Advantages and Disadvantages of Low-Cost Country Sourcing
To reduce expenses, many global companies tend to move production to countries with lower labor and production costs. When the production costs are lower, the price of the finished product will also be lower, which creates interest among buyers. However, without sourcing consultants, it can get challenging to navigate the cultural and social barriers, making it difficult to conduct business activities smoothly.
Here Is A Brief Insight Into The Advantages And Disadvantages Of Low-Cost Country Sourcing
Advantages Of Global Outsourcing To Low-Cost Countries
Cheaper Production Costs
Low-cost countries like China, Turkey, Taiwan, India, have special provisions in place to facilitate the mass production of a certain group of products at a cheaper price. The labor costs here are lower, making it easy to allocate money for R&D without compromising the work quality.
Skilled Workforce
The workforce in such low-cost countries is aware of the latest production techniques and technological advancements and how to implement them in operations. A skilled workforce ensures that your products and services conform to global quality standards.
Affordable Raw Materials
Such low-cost countries are also abundant in raw materials. Procurement consultants can help you source resources at a much more affordable rate than in native western countries, further reducing the production costs in these marketplaces.
Higher Production Capacity
Such low-cost countries also invest heavily in the latest infrastructure and dedicate huge portions of their economy towards manufacturing, increasing the production capacity by multiple folds. It is particularly helpful during peak season when there is increasing consumer demand.
Disadvantages Of Global Outsourcing To Low-Cost Countries
Language Barrier
One of the biggest challenges of global outsourcing is the language and social barriers, which can cause communication gaps and hamper smooth operations. As there are very few cultural similarities between the western and eastern nations, organizations often have to hire sourcing consultants to minimize this issue.
Local Tariff
Especially true for new entrants, several organizations are often unaware of the local tariffs and tax structures related to their sourcing destination. Without proper information about the local tariff, you might not be saving much on your production costs,
Administration Challenges
Another challenge that companies have to face is external and internal political conflicts, which can bring entire supply chains to a halt. For instance, rifts between the sourcing and destination countries, riots, protests, etc. can cause supply chain disruptions in more ways than one.
Shipping Costs
Businesses must also analyze the overall cost of sourcing to a low-cost country, which includes shipping, administration, and transition costs. Experienced procurement consultants will connect you with businesses that have experience in shipping to your destination market, which should help you save more on shipping costs.
Organizations interested in global sourcing to low-cost countries must consider both the pros and cons of it before making a decision. They must also ensure that their supply chain management system can handle any issues that might arise going forward.
