The process of purchasing services, products, or raw materials from outside one's home country.
How Global Sourcing Works
Global sourcing is a process that allows companies or individual buyers to take advantage of global efficiencies such as lower taxes, cheap labor, and the availability of raw materials. In international trade, global sourcing allows companies to cope with rising competition levels and make meaningful gains.
The business world considers global sourcing a "strategic business philosophy" that enables companies to implement cost-effective strategies to succeed. The best companies can combine both local and global sourcing options to compete effectively. Global sourcing is efficient at using resources that are not readily available in the company's home country.
Global sourcing is a strategic process that provides companies with a pathway to growth and success. A positive outcome of acquiring goods overseas is that it allows for access to high-quality products or materials. By connecting with the best suppliers in every continent, a company can ensure that its end products offer customers the best value and product.
Real-World Example of Global Sourcing
Some of the biggest companies use global sourcing to reduce their operating costs and improve their profit levels. One company that successfully implements global sourcing is Nike, one of the most recognized international brands. Nike is known for its footwear and apparel products, but the company has no factories in the United States despite its market dominance.
Nike outsources its manufacturing segment to overseas countries where partner companies manufacture their products at low costs. For the brand, sourcing raw materials from the countries where manufacturing is done generates the best cost advantages. According to Nike, "Over 90% of Nike footwear and branded apparel is made by factory groups that we have worked with for over 15 years." The consistent use of factories ensures that all products are uniform and well made, meeting all quality control standards.
Another company that thrives through global sourcing includes Apple, the smartphone and technology giant. For Apple, global sourcing of raw materials and labor required in its products has lowered production costs and increased returns.
Significance of Global Sourcing
A benefit of global sourcing is that it lowers production costs by making it possible for a company to access cheaper labor. Companies in the United States outsource production to countries like China and Taiwan, where the labor costs are lower, creating savings that are gradually passed on to consumers. Other global sourcing rewards are improved competitiveness and global expertise acquisition since companies develop global interests and partnerships.
However, global sourcing exposes a company to multiple risks such as logistical challenges, poor quality control, and the loss of jobs in their headquarter nation despite the many benefits. Moreover, when a company from the United States sets up operations in a foreign country, language and cultural barriers often arise.
On the global stage, rising competition levels have forced companies to adapt and find new ways of remaining on top. Those implementing global sourcing lower the costs of their goods and control their products' quality, making them most attractive to consumers.