Partner selection, qualification, and monitoring costs: Risk increased through cost with a supplier bankruptcy getting more concentration in most of the global sourcing analyses afterwards. It is not easy to always clear the supplier finances international market. Complexity of managing global supply: Outsourcing sometimes not suitable for some firms that attempts the implementation of lean production systems as it creates difficulty operating just-in-time production and maintaining close contacts with remote plants and suppliers.
Limited influence over the manufacturing processes of the supplier: suppliers don’t always deliver usable products on time. Potential vulnerability to opportunistic behavior or action in bad faith by suppliers: “Like Nike have been tarred with the “bad practices” brush due to their choice of product suppliers in China and Central America, so too can banks and other service businesses (e.g., Wal-Mart) be attacked for their outsourcing partners’ reputations.”
Brand Risks: quality problems that if not well managed, can damage the company’s brands, in addition to extracting a huge financial penalty. For example, “Call center activities transferred to Indian vendors have run into trouble and have been repatriated in several well-publicized cases. Lehman Brothers,Conseco, Capital One, and Dell have all experienced customer service disappointments and terminated outsourced arrangements in India.”
Constrained ability to safeguard intellectual assets (CSR side): “A growing concern in China and elsewhere, as proprietary knowledge regarding design, engineering, materials and other elements can too easily walk out the door – or companies may even find their own offshore suppliers suddenly competing with them with knock-off products”. Strategies for minimizing risk in global sourcing: Employee Skills: Employer needs to know what kind of skills employee have that will help them into their goals and objectives of the company. Inside training programs are organized by the company for employee to reward systems, and enhancing skills that processes and developed necessary skill sets. Example, In any country new to mcdonald’s,the company hire mostly local managers ; employees who are acquainted with the countries rules ; regulations ; it gives them a ceratin training to be able to operate at the level expected by the firm.As the case of mcdonald’s India.
Documentation & outsourcing: To reduce costs, outsourcing products needs Documentation.Using a product documentation outsourcing reduce customer support costs by reducing customer calls. A reduction in customer calls means the possibility of staffing fewer customer support people,Thus further reducing costs.Well-written product documentation can also increase the market perception of product. Which in turn results directly in a reduced return rate and an increased market share.This is the case in many technological & mobile phone companies like,Hp & Nokia.Where when these companies support its online documentation support.Thus in turns leads to fast problem solution & customer support in case of any problem with the product.
Firms ought to go offshore for the right reasons: Managers should focus on which activities in the value chain can be sourced internationally and which needs to be conducted in geographical proximity based on the generated costs & compared to the benefits of location and “relational factors”.Example,In international sourcing,high technology products were manufactured close to the R&D function.As in the case of Acer Taiwan when it went to USA for knowledge resources where many expertise & techonology that lead to launching new products. Operation of international & tightly integrated production system that gives the firm a valuable flexibility through the potential for dual sourcing and shifiting production in response to cost & demands changes.
Kenneth J. Petersen & David J. Frayer (2000), “An Empirical Investigation of Global Sourcing Strategy Effectiveness”, The journal of supply chain management (Volume/Number) 36(2): (Pages) 29-38