International Purchasing: Benefits, Requirements, and Challenges

International sourcing emerged initially as a reactive approach designed to reduce production costs in an effort to neutralize the threat of foreign competition. Today, leading edge firms have shifted the focus of their international sourcing efforts to that of a proactive strategy that pursues a sustainable competitive advantage. This article explores the challenges, requirements, and benefits of international sourcing by means of a brief literature review and a discussion of the results of a survey of purchasing managers. The study focuses on the various aspects of international sourcing that affect its ability to impact a firm's competitiveness. INTRODUCTION Today's changing business climate, marked by ever increasing global competition, has greatly stimulated the growth in international sourcing. International sourcing emerged initially as a reactive strategy employed to neutralize the threat of foreign competition. Today, however, international sourcing is viewed increasingly as a proactive strategy capable of creating competitive advantage. In effect, international sourcing enables firms to utilize worldwide resources more efficiently by allowing them to decouple regional economies/comparative advantage factors from their country(ies) of origin. One researcher observes that "The time has come to think of factories differently, not as giant, integrated places that produce a single finished product from beginning to end, but as a series of small modules located in different places, each contributing flexible portions of a constantly changing, disposable, or transportable whole."|1~ This vision of the "floating factory," in which the firm is able to instantaneously relocate its facilities to any location worldwide to obtain the optimal mix of resources for its value-added process, is an ideal that has long been sought. While the true floating factory has yet to become a viable management option, its inherent appeal is the driving force behind today's international sourcing strategies. Indeed, the fluidity created by a successful international sourcing strategy helps a firm overcome the immobility and permanence represented by the firm's brick-and-mortar. International sourcing's competitive value has increased recently because the value of purchased inputs as a percentage of cost of goods sold has continued to rise in many production settings. Purchased inputs often represent 60 percent or more of a firm's product cost, as compared with direct labor costs which have decreased to approximately 10 percent of total cost in many industries.|2~ The complexity and value-added component of purchased inputs has also increased considerably in recent years.|3~ Sourcing decisions thus play an important role in determining the relative cost position of the firm. Perhaps of equal or greater importance is the impact of sourcing on a firm's competitiveness in terms of quality, dependability, flexibility, and innovation.|4~ For example, Philip Crosby notes that up to 50 percent of a firm's quality problems can be traced to defective purchased materials.|5~ Emphasizing the control of purchased materials while looking to worldwide opportunities is therefore important to the success of future manufacturing strategies. This article explores aspects of international sourcing that affect its ability to impact a firm's competitiveness. To do this, the literature is reviewed briefly and a survey of purchasing managers is discussed. Survey results describe the level of international sourcing activity and emphasize basic implementation characteristics, including the benefits, challenges, and requirements of successful implementation. A REVIEW OF PREVIOUS RESEARCH The terms foreign sourcing, global sourcing, international sourcing, and multinational sourcing have long been used interchangeably. Recent research, however, has established a distinction between these concepts and truly strategic global sourcing. …