SOURCING IN INTERNATIONAL MARKETS 2
Organizations’ growth and expansion enable an organization to expand its market to serve larger markets. Proper marketing initiatives have to be undertaken to ensure that the new market will be served effectively to promote the realization of the strategic goals. Sourcing is the identification and acquisition of goods or services to serve the available market efficiently and cost-effectively. Sourcing can be done within or without the borders in which an organization operates. The main objective of this approach is identifying the most cost-effective production process. The idea is born from the concept that different operating environment has different operational cost for organizations (Oparaocha,2015). Similar firms operating from different geographical localities have different operating cost, due to the difference in the cost of the factors of production.
Sourcing is a strategic approach implemented to enhance profit maximization of an organization; this is because the reduced cost of production will translate into improved profit margins. Sourcing decisions are based on many factors in addition to cost-effectiveness. These factors include; legal issues of the sourcing location- the legislation laid down by different governments affects the operating cost within the country. Some governments have regulations discouraging the exportation of raw materials, for this reason, therefore, outsourcing raw material from these countries would be impossible (Ciabuschi, Kong, & Su,2017). Another factor facilitating sourcing is the infrastructural base of the location from which sourcing will be done. The sourced finished goods or raw materials need to be distributed to locations where they are needed; proper infrastructural base, therefore, will promote efficiency in distribution. A country may have cheap, high-quality raw material but if the infrastructure is poorly developed then the cost of sourcing becomes escalated. Understanding the operating environment enables an organization to identify the most suitable sourcing method to use.
Sourcing methods.
There are various approaches through which the sourcing process can be undertaken to promote effectiveness and efficiency in business processes. These approaches are classified into two main categories which are insourcing and outsourcing. Insourcing approach can either be domestic insourcing or global insourcing (Bahng, Yang, & Reilly,2016). Under insourcing, an organization acquires its raw material from its affiliates which operating cost is lower than the sourcing organization. Insourcing takes place in two different forms; an organization can acquire the resources locally under domestic insourcing. An organization can also undertake off-shore sourcing where it acquires the required resources from its international affiliates. Through insourcing, an organization identifies a firm within its affiliates which enjoys operational efficiency and which operational cost is significantly low. The organization then becomes the distributor of either the raw materials or the finished products to its affiliate. Through this approach, an organization acquires a competitive advantage over its competitors since the operating cost is highly reduced. Thus an organization can engage in cost leadership marketing.
Secondly, an organization can engage in outsourcing strategies to facilitate its operations. Under this approach an organization sources for the resources from independent suppliers who are not affiliated with the organization. Outsourcing can be in two forms which are domestic outsourcing and offshore outsourcing. Domestic outsourcing is where an organization acquires the required resources from an independent domestic supplier and uses these resources to boost their operations. Off-shore outsourcing is concerned with identifying an international firm which deals with the supply of the required resources. The firm is then tasked by the organization to supply these resources to the organization (Awate, Larsen, & Mudambi, 2015). The supply terms are based on a contract where the organization and the supply agree on terms and conditions of supply.
References
Awate, S., Larsen, M. M., & Mudambi, R. (2015). Accessing vs. sourcing knowledge: A comparative study of R&D internationalization between emerging and advanced economy firms. Journal of International Business Studies, 46(1), 63-86.
Ciabuschi, F., Kong, L., & Su, C. (2017). Knowledge sourcing from advanced markets subsidiaries: political embeddedness and reverse knowledge transfer barriers in emerging-market multinationals. Industrial and Corporate Change, 26(2), 311-332.
Oparaocha, G. O. (2015). SMEs and international entrepreneurship: An institutional network perspective. International Business Review, 24(5), 861-873.
Bahng, Y., Yang, J. H., & Reilly, A. (2016). A qualitative approach to understanding Hawaiian apparel manufacturers’ exports: strategic marketing resources, dynamic capabilities and export barriers. International Journal of Export Marketing, 1(1), 96-113.