Global sourcing strategy

8/8/2019 Global sourcing strategy

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GLOBAL SOURCING STRATEGY:GLOBAL SOURCING STRATEGY:

R%D, MANUFACTURING, ANDR%D, MANUFACTURING, ANDMARKETING INTERFACESMARKETING INTERFACES


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II-- IntroductionIntroduction

GlobalGlobal SourcingSourcing StrategyStrategy:: LogisticalLogistical interfacesinterfaces

ofof R&D,R&D, manufacturing,manufacturing, andandmarketingmarketing activitiesactivitiesonon aa globalglobal basisbasis

MarketingMarketing managersmanagers shouldshould understandunderstand andand

appreciateappreciate thethe i mportantimportant rolesroles thatthat productproductdesigners,designers, engineers,engineers, productionproduction managers,managers, andandpurchasingpurchasing managersmanagers playplay ininmarketingmarketing decisiondecisionmakingmaking..

ThisThis interactioninteraction willwill determinedetermine aa companyscompanyscompetitivecompetitive strengthsstrengths andand consequentlyconsequently itsitsmarketmarket performanceperformance


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IIII-- TrendsinGlobalSourcing StrategyTrendsinGlobalSourcing Strategy

a)Thedeclineof Exchange Rate Determinism ofa)Thedeclineof Exchange Rate Determinism ofSourcingSourcing

Strictlybasedonthepricefactor.Strictlybasedonthepricefactor.

Foreignsourcingoccursfornoncostreasons (longtermForeignsourcingoccursfornoncostreasons (longtermrelationshipswith suppliers, quality,relationshipswith suppliers, quality,

See Figure 10See Figure 10--1.1.

b) New Competitive EnvironmentCausedby Excessb) New Competitive EnvironmentCausedby ExcessWorldwide CapacityWorldwide Capacity

Therehasbeena strategicshiftform price andquantityTherehasbeena strategicshiftform price andquantitytoquality andreliabilityofproducts as a determinantoftoquality andreliabilityofproducts as a determinantof

competitive strengthcompetitive strength

FiveTrendsinglobalsourcing areidentified:FiveTrendsinglobalsourcing areidentified:


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c) Innovations in and Restructuring of Internationalc) Innovations in and Restructuring of International

Trade InfrastructureTrade Infrastructure

Advances in structural elements of international tradeAdvances in structural elements of international tradehave made iteasierforcompaniesto employsourcinghave made iteasierforcompaniesto employsourcing

forstrategicpurposes.forstrategicpurposes.

d) Enhanced Role of Purchasing Managersd) Enhanced Role of Purchasing Managers

e) Trend Toward Global Manufacturinge) Trend Toward Global Manufacturing


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Global sourcingstrategyencompasses management of:Global sourcingstrategyencompasses management of:

1)the interfacesamong R&D, manufacturing, and1)the interfacesamong R&D, manufacturing, andamrketing on aglobal basis, andamrketing on aglobal basis, and

2) Logistics identifyingwhichproduction unitswill2) Logistics identifyingwhichproduction unitswillservewhichparticular marketsand howcomponentsservewhichparticular marketsand howcomponents

will besupplied forproduction.will besupplied forproduction.

-- R&D/Manufacturing InterfaceR&D/Manufacturing Interface

-- Manufacturing/Marketing InterfaceManufacturing/Marketing Interface

-- Marketing/R&D InterfaceMarketing/R&D Interface


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IVIV -- LogisticsofSourcing StrategyLogisticsofSourcing Strategy

Sourcing strategyincludes a numberofbasicchoicesSourcing strategyincludes a numberofbasicchoices

companies makeindeciding howto serve foreigncompanies makeindeciding howto serve foreignmarketsmarkets

AA Imports, assemblyorproductionwithinthecountryImports, assemblyorproductionwithinthecountryto serve a foreignmarketto serve a foreignmarket

BB Internal orexternal suppliesofcomponentsorInternal orexternal suppliesofcomponentsorfinished goodsfinished goods

Sourcing Decisions: a)intraSourcing Decisions: a)intra--firm sourcing andfirm sourcing andoutsourcingoutsourcing

Whereto source majorcomponents seems much lessWhereto source majorcomponents seems much lessimportantthanhowto sourcethemimportantthanhowto sourcethem


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VIVI-- TransferPricingTransferPricing

