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The Pros and Cons of Sourcing
To survive in this highly competitive world, corporations should effectively manage complexity, gain effectiveness and minimize costs – and many of them have turned to sourcing solutions in order to do so. Those that have not are at the competitive disadvantage, both strategically and financially. Although sourcing is an attractive proposition, companies that want to source locally or globally should understand the advantages as well as the disadvantages of sourcing before they start sourcing.
Advantage: Cheap manpower
Outsourcing by transnational companies has been an important force in globalization. Profit-seeking companies move their operations overseas so as to benefit from different comparative advantages. Labor-intensive processes are relocated to developing nations with relatively cheap labor. These practices lower the cost of production and, hence, the price of products and services for customers.
Whether a company is building the next generation product, or upgrading an existing product, sourcing locally or globally is a good idea. Sourcing is a great way to assemble a team of experienced professionals and test the solution of any magnitude. And once the project has been successfully accomplished, the team can be dispersed.
Advantage: Access to raw materials
If your corporation utilizes raw materials that are scarce in your country, then you can lower a supply risk of your company by sourcing internationally if the availability of those materials is greater in other countries. Economies of scale in removal may also mean cheap prices even with additional cost of transportation and taxes factored in.
Advantage: Access to distinctive skills
We all know that recruiting employees with the necessary skills is costly and time consuming. Using the services of an offshore development company can offer well skilled employees, while making sure that your project complies with modern development as well as QA methods.
Advantage: Increase in productivity
A company can have staff working 24 hours a day. Nonetheless, it is difficult to attract staff with requisite skills to work less attractive shifts. Sourcing is a very helpful intervention that allows your staff to work round the clock without adding to staff turnover and loss of productivity. Time-zone variations allow companies to cover the 24-hour cycle and to be productive to their own consumers.
Disadvantage: Quality problems
A sourcing company will be stimulated by profit. Because the contract will fix the cost, the only way they can increase the profit will be to cut down the cost of production. As long as they meet the terms of the agreement, you’ll have to pay. Additionally, you’ll lose the ability to quickly respond to changes in business environment. The agreement will be specific and you’ll have pay extra for changes.
Disadvantage: Loss of intellectual uniqueness
There’s a steady flow of cash into developing nations; nonetheless, globalization can lead to loss of intellectual distinctiveness as Western ideas are often forced upon Eastern thoughts.
Disadvantage: Job loss
Global sourcing is commonly criticized by local labor advocates as well as economic nationalists. Moving a manufacturing procedure to another nation, for example, puts domestic employees out of work. This can negatively affect the economy of the country.
- License: Creative Commons image source
Somchai Voranai is a business writer from Bangkok, Thailand. For more information about sourcing visit www.tradegood.com.