by Josef A

Created on: May 25, 2009   Last Updated: May 27, 2009

Global sourcing describes a strategy pursued by many international companies. Through global sourcing firms try to produce a good or service in the country where it is done most efficiently. Classical examples are call-centers and software programming in India or manufacturing in China. However, global sourcing does not necessarily imply producing in developing countries. A new fashion collection might be best developed in Paris and a new hybrid automobile in Tokyo. An import and export strategy aims at exploiting global efficiency differences as well. Manufacturing goods are purchased from a foreign company and merely imported.

So what is the difference between global sourcing and import and export? The main difference is ownership. Global sourcing implies that the company holds some kind of ownership, e.g. in forms of a subsidiary. Consequently, the amount of control is much higher with a global sourcing strategy. Certainly, if your supplier is partly dependent on your orders you can influence the quality of the output by putting pressure on the company. However, it might be more difficult to maintain such standards, if the company is an independent actor in the market. So essentially, the type of product or service you want to out-source globally determines your strategy.

It can be demonstrated with two simple examples. Big retailers need to procure clothing of any kind and many items require a significant amount of manual labor. In addition, cloths are easy to transport and for many middle and low price segments quality requirements are not extraordinary high. Therefore, it is easy to have such products produced by independent suppliers in countries with much lower labor costs and import them. A different case is e.g. software programming. Developing software is a complex process and it is not always easy to make new software compatible to previous editions and other programs. You cannot simply order a certain software tool and expect to get the exact product desired. However, Indian software programmers are significantly cheaper to employ than their Western counterparts. In order to exploit this advantage global sourcing is often chosen. As said before, this involves some kind of ownership allowing for a higher degree of control and cooperation than an import-export strategy could provide.

The decision what is the best option for a company is not always that straightforward. It requires a thorough assessment of a company's needs and business focus. With globalization proceeding, taking those kind of decisions will become increasingly important and contribute to the performance of global companies.

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