MNCsMNCs s houldshould considerconsider thethe followingfollowing criteriacriteria whenwhen

makingmaking transfertransfer pricingpricing decisionsdecisions::

a)a) TaxTax regimesregimes

b)b) LocalLocal MarketMarket conditionsconditions

c)c) MarketMarket ImperfectionsImperfections

d)d) JointJoint--ventureventure partnerpartner

e)e) MoraleMorale ofof locallocal countrycountry managersmanagers

KeyKey driversdriversbehindbehind transfertransfer pricingpricing::

a)a) MarketMarket conditionsconditionsinin thethe foreignforeign countrycountry

b)b) CompetitionCompetition ininthethe foreignforeign countrycountry

c)c) ReasonableReasonable profitprofit forforforeignforeignaffiliateaffiliate

d)d) UU..SS.. federalfederal incomeincome taxestaxes


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ee)) EconomicEconomic conditionsconditions inin thethe foreignforeign countrycountry

ff)) ImportImport RestrictionsRestrictions

gg)) CustomsCustoms DutiesDuties

hh)) PricePrice ControlsControls

ii)) TaxationTaxation inin thethe foreignforeign countrycountry

jj)) ExchangeExchange ControlsControls

Setting Transfer PricesSetting Transfer Prices

a)a) Arms lengthprices: use of marketArms lengthprices: use of marketmechanism asacueforsettingtransferprices.mechanism asacueforsettingtransferprices.

b)b) CostCost--based pricing (addsa markbased pricing (addsa mark--up)up)


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VIIVII-- GlobalPricing andGlobalPricing andAntidumping RegulationAntidumping Regulation

DumpingDumping:: importsimports areare beingbeing soldsoldatatanan unfairpriceunfairprice

ProtectionismProtectionism

-- ToTo minimizeminimize riskrisk exposureexposure toto antidumpingantidumping actions,actions,

exportersexporters mightmightpursuepursue anyany ofof thesethese strategiesstrategies::

-- TradingTrading--upup (move(move awayaway fromfrom lowlow--valuevalue toto highhigh--valuevalue products)products)

-- SServiceervice EnhancementEnhancement:: differentiatedifferentiate youryour productproductbyby addingadding supportsupport servicesservices toto thethe corecore productproduct

-- DistributionDistribution andand CommunicationCommunication:: strategicstrategicalliancesalliances


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VIIIVIII-- PriceCoordinationPriceCoordination

WhenWhen developingdeveloping aa globalglobal pricingpricing strategy,strategy, oneone ofof thethethorniestthorniest issuesissues isis howhow muchmuch coordinationcoordination shouldshould existexistbetweenbetween pricesprices chargedcharged inin differentdifferent countriescountries

InIn decidingdeciding howhow muchmuch coordination,coordination, severalseveralconsiderationsconsiderations mattermatter::

a)a) NNatureature ofof customerscustomers

b)b) NatureNature ofof channelschannels

c)c) NatureNature ofof competitioncompetition

d)d) MarketMarket integrationintegration

e)e) InternalInternal organizationorganization

f)f) GovernmentGovernment regulationregulation


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IXIX-- CountertradeCountertrade

CountertradeCountertrade isis anan umbrellaumbrella termterm usedused toto describedescribe

unconventionalunconventional tradetrade--financingfinancing tr ansactionstransactions thatthatinvolveinvolve somesome formform ofof noncashnoncash compensationcompensation..

AA FormsofCountertradeFormsofCountertrade

BarterBarter

Buy BackBuy Back

OffsetOffset

BB Motives BehindCountertradeMotives BehindCountertrade

-- GainaccesstonewordifficultmarketsGainaccesstonewordifficultmarkets-- Overcomeexchangeratecontrolsor lackofhardOvercomeexchangeratecontrolsor lackofhard

currencycurrency

-- Overcome lowcountrycreditworthinessOvercome lowcountrycreditworthiness

-- IncreasesalesvolumeIncreasesalesvolume

-- Generate longGenerate long--term customergoodwillterm customergoodwill


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CC ShortcomingsofShortcomingsof CountertradeCountertrade

-- NoinNoin--houseuse forgoodsofferedbycustomershouseuse forgoodsofferedbycustomers-- Timely andcostlynegotiationsTimely andcostlynegotiations

-- Uncertainty and lackofinformationonfutureUncertainty and lackofinformationonfuturepricesprices

-- TransactioncostsTransactioncosts

Global sourcing strategy

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