Global sourcing has become commonplace. Many companies have now expanded their supply base to include foreign suppliers. List three reasons why companies may choose to source their products and/or materials globally.

Reason 1. Cost savings due to cheaper products of same quality available from the international market.

Reason 2. Technological advancement

Reason 3. The marginal Cost remains below marginal revenue

Reason 4. Developing competencies in Core Operations.

Explanation:

Reason 1. Cost savings due to cheaper products of same quality available from the international market.

The reason is that the the foreign companies might have cheaper labor, better infrastructure or business facilities which helps them to manufacture cheaper products in the country. So importing them would give the company cost advantage over other rival both domestically and internationally.

Reason 2. Technological advancement

The quality of the product that is ordered from the foreign country is much higher than the quality products of the home industry. Importing such technologically advance product will gove the company upperhand over the rivals, so it might be one of the reasons.

Reason 3. The marginal Cost remains below marginal revenue.

In this case, the company if exceeds certain level of production then the costs becomes uncontrolable but if it uses the production capacity of the foreign company then it can make additional profit by using that product to fulfill marginally small production order which is above its production capacity. Though it is rare but it happens in practical life.

Reason 4. Developing competencies in Core Operations.

If the company outsources its most of unimportant operations, then it can focus on the core operations of the company which would help them in creating competitive advantage and help grow the market share. Furthermore, outsourcing is very common nowadays because due to technological advancements, the country can make use of foreign country labors which costs the company much lower than the labor in the home country.

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