What is Global Sourcing?

What is Global Sourcing?

Global sourcing is the practice of sourcing goods, materials, or services from suppliers located in different countries around the world.

Companies engage in this practice to leverage the cost advantages, specialised skills, or resources available in specific regions, which might not be accessible or cost-effective in their home country.

By forming partnerships with suppliers in countries where labour and raw material costs are lower, businesses can optimise production efficiency while maintaining competitive pricing. Global sourcing allows organisations to enhance their operations and gain access to a broader network of capabilities.

Global sourcing is a term that defines the complex nature of supply chain relationships that transcend geo-political boundaries. It describes the process of integrating procurement requirements across worldwide business units to create products that meet necessary standards of efficiency and quality and comply with legislative obligations.

One head of external sourcing at a global consumer products company told PwC in their Global Sourcing: Shifting Strategies report  that global sourcing is a frequently "misused" phrase. He said:

"Companies based in one country and buying from the Far East … this is not global sourcing. True global sourcing is when a business manufactures and sells a consistent product globally, sourcing some or all of the product from third parties chosen to enable cost-effective and efficient sourcing, and coordinated globally."

Why is Global Sourcing Important?

Advancements in transport and telecommunications enabled global sourcing to grow massively over the last few decades. European and American shoppers became used to finding a 'Made in China' or 'Made in Bangladesh' label on their clothes, as manufacturers realised it was cheaper to hire labour and premises in these countries and rapidly built up a network of overseas suppliers.

The result is that companies in the retail sector now view global sourcing not only as an opportunity to gain competitive advantage, but as a fundamental aspect of their business model. Global sourcing is no longer a potential strategy to consider - it's a fact of life. So what are the main advantages of global sourcing? And what are the implications for businesses with global sourcing operations?

Global Sourcing Benefits

More than a money saver! 

The rewards for using effective global sourcing strategies are significant for companies in today’s interconnected marketplace

1. Cost Savings

Back in 2008 a report by PricewaterhouseCoopers stated that early on, the term global sourcing initially meant 'low-cost country sourcing'. For the majority of companies, it was a process with a simple objective: obtain product or components from a country with lower labour costs, thereby achieving a cost advantage.

Nearly two decades later in 2024, cost is still a key driver for all global sourcing companies, which is why it’s number one in the list. For many, it’s the main criteria against which they judge the success of their sourcing activities. 

However a growing number of businesses understand that global sourcing means more than just cheaper labour. There’s a huge number of other benefits too. 

2. Access to Specialized Skills and Resources

Some countries excel in specific industries. For instance, China is known for its large-scale manufacturing capabilities, while India has a rich talent pool for IT services. By sourcing globally, companies can tap into specialised knowledge and innovation that may not be available locally.

3. Increased Supply Chain Flexibility

Global sourcing helps businesses diversify their supply chains. This reduces dependence on a single supplier or country and ensures smoother operations even if there are disruptions in one part of the world.

4. Improved Product Quality

Sourcing from different parts of the world allows businesses to find suppliers that specialise in high-quality materials or services. In some cases, a company may choose a foreign supplier because of superior craftsmanship, technology, or expertise.

5. Faster Production and Time-to-Market

Having access to multiple suppliers in different time zones can speed up production. While one region is ending its workday, another might just be starting, allowing for continuous progress on projects. globally, sourcing some or all of the product from third parties chosen to enable cost-effective and efficient sourcing, and coordinated globally.

Global Sourcing Supply Chain Risks

Like anything that has large rewards, global sourcing also carries a number of risks. The more diverse and complex a global supply chain becomes, the greater the risks will be.

1. Natural Disasters and Natural Hazards

The impact of the Covid-19 worldwide pandemic had well documented far-reaching effects on global sourcing. While Covid-19 ended up being a temporary challenge, climate change is set to be a long term risk for supply chains. 

Extreme weather and natural disasters can wreak havoc on companies with global sourcing operations.  

For example, in July 2021, flooding in central China forced disrupted supply chains for commodities and forced the closure of a Nissan plant

Another example is In December 2021 when Malaysia was hit by a devastating typhoon, causing widespread flooding that damaged major roads and critically impacted Klang, one of Southeast Asia's busiest ports. As Malaysia is a significant player in semiconductor packaging, this disaster disrupted global semiconductor supply chains. 

So far in 2024, natural disasters across the world have caused significant supply chain disruption. January earthquakes in Japan’s Ishikawa Prefecture resulted in factory closures across the steel, electronics and construction machinery sectors.

Additionally, heavy rainfall reduced shipping capacity through the Panama Canal, forcing chemical plant shutdowns in Mexico, causing severe food shortages across East Africa, and triggering devastating floods in Brazil. These impacts have rippled through key sectors such as agriculture, crude oil production, and the automotive industry. (Source)

Unfortunately, major disruption to global supply chains caused by natural disasters are on the increase with climate change now a long term problem. 

