Global sourcing

GLOBAL SOURCING

FILIPPO ALBERTONI

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AGENDA

Background

Definition of Global Sourcing

The stages of Global Sourcing

The re-shoring phenomenon

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BACKROUND

HOW HAS SOURCING EVOLVED OVER TIME?

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CHANGES IN THE ECONOMY

60ies Today

Manual and labour intensiveTechnology and capital intensive (the

impact of ICT)

Orientation towards production Orientation towards customers

One product Product diversification

National business context International business context

Long product life cycle Short product life cycle

Loyal customersUnstable and demanding customers’

needs

Mere profit maximizationGreater attention towards social, environmental and ethical issues

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IMPLICATIONS FOR SOURCING• Threats and opportunities stemming from ICT

• Customer-led production and attention towards customer satisfaction

• Wide product range

• Thinking globally

• Resource constraints (time, financial, human, operational, organizational)

• High competitive pressure

• Ethical challenges

What to do?

Offshoring: fragmentation of business activities along the value chain and their delocalization in different countries.

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TIMELINE

60ies 90ies Today

Offshoring of production

Offshoring of business functions (e.g. call centers, software development)

Global sourcing of high value-added activities (e.g. R&D)

Advances in ICT From offshoring to global

sourcing. Drivers: from labor cost

savings to talent seeking and

knowledge sharing

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THE RISE OF OFFSHORING OF FUNCTIONS

(Albertoni & Elia, 2014a, p. 133)

Cumulative percentage of global sourcing ventures by function according to ORN data

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DEFINITION OF GLOBAL SOURCING

WHAT IS GLOBAL SOURCING?

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WHAT IS NOT/WHAT IS GLOBAL SOURCING

Global Sourcing is not Global Sourcing

Outsourcing only GS involves:• Arms-length contracts with foreign

suppliers (i.e. outsourcing) • Strategic alliances (i.e. joint ventures

or other partnership arrangements)• Foreign Direct Investments (i.e.

wholly owned solutions such as greenfield investments, mergers and acquisitions)

Internationalization; it is not done to enter new markets

GS is done to explore and exploit the advantages stemming from sourcing from new markets

Large projects only GS can be the request of a SME to implement a small website

Directed towards far shore countries only GS can be between neighbor countries (e.g. US and Mexico)

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787 DREAMLINER STRUCTURE SUPPLIERS

(Boeing, Reuters)

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THE TRADITIONAL PORTER VALUE CHAIN

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TODAY’S PORTER VALUE CHAIN

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THE GLOBAL SOURCING MATRIX

Mode of entry

BUY ALLY MAKE

Geographic distance

Domestic

Domestic Outsourcing

Strategic Alliances at Home

Domestic Delivery

Nearshoring

Nearshoring Outsourcing

Strategic Alliances in Neighbor Countries

Nearshoring Captive

Offshroing

Offshoring Outsourcing

Strategic Alliances in Far Shore

CountriesOffshoring Captive

(Albertoni & Elia, 2014b, p. 88)

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NOTE

Offshoring: from domestic to international

Outsourcing: from in-house provision to 3rd party provider

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GLOBAL SOURCING STAGES

WHICH ARE THE STEPS IMPLEMENTED BY GLOBAL SOURCING COMPANIES?

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GLOBAL SOURCING STAGES

Disintegration Relocation Reintegration

Offshoring Reshoring

Disintegration Relocation Reintegration

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RE-SHORING

WHY DO COMPANIES RESHORE?

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RE-SHORING

Companies, after having offshored their activities, can:

- Back re-shore at home

- Near re-shore in a nearby country

Why?

- Unsatisfied by their performance

- The business context has changed (e.g. labor cost inflation)

- Benefit geographic, cultural and linguistic proximity

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REFERENCES

Albertoni, F. & Elia, S. 2014a. The global sourcing of business services: evidence from the offshoring research network survey. Journal of Industrial and Business Economics. 2: 131-144.

Albertoni, F. & Elia, S. 2014b. Rischio e Strategia nel Global Sourcing in Albertini et al., La Gestione dei ‘Fornitori Dominanti’ (http://tinyurl.com/njsa8gk): 87-89.