Global sourcing has been increasingly popular as a procurement technique due to improved cargo transportation and improved international trade legislation. Until recently, international firms were the only ones who could access the worldwide market for products and services. Even companies without a global presence are now adopting global sourcing to increase their economic prospects.
On the other hand, global sourcing is not always the best procurement strategy. With all of its advantages and benefits, there are also some drawbacks. This article will help you develop a well-informed and cautious approach to strategic global sourcing.
Pros of Global Sourcing
The following are the pros of global sourcing:
1. Leverages Production at a Low Price
Organizations around the world use global sourcing primarily for this reason. They can save money on materials and labor demanding raw products in various nations. China is a prime example when it comes to low-cost manufacturing. Organizations worldwide are offering low-cost production for a large part of the country’s economic turnaround.
2. Easy Access to Difficult-to-Obtain Resources
The distribution of resources is not equal in all regions. This disparity influences businesses’ viability and profitability in different places in resources. For example, if a plant is located where coal, gas, and oil are scarce, it will not be able to operate effectively.
This constraint has been eliminated by global sourcing. Companies worldwide can locate difficult-to-find resources to keep their operations running smoothly. The rise of the industrial revolution is in large part due to the advantages of global sourcing.
3. Provides Access to a Wide Range of Alternative Vendors
It’s possible to build an entirely new network of suppliers by successfully foraying into global sourcing. A scarcity of anything in the local market won’t cause a manufacturing frenzy. In case of a shortage, the company can always fall back on its connections with international suppliers.
4. Helps Learn Global Business
Global business insight can be improved through interacting with overseas suppliers, learning about international trade agreements, and navigating import/export laws. This way, the company’s procurement department grows and develops. When dealing with overseas transactions, the company’s accounting department becomes more efficient. A company’s collective skill level rises with the help of global sourcing.
5. Helps Distinguish Yourself from Your Rivals
Finally, global sourcing gives you different ways to differentiate yourself from your competition. Acquiring low-cost products and items that aren’t readily available locally, building a network of overseas suppliers, and improving business abilities can help a company stand out among its peers and competitors.
Cons of Global Sourcing
It is critical for business success to approach any opportunity without preconceived notions. Like all commercial endeavors, global sourcing has its share of drawbacks that decision-makers should keep in mind. The cons are as follows:
1. Working with People from Different Cultures and Societies is Difficult
Global sourcing involves establishing alliances, interacting with stakeholders from diverse cultural backgrounds, and communicating in multiple languages. When two people are so vastly different, it’s tough to make a quick connection. Working with an international provider may necessitate more time and effort than doing business with a local vendor.
2. Time Zone Differences
Time zones must be taken into account with global suppliers, manufacturers, and vendors. International business partners’ working hours often might not coincide. Due to the time zone differences, they must set up different workstations or teams that operate around the clock. This means you’ll have to put in additional time and effort to ensure the time difference doesn’t impair your business communications and activities.
3. Respecting the Laws of the Land
Global sourcing is not the same as purchasing an item from a foreign e-commerce site. Import requirements, local customs laws, and international trade standards are just some of the issues you’ll have to deal with if you’re going to get things from overseas. Many businesses find it challenging to keep up with rules and regulations.
4. Putting Your Intellectual Property, Patents, and Copyrights at Risk
Using patented and copyrighted materials in overseas transactions raises the possibility of infringement. When it comes to foreign business, you have less control over the outcome. In addition, there are no effective regulations prohibiting the theft of intellectual property and copyright infringement in any country.
Then there are countries where the laws are poorly implemented. Therefore, businesses that rely on proprietary innovations and products must exercise extreme caution while engaging in global sourcing.
5. Intense Production Runs
Global sourcing still necessitates longer lead times, despite all the advancements in technology. It takes a long time for the vast majority of international freight to reach its final destination by water. Therefore, global sourcing is not a good option for those who require items to be delivered quickly.
6. Disadvantageous Leadership
It becomes more difficult to keep track of things when they cross national borders and include multiple governments, policies, and parties. Global sourcing can be harmed by a lack of proper oversight of the procedures. For instance, if your international suppliers don’t have the same CSR values as you, you can’t be sure of the outcome. Similarly, it’s impossible to tell if your overseas suppliers are abiding by the same labor rules and principles that apply across the globe.
SimplyPurchasing - Your Trusted Global Sourcing Partner
Global sourcing can have a distinct impact on different decision-makers based on how it benefits or harms them. As a result, everyone agrees that global sourcing is a time-consuming endeavor. You still need to increase your procurement department’s efficiency even if you use all the advantages listed above.
Procurement management system SimplyPurchasing can lessen your operational strain by taking care of various back-end activities related to global sourcing. This software comes in handy when it comes to managing categories, vendors, Pos, and invoices. You can also use this web-based procurement management system as a central repository for all procurement data.
