What Is Strategic Global Sourcing?

Jim B.

Strategic global sourcing is the practice of companies going outside their own country to procure necessary goods and services for their business. This can be done by developing a partnership with a foreign supplier or by hiring employees and building a branch of a company in a foreign country. In either case, the main goal of strategic global sourcing is to find lower costs than might be able to be secured from local suppliers. Precautions must be taken in this practice to ensure that cultural specifics in the foreign country don't get in the way of business dealings.

Strategic global sourcing deals with importing goods instead of buying locally in an attempt to lower costs.
Strategic global sourcing deals with importing goods instead of buying locally in an attempt to lower costs.

Due to the ease of communication in the modern world, the tendency has been for businesses to think in terms of a global economy. As a result, many of the most profitable businesses have some type of connection with foreign countries. In many cases, the foreign aid comes in the area of sourcing, which is a term that essentially means that products and services are coming from a certain place of the company's choice. Companies practicing strategic global sourcing can cut their costs significantly and build important business relationships.

Some companies outsource their customer service departments.
Some companies outsource their customer service departments.

There are generally two ways that a company can go about the practice of strategic global sourcing. One way is to develop a relationship with a foreign supplier, who can produce goods and then ship them in to the company. The other way is for the company itself to expand its operations into the foreign country, thereby sharing the costs of production in the process.

In either case, strategic global sourcing attempts to take advantage of lower costs for these goods and services. A company from an established and powerful country will often seek out partnerships with suppliers in developing countries. Companies may even build their own production center in these countries, taking advantage of an extensive labor force that can be secured at lower salaries. Natural resources that are easily found in a foreign country might make it an excellent target for a company looking for goods not so easily or cheaply produced in its own country.

While these cost benefits can be substantial, companies also have to be aware of the potential pitfalls of strategic global sourcing. At times, cultural customs involved with the foreign supplier can have an impact on the way business is done. In some cases, language barriers between the two parties can hamper communication. Finally, customs and duties costs involved with shipping goods from one country to another can get in the way of profit margins.

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