Global sourcing advantages & disadvantages Images

Global sourcing is a term that refers to the practice of obtaining goods and services from various locations throughout the global market.

Global sourcing takes advantage of relative efficiencies found across various countries, which can be lower labour costs, cheaper raw materials, less regulation, or government-initiated economic incentives like tax breaks and low tariffs.

Advantage: Economic Efficiency

Global sourcing by transnational corporations has been a central force in globalisation. Profit-seeking firms move some or all of their operations abroad in order to benefit from various comparative advantages. Labour-intensive production processes are relocated to developing countries in which labour is relatively cheap. These practices, while controversial, lower production costs and, therefore, the price of goods and services for consumers.

Advantage: Redistributes Wealth from Developed Countries

Though global sourcing has drawn criticism from economic nationalists and human rights advocates alike, it is undeniable that the practice of moving production facilities abroad has stimulated national economies that otherwise had few options for economic growth. Global sourcing transfers technology as well as proprietary knowledge to other countries, which can use them to develop native industries. East Asian economic success stories like those of Japan, South Korea, Hong Kong and China have all been on the receiving end of this process and have been able to build self-sustaining economies.

Disadvantage: Can Contribute to Exploitative Practices

Transnational corporations are often criticised for the working conditions in their overseas facilities, and there are many instances of severe human rights and environmental violations stemming from the lack of regulation in host nations. Unsafe working conditions, the use of underaged labour, relatively low wages and extremely long working hours are commonly cited as exploitative practices on the part of transnational corporations, particularly those engaged in textile and manufacturing industries.

Disadvantage: Domestic Job Losses

Global sourcing, sometimes referred to under the blanket-term "outsourcing," is commonly criticised by domestic labour advocates and economic nationalists alike. Moving a manufacturing process to another country, for example, puts domestic workers in that field out of work. The shift in U.S. manufacturing from domestic factories to cheaper facilities in places like Mexico, China and India has been sharply criticised as it has put hundreds of thousands of workers out of the job, many of whom are too old to receive new training and relocate to a new industry.