GEB 3375 (Chapter 17)

Primary reasons for Global Sourcing?

- Cost efficiency - Ability to achieve strategic goals

Why is India a popular offshoring destination?

- Large legal hubs have emerged in India. - Law firms in India can cut Western companies' legal bills by up to 75%. - India's market share has grown dramatically and is expected to increase due to India's huge pool of qualified labor working for as little as 25% of what comparable workers get in the advanced economies.

Major Challenges for Companies and Global Sourcing

- Lower-than-expected cost savings - Environmental factors, such as exchange rate fluctuations, trade barriers, and labor strikes - Weak legal environment, which can affect protection of intellectual property - Overreliance on suppliers - Risk of creating competitors - Erosion of morale and commitment among home-country employees due to outsourcing jobs

Why has Global Sourcing become so easy? (Drivers?)

1. Technological advances in communications, especially the Internet and international telephony 2. Falling costs of international business (tariffs etc.) 3. Entrepreneurship and rapid economic transformation in emerging market countries

Contract Manufacturing

An arrangement in which the focal firm contracts with an independent supplier to manufacture products according to well-defined specifications.

Front Office Activities VS. Back Office Activities

FO =marketing or technical support BO = payroll and billing

What happens when US company sources from a supplier in a country whose currency appreciates?

If the suppliers' country's currency appreciates then the US will have to pay higher costs.

What happens when US company sources from a supplier in a country whose currency depreciates?

If the suppliers' country's currency depreciates then the US will have to pay lower costs.

Business Process Outsourcing (BPO)

Outsourcing to independent suppliers of business functions such as accounting, human resource functions, IT services, and customer service.

What type of activities in a firm are more/less likely to be outsourced?

R&D, Design - Low Marketing and Branding - Low Manufacturing of parts, Components - High Manufacturing or Assembly of finished products - High to Medium Sales and Distribution - High to Medium Customer Service - High to Medium

Captive Sourcing

Sourcing from the firm's own production facilities located abroad.

Why do companies Outsource?

The idea behind outsourcing (in a nutshell) is that a certain activity can be performed either a lot better or a lot cheaper by a company specialized in that activity.

Global Sourcing

The procurement of products or services from independent suppliers or company-owned subsidiaries located abroad for consumption in the home country or a third country.

Outsourcing

The procurement of selected value-adding activities, including production of intermediate goods or finished products, from independent suppliers.

Offshoring

The relocation of a business process or entire manufacturing facility to a foreign country.