International Global Sourcing

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Workshop 7 b Global Sourcing

Learning Objectives
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Outsourcing, global sourcing, and offshoring

2. Benefits of global sourcing 3. Risks of global sourcing 4. Strategies for minimising the risks of global sourcing 5. Implementing global sourcing through supplychain management

6. Global sourcing and corporate social responsibility
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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442533561/Cavusgil/International Business

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 Involves a contractual relationship between the buyer and the foreign supplier, in which the performance of a specific value-chain activity is subcontracted to the firm's own subsidiary or to an independent supplier



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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442533561/Cavusgil/International Business

Sourcing for Dell Inspiron Notebook Computer

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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442533561/Cavusgil/International Business

Drivers of 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

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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442533561/Cavusgil/International Business

Two Key Decisions Regarding Global Sourcing
• 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 internalise activities that are part of their core competence or that involve the use of valuable intellectual property.



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 favourable factors of production, and access competitive advantages.

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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442533561/Cavusgil/International Business

Example of Worldwide Value Chain Configuration
• • • • • • Automaker BMW employs 70,000 factory personnel at 23 sites in 13 countries to manufacture its vehicles. The Munich plant builds the BMW 3 Series and supplies engines to other BMW factories abroad. The South Carolina plant makes 500 vehicles daily. A plant in NE China makes cars in a local joint venture. A plant in India makes BMWs for the Asian market. BMW configures sourcing to minimise costs (by producing in China), access skilled personnel (by producing in Germany), and remain close to key markets (by producing in China, India, and the United States).

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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442533561/Cavusgil/International Business

Business Process Outsourcing (BPO) • Outsourcing of business functions, such as accounting, human resource functions, IT services, and customer service, to independent suppliers BPO includes:  Back-office activities, including internal, upstream business functions such as payroll and billing  Front-office activities, including down-stream, customer-related services such as marketing or technical support



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Copyright ©2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442533561/Cavusgil/International Business

Global Sourcing from Subsidiaries Versus Independent Suppliers • In global sourcing, the focal firm has two major choices. It can source from: (1) Independent suppliers, or (2) Company-owned subsidiaries and affiliates. • Global sourcing from...
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