Any production input can be sourced in a foreign country. Traditionally, multinational enterprises have used
global sourcing for low-profit production steps, such as the acquisition of raw materials; production and assembly; and finishing and packaging. But more and more high-profit steps, such as innovation, marketing and retailing, are now sourced in other countries.
(adapted from European Foundation for the Improvement of Living and Working Conditions,
Trends and drivers of change in the EU textiles and leather sector: Mapping report, 2004, visited 2009-07-28)
The Procurement of Products and/or Services: Different Strategies
"Firms make sourcing decisions in each of the two phases of production—component sourcing and assembly. In either phase, firms can choose to use domestic or
foreign sourcing (the locational aspect), and internal or external sourcing (the ownership aspect).
‘Domestic sourcing' is when the sourcing firm and its suppliers are located in the same country (e.g., Honda in the U.S. sources from Nippondenso in the U.S.), while ‘
foreign sourcing' involves sourcing from abroad (e.g., Honda in the U.S. procures from Nippondenso in Japan).
A firm uses ‘internal sourcing' when it procures or assembles parts and components within the corporate system, either a parent from its subsidiaries, or subsidiaries from their parent or from other subsidiaries (e.g., Honda in the U.S. sources from its parent in Japan, or from other Honda subsidiaries located in the U.S.). ‘External sourcing' occurs when sourcing originates from independent suppliers on a contractual basis (e.g., Honda in the U.S. procures from ABC Company in the U.S. or from XYZ Company in Japan).
These activities often cross national boundaries."
(Murray, J. Y.,
"A currency exchange rate-driven vs. strategy-driven analysis of global sourcing," Multinational Business Review, Spring 1996, visited 2009-07-22)
In- or Outsourcing: At Home or Abroad?
For an enterprise, there are four sourcing possibilities:
- Insourcing at home, or domestic supply
- Outsourcing at home, or domestic outsourcing
- Insourcing abroad (FDI), or international insourcing, or international intra-firm sourcing
- Outsourcing abroad, or international outsourcing (contracting out to independent parties in other countries)
(adapted from Helpman, E.,
Trade, FDI, and the Organization of Firms,
Journal of Economic Literature, Vol. XLIV, September 2006, pp. 589-630, visited 2009-07-22)
Global Sourcing and the Global Integration of Production Systems
According to Dicken, "the traditional connection between production and market is broken. The output of a manufacturing plant in one country may become the input for a plant belonging to the same firm located in another country or countries. […] Such
offshore sourcing and the development of vertically integrated production networks on a global scale were virtually unknown before the early 1960s. […] These practices of international intra-firm sourcing have become an increasingly important mechanism of global integration of production processes."
(Dicken, P.,
Global Shift: Reshaping the Global Economic Map in the 21st Century, 4th ed., New York: Guilford Press, 2003, p. 248)
Global Sourcing, Follow Sourcing, and Follow Design
In the automotive industry, "the practice by which global parts firms follow their principal customers around the globe and set up dedicated facilities within a few miles specifically for supplying parts modules for that particular assembly plant is often referred to as 'follow sourcing.' Because this practice usually also entails the parts firm taking principal responsibility for designing these systems in accordance with the overall vehicle specifications provided by the automaker (which often will change from market to market based on safety laws, the conditions of local roads, and other national markets permutations), so-called 'follow design' is usually an integral component of 'follow sourcing.' […]
The term '
global sourcing' is applied when automakers, or indeed larger suppliers, buy specific components from cheaper providers overseas products that they once might have manufactured the local market or that they once might have manufactured in-house; this entails a more arms-length, price-mediated, relationally thin kind of transaction as compared to globally preferred sourcing and follow sourcing/design."
(Martin, S. B.,
Global Sourcing Dynamics, Inequality, and 'Decent Work' in Auto Parts: Mexico Through the Brazilian Looking Glass, 2006, visited 2009-07-22)
Ethical Sourcing and Labour Regulation
"
Global sourcing has drawn many manufacturers and retailers from developed countries into contact with vendors and subcontractors operating at standards and in regulatory environments very different from those of their home markets, i.e. at wages which are a fraction of those payable in the industrialized countries and under conditions of employment which are often markedly worse. […]
In industry after industry, a common pattern has emerged: labor-intensive manufacturing processes move from comparatively well-paid, unionized jobs in developed countries to low-wage, non-unionized countries, only to relocate to even cheaper coun¬tries once these become available."
Global sourcing often means plant closures and has raised concerns among trade unions, labour activists, and NGOs. The subsequent actions and campaigns directed by these organizations have affected the decisions of consumers: "The ‘ethical consumer,' sensitized to human rights and environmental issues, sees shopping as a complement to (or substitute for) other forms of direct social activity."
(Tsogas, G.,
Labor Regulation in a Global Economy, Armonk, London: M. E. Sharpe, 2001, pp. 10-11)
More and more multinational companies are now adopting what are called "ethical sourcing guidelines," as part of their corporate social responsibility. These guidelines aim at purchasing "goods and services which are produced and delivered under conditions which do not involve abuse or exploitation, and which have the least negative impact on the environment."
(adapted from Oxfam,
Oxfam's Ethical Purchasing Policy, 2008, visited 2009-07-22)
