GLOBAL SOURCING

By: Ashok Rawat - 13 Burhanuddin H D - 15 Chetan Gandhi - 16

GLOBAL SOURCING

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

MAKE OR BUY DECISION

 Decide between internalization/externalization  What is your core competency?  Also decide buy local-or-global  Adopt global sourcing when:
Low cost Improve quality Increase reliability of supply Establish presence in foreign market New technology International PLC Reacting to sourcing patterns of competitors

SOURCING CONFIGURATION
 Vertical integration
Focus on internalization of value chain Ownership of suppliers Reduction in transaction costs

 Industrial clusters outsourcing

Buyers and suppliers locate in close proximity Reduction of transportation and transaction costs

 Japanese Keiretsus
Buyers and suppliers located in close proximity Buyers have an ownership interest in suppliers e.g. Toyota

STRATEGIC IMPLICATION

DRIVERS OF GLOBAL SOURCING

 Technological advances  Declining communication and transportation costs  Entrepreneurship and rapid economic transformation.

GLOBAL SOURCING
Strategic Benefits Challenges/Risk

Vulnerability to exchange rate fluctuations Cost Efficiency Faster corporate growth. Access to qualified personnel abroad. Improved productivity and service. Business process redesign. Increased speed to market. Access to new markets. Technological flexibility. Improved agility by shedding unnecessary overhead. Partner selection, qualification, and monitoring costs Increased complexity of managing a worldwide network of production locations and partners Complexity of managing global supply chain Limited influence over the manufacturing processes of the supplier Potential vulnerability to opportunistic behavior or actions in bad faith by suppliers Constrained ability to safeguard intellectual assets

RISK OF GLOBAL SOURCING

 Less-than-expected cost savings Conflicts and misunderstandings arise because of differences  Environmental factors Exchange rate fluctuations, labor strikes, adverse macroeconomic events, high tariffs and other trade barriers, and high energy and transportation costs.  Weak legal environment Many popular locations have weak laws and enforcement regarding intellectual property, which can lead to erosion of key strategic assets.

RISK OF GLOBAL SOURCING

Over-reliance on suppliers Unreliable suppliers may put earlier work aside when they gain a more important client. Erosion of morale and commitment among home-country employees Global sourcing can create a situation in which employees are caught in the middle between their employer and their employer s clients.

RISK OF GLOBAL SOURCING

Risk of creating competitors As firms share its intellectual property and business-process knowledge with foreign suppliers Inadequate or low-skilled workers Employees may lack KSAs or high rapid turnover of skilled employees.

STRATEGIES FOR MINIMIZING RISK IN GLOBAL SOURCING

 Firms ought to go offshore for the right reasons  Need to get employees on board  Choose between a captive operation and a contract with outside specialists carefully  Choose countries and suppliers carefully  The focal firm needs to invest in supplier development and collaboration

JiJun Xia & Yaching Chang

12

DELL S MODEL

13

OUTSOURCED

14

SUPPLY CHAIN

15

APPLE(US) Basic & Applied R&D,Product Design, Commercialization

INVENTEC(TAIWAN) Assembly

ARM HOLDINGS(UK) Chip Design

SAMSUNG(KOREA) NXP SEMICONDUCTOR (NETHERLANDS) Chips

BALDA(GERMANY) Touch screen

18

A WORLD MAP OF SERVICES OFFSHORING

19

REFERENCES
Global Sourcing of Services and Market Performance: An Empirical Investigation," Journal of International Marketing,6 (1998):10-31. International Journal of Global Logistics & Supply Chain Management Vol. 1, No. 2, 1 November 2006, 90 97. Globalization of Work :Outsourcing and Offshoring,Global Executive Forum,2005,6-7 The Real Cost of Offshoring,Michael Mandel,Business Week, June 18,2007 Outsourcing: Time to Bring it back Home? Economists, March 5,2005,63 Outsourcing: Pros and Cons", Murray Weidenbaum,Executive Speeches 19(2004):31-35