unit nine (9) (b) global sourcing - · pdf filesourcing broker can help ... such as fedex,...
TRANSCRIPT
Objectives
Outsourcing, global sourcing, and offshoring
Benefits of global sourcing
Risks of global sourcing
Strategies for minimizing the risks of global
sourcing
Implementing global sourcing through supply-chain
management
Global sourcing and corporate social responsibility
Global Sourcing Procurement of products or services from suppliers located
abroad for consumption in the home country or a third country.
• Also called global outsourcing, global procurement, or global
purchasing - a type of importing
• A contractual relation between the buyer & the foreign
supplier
• Performance of a specific value-chain activity is subcontracted
to the firm's own subsidiary or to an independent supplier
• The total worldwide sourcing market exceeds $300 billion
• Decision 1: Outsource or not
Decide whether each value-adding activity should
be conducted in-house or by an independent
supplier
Known as the ‘make or buy’ decision
Firms usually internalize activities that are part of
their core competence or that involve the use of
valuable intellectual property
Two Key Decisions Regarding Global Sourcing
• Decision 2: Where in the world should value-adding
activities be located?
Firms configure their value-chain activities in
specific countries to cut costs, reduce transit time,
access favorable factors of production, and access
competitive advantages
Can explain migration of manufacturing from
developed to emerging markets
Two Key Decisions (cont.)
Example of Worldwide Value Chain Configuration
• DHL is a global package shipping provider
• To run its global network, it has offices in countries and
cities worldwide
• High-tech tracking centers established in Arizona,
Malaysia, & Czech Republic
• Can track locations of shipments around the world, 24/7
• Locations chosen because in a world of 24 time zones,
these are about 8 hrs. distant from one another
Drivers Growth in Global Sourcing
1. Technological advances in communications, especially
the Internet and international telephony
2. Falling costs of international business
3. Entrepreneurship and rapid economic transformation
in emerging market countries
• A natural extension of global sourcing; refers to
relocation of a process or entire manufacturing facility to
a foreign country
• MNEs shift production of goods or processes to foreign
countries to enhance their competitive advantages
• Common in the service sector, including banking,
software writing, legal services, and customer service
activities
Offshoring
Example
• Large legal hubs have emerged in India that provide
services (drafting contracts, patent applications).
Lawyers in North America/Europe can cost $300/hr or
more; Indian firms can cut legal bills by 75%.
• India:
Leading offshoring destination for software
development and back-office services, such as call
centers and financial accounting activities
A leading world center in the IT industry, employing
more than two million people
Global Sourcing Destinations
Global Sourcing Destinations (cont’d)
Strong English language skills
Abundant pool of educated engineers, managers, and
other specialists
Low labor costs
• Other popular locations:
Czech Republic
Romania
Russia
South Africa
• Many jobs in the services sector cannot be separated
from their place of consumption, such as retailing
• Other services are consumed locally, such as those
provided by doctors, lawyers, and accountants
• The firm’s reputation can be harmed by having jobs
performed abroad
Scope of Global Sourcing
Scope of Global Sourcing (cont’d)
• Labor union contracts often restrict global sourcing
• Easily outsourced jobs tend to be in industries:
– That benefit from efficiency & low cost
– That have uniform processes & customer needs
– In the service sector; labor intensive jobs
– Where outputs are easily transmitted via the Internet
Benefits of Global Sourcing
• Faster corporate growth
• Access to qualified workers abroad
• Improved productivity and service
• Business process redesign
• Increased speed to market
• Access to new markets
• Technological flexibility
• Improved agility by shedding unnecessary overhead
Risks in 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
• Inadequate or low-skilled workers
• Overreliance on suppliers
• Risk of creating competitors
• Erosion of morale & commitment among home-
country employees due to outsourcing jobs
• 2011 earthquake/tsunami in Japan created major supplier
disruptions
• Auto industry an example; typical car has over 15,000
parts; missing 1 can halt production
• Following quake, GM stopped production in Europe &
U.S., as did Ford
• 30% of global car production was halted or interrupted
following quake
A Global Sourcing Risk: Crises & Natural Disasters
Strategies for Minimizing Risk
• Go offshore for the right reasons. The best rationale is
strategic, such as enhancing the quality of offerings,
improving productivity, and freeing up core resources
• Get employees on board. Poorly planned sourcing
projects create unnecessary tension with existing
employees
• Choose carefully between a captive operation and a
contract with outside suppliers
Strategies for Minimizing Risk (cont.)
• Choose suppliers carefully. There are many options. A
sourcing broker can help
• Emphasize effective supplier communication
• Invest in supplier development and collaboration.
Proactively safeguard interests, such as key assets and the
firm’s reputation
• Safeguard interests in terms of maintaining the firm’s
reputation, building a stake for the supplier, keeping
open options for finding alternate partners if needed, and
withholding key intellectual property
Global Supply Chain Management
• Global supply chain
The firm’s integrated network of sourcing, production,
and distribution, organized on a worldwide scale, and
located in countries where competitive advantage can be
maximized
• Sourcing from numerous suppliers scattered around the
world requires efficient supply-chain management
• Third party logistics providers (3PLs) and independent
logistics service providers, such as FedEx, TNT, and UPS,
are useful facilitators
Features of Global Supply Chain Management
• The costs of physically delivering a product to an export
market may account for as much as 40% of the total cost
• Firms use information and communications technologies
(ICTs) to streamline operations, reducing costs and
increasing distribution efficiency
• Logistics involves physically moving goods through the
supply chain. It incorporates information, transportation,
inventory, warehousing, materials handling, and similar
activities associated with the delivery of raw materials,
parts, components, and finished products
Transportation Modes
• Land transportation is via highways and railroads
• Ocean transportation is via large container ships
• Air transportation involves commercial or cargo aircraft
• Ocean and air transport are common in international
business because of the long distances. Ocean transport
is the cheapest and most common
• Ocean transport was revolutionized by the
development of 20- and 40-foot shipping containers
Global Sourcing & Corporate Social Responsibility
• Global sourcing can lead to three major problems in the
home country:
Job losses
Reduced national competitiveness
Declining living standards
Useful Public Policy for Minimizing the Harm of Global Sourcing
• Global sourcing involves creative destruction. It may
eliminate jobs, but it creates new advantages and
opportunities that benefit firms, increase profits, and
often lead to the ability to create better jobs
Useful Public Policy for Minimizing the Harm of Global Sourcing
• Governments should strive to:
Keep the cost of doing business low (e.g., via
appropriate economic and fiscal policies)
Ensure a strong educational system that supplies
engineers, scientists, and knowledge workers
Maximize worker flexibility to help those who lose
jobs find other positions