does not have any production or warehouse facility for their products. They only focus on branding and designing of the products and rest is outsourced.

5. Lower Regulatory costs: Many a time, the regulatory norms of a country make it difficult for a firm to produce a certain product in that country. In that case, they can source the product from the country which offers the best cost and less regulatory policies. For e.g. many USA electronics companies outsource their electronics manufacturing to China.