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Reasons for international sourcing

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1. Access to raw materials. If your company uses raw materials that are not abundant
in your own country then you can lower your supply risk by sourcing globally if
availability of those materials is greater elsewhere. Economies of scale in extraction
can also mean lower prices even with the extra cost of transport and duties factored
in.
2. Access to cheaper wages. Manufacturing processes that are labour-intensive can be
sourced more cheaply from countries where wages are lower than in your own
country. This is particularly true if the technology used has a life cycle. As the
technology matures, high wage cost producers tend to move onto new technology
as the features and benefits it brings can be used to charge a premium price that
offsets the higher labour costs. Low cost countries then tend to adopt the older
technology to produce products for the "late majority" of users who buy on price.
Even without this technology effect, some services can be operated at lower cost
overseas due to the lower wage rates - for example, the number of call centres and
software developers that are now located in India and Eastern Europe.
3. Reciprocal trading. Global sourcing works both ways as it involves both a buying
organisation and a selling organisation. If your company sells its products to a
country that can also provide products that you want to buy then there may be an
opportunity for doing a deal that offsets your sales and purchases to give you a
better overall economic benefit.
4. Learning how to do business in another country. Knowing the culture and ways of
working of other countries can be a significant benefit when you want to sell to them.
Buying from those countries can be an effective way of learning about how to trade
with that country before you start your sales and marketing effort to win business
there.
5. Stimulating competition domestically. Sometimes suppliers in your own country can
become complacent if they think that they have a major share of the local market.
Finding alternatives overseas can be a good way of attracting new entrants (or just
threatening to do so) and shaking up the local market.
6. Increasing supply capacity. If there is a current or potential shortage of a key
material or component for your own manufacturing operation then you may have a
serious supply risk. Finding alternative sources of supply overseas can increase the
available capacity and so reduce the risk.
7. Take advantage of having a global organisation. If your own organisation is a global
one then sourcing via your subsidiaries can be an excellent way to access global
sources that may be difficult to tap into on your own.

Titany answered the question on November 24, 2021 at 12:40

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Reasons for international sourcing

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