1) What is global sourcing?
Global sourcing is defined as the process of identifying, developing, and utilizing the source of supply for the enterprise through expanding purchasing activities internationally. It is a part of post reengineering activities which is an useful measure of cutting cost. Global sourcing is a typical example of foreign construction outsourcing firms which process construction by distributing each process of construction work to vendors instead of running on its own. Such construction method not only does reduce costs in terms of managing construction sites such as labor cost and equipment cost including vehicles, but also is being adopted by various companies for value-adding construction management (CM) project. For instance, global sourcing was utilized when building Daewoo Business Center at Warszawa, Poland, on March, 1997. The process of erecting the center was alloted to vendors; construction was executed by VOICE(England), design through RTKL(U.S.), facility management was duty of Dongwoo which is a department of Daewoo Group, hotel management by Hilton hotel(U.S.).
2) Global sourcing factors
Global sourcing factors that must be understood and balanced can be segmented into 5 categories. First factor is material cost. The bottom line of execution of global sourcing is reduce cost by minimizing material cost. Another category is transportation cost. Various costs including inventory delivery cost can be dwindled through global sourcing. Moreover, significant amount of transportation expense can be reduced when marketing products at outsourcing regions. Cross-border taxes, tariffs, and duty costs are third factor which form global sourcing. Instead of relying on domestic production but rather outsource each process internationally, costs can be reduce by avoiding trade barriers which include cross-border tax, tariff and duty cost. Next factor is supply and operational performance. With effective resource management and cheap labor cost, supply and operational performance can be efficiently managed which enables global sourcing companies to manufacture high quality-low price merchandises. The last category of global sourcing is supply and operational risks. Cultural and geographical disparities can yield additional costs such as labor cost and transportation cost. If not managed thoroughly, they can militate as huge risks in terms of conducting sourcing.
3) Advantages of global sourcing
There are three major merits of performing global sourcing; gumption to changes, reduction of cost, and trade barriers avoidance. To begin with, global sourcing allows a firm to develop capacity to cope with changes in market condition. Importing numerous raw materials and resources economically and steadily can be done through global sourcing. With such abundant resources, a firm can flexibly adopt to environmental alterations when confronting unexpected economic crisis. Secondly, average 20% of cost saving is possible. Components of products or raw materials procured from abroad is advantageous in terms of price. Furthermore, many countries such as American and Europe are sourcing materials to cut cost in terms of distribution industries. As a result, China has become the hub of production base for global sourcing. Even in case of Korea, sourcing products from China are 30%~40% cheaper than Korean domestic goods. In particular, simple functional merchandizes whose design and quality are relatively less considered are largely influenced by global sourcing. Consequently, over 70% of commodities and clothes are imported from China. Last merit of global sourcing is evasion of trade barriers. In case of global sourced goods, the price is lower, leading to economical purchase, by avoiding trade barriers such tariffs and cross-border taxes. On top of that, firms are able to acquire restricted raw materials and resource. Thus, unique and competitive products can be created.
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