According to the UN Global Assessment Report on Disaster Risk Reduction the period from 1970 to 2000 saw an average of fewer than 100 large-scale disasters worldwide every year. However, between 2001 and 2020 that figure swelled to over 350.

Interos’ recent survey of 750 chief procurement officers (CPOs) found that the cost of extreme weather and natural catastrophes in their supply chains in 2022 was, on average, $45 million per organisation. 

2. Quality Control When Using Complex Supply Chains

Creating a production line that spans a complex network of interdependent global relationships can have grave implications for quality, compliance and brand reputation if these issues do not receive sufficient attention.

Quality control procedures and inspections have a role to play here, but ultimately companies must know and trust every global supplier they partner with. 

3. Political and Economic Instability

Countries that provide cost-effective sourcing might also be prone to political unrest, economic instability, or trade restrictions, which can affect supply reliability.

The Russian - Ukrainian war is one extreme example of how working relationships can be in place with suppliers one day and trading ceases the next. 

4. Regulation and Compliance

Regulation and compliance are significant challenges in global sourcing due to the diverse legal frameworks and standards across countries. Companies sourcing goods from multiple regions must navigate different laws related to labour practices, environmental standards, product safety, and trade regulations. Compliance with local and international laws—such as the new European Union Deforestation Regulation (EUDR) requires thorough knowledge and constant monitoring to avoid penalties.

At Segura we are well aware of the challenges Buying, CSR and Sustainability teams (among others) have in selecting and managing Suppliers so that they are compliant with legislative requirements, especially when regulations are drafted without communicating with them. Read our article: Supply Chain Compliance - Why we need shared industry data standards for more insight into these pressing issues. 

Which Global Sourcing Strategies? Mitigating the Risks

Mitigating risks in global sourcing requires adopting specific strategies that address both predictable and unpredictable disruptions. Here are several key strategies:

1. Supplier Diversification

Relying on a single supplier or region can create vulnerabilities, especially during crises like the COVID-19 pandemic or geopolitical conflicts. By diversifying suppliers across multiple countries or regions, businesses can reduce the risk of supply chain disruptions. If one supplier faces issues, others can step in to fulfil demand.

2. Nearshoring and Regional Sourcing

Many companies are now turning to nearshoring, which involves sourcing from suppliers closer to their primary markets. This reduces lead times and shipping costs, while also mitigating risks associated with long-distance transport, such as delays at ports or geopolitical tensions. For example, US companies are increasingly sourcing from Mexico or Latin America, while European firms look to Eastern Europe.

3. Multi-Sourcing

Multi-sourcing involves using multiple suppliers for the same product, even within a single country or region. This spreads risk and ensures that if one supplier faces challenges, another can fulfil the order. It also improves negotiation leverage, as businesses are less dependent on a single source.

4. Building Strong Supplier Relationships

Strong relationships with suppliers are crucial for mitigating risk. Companies that maintain collaborative partnerships with their suppliers often receive early warnings about potential disruptions, such as factory closures or raw material shortages. These relationships can also lead to more favourable contract terms, better communication, and joint problem-solving during crises.

5. Investing in Digital Supply Chain Technology

Real-time visibility of supply chain data is essential for managing global sourcing risks. Investing in supply chain management software and tools that offer visibility into supplier performance, inventory levels, and logistics can help businesses respond quickly to disruptions. These technologies allow for better demand forecasting, inventory management, and risk monitoring.

QIMA's 2023 survey evidence that over 40% of businesses have invested in supply chain technology to mitigate global sourcing risks and 38% have invested to better manage product quality and supplier compliance. 

How Can Segura Help with Global Sourcing Challenges?

Segura can support businesses mitigate global sourcing risks by providing:

• Supply Chain Mapping:  visualise the entire supply chain, ensuring companies can trace the origin of products and highlight potential risks
• Data Collection and Validation: Segura provides companies with a centralised platform which captures and validates essential supplier data, such as geolocation information— ensuring it’s accurate and up-to-date, which is crucial for meeting regulatory requirements and avoiding sourcing risks.
• Risk Data and Risk Monitoring: Segura can import third-party data, such as the Corruption Perceptions Index, to identify suppliers located in high-risk regions, which may require scrutiny. Segura can monitor information collection to identify and alert retailers to compliance gaps or risks early and take corrective action swiftly. 
• Transparency and Monitoring: The software improves visibility and transparency across multi-tier suppliers, making it easier to monitor compliance with environmental, social, and governance (ESG) standards.
• Centralised Communication: Segura helps companies maintain continuous updates from their suppliers, ensuring adherence to necessary standards and regulations

Segura’s solutions provide an effective risk mitigation framework that strengthens supply chain resilience and compliance with global sourcing challenges.