Local Sourcing vs Global Sourcing: How to Choose For Your Business
When you’re looking for a manufacturer or supplier of raw materials and goods, you have the option to source locally and globally. Depending on your business and customer needs, you can choose local sourcing or global sourcing, or a combination of both.
There are pros and cons to both sourcing models and you will have to take into account factors such as quality, cost, timing, and technical details to make an informed decision. By considering all the factors, you can get a more accurate analysis of the sourcing model that suits your business.
The prevailing sense is that domestic sourcing works best if you need more control over goods, special customizations, and faster delivery times.
Meanwhile, international sourcing works best when you need cheaper products. While these ideas are true, they are oversimplifications that should not be the basis for making strategic decisions.
Depending on the nature of your business, you should compare and analyze factors that are key decision drivers. Let us understand local and global sourcing in detail to understand how to choose to source for your business.
What is Local Sourcing?
Local sourcing is the sourcing of goods and materials from manufacturers and suppliers within your home country. Instead of dealing with the intricacies of international trade, you choose to source from local manufacturers.
While sourcing your products locally can seem to be cost-effective, it is usually not the case. The unavailability of resources and higher production costs can lead to increased operating expenses. If your priority is cheap products, you’re better off sourcing them internationally.
However, if you need quick turnarounds, better quality control, and customizations, domestic sourcing will be ideal for your business.
Advantages and Disadvantages of Local Sourcing
Local sourcing has its advantages and disadvantages. By knowing what to expect when you’re sourcing from within your home country, you can strategically make good decisions.
Advantages of Local Sourcing
Sourcing products from local manufacturers and suppliers has its benefits. You may realize that it is the best sourcing strategy for your business and that you don’t need to rely on international suppliers.
Some of the main advantages of local sourcing include:
- Increased reputation in the local community due to good PR.
- Ability to travel to suppliers to check the development, management, and quality control processes.
- Shorter supply chains for faster and more predictable product delivery times.
- Easier management, coordination, and customization options.
Disadvantages of Local Sourcing
Despite being able to support the local community by sourcing products from local manufacturers, sometimes local sourcing is not profitable. Since each country has its own naturally abundant resources and skilled laborers, you have to look overseas for high-quality and cheap products.
Some of the big disadvantages of local sourcing include:
- Inability to find high-quality products at the best prices within the home country.
- Lack of skilled laborers with expertise in the manufacturing process.
- Lesser flexibility to change to innovative and new processes for improved product quality.
What is Global Sourcing?
Global sourcing is the sourcing of goods and products from different countries around the world. You choose to buy products from businesses in countries known to manufacture the goods you need.
International suppliers and manufacturers can supply raw materials and goods at cheaper prices than domestic suppliers.
For example, fashion businesses in the United States source their garments from resource-rich East and Southeast Asian countries like China and Vietnam.
hile you can get better prices for your products, global sourcing can be complex and require a good understanding of international regulations combined with careful process management to generate a healthy profit.
Advantages and Disadvantages of Global Sourcing
Global sourcing requires experience and expertise to be sustainable and successful. You have to sacrifice the convenience of local sourcing for better profit margins.
Advantages of Global Sourcing
Global sourcing is beneficial for various reasons. You get high-quality products at better prices from many reputable manufacturers and suppliers worldwide.
Some of the advantages of global sourcing are:
- Access to unique and hard-to-find products.
- Access to a wide pool of suppliers worldwide for increased options.
- Access to a wide range of products manufactured from materials not available locally.
- Substantial cost savings for improved profit margins on sales.
Disadvantages of Global Sourcing
Global sourcing has some disadvantages that you should be aware of when you’re finalizing your suppliers. The complex processes involved in cross-border trade combined with geopolitical tensions can be detrimental for businesses relying heavily on global sourcing.
Some of the disadvantages of global sourcing are:
- Different industrial and technical standards for products that may not comply with your home country’s requirements.
- Import restrictions and regulations including quotas and tariffs.
- Time-consuming cross-border processes requiring various documents.
- Geopolitical tensions and instability leading to delays and temporary pauses in operations.
There is not a one-size-fits-all when it comes to sourcing products for your business. We suggest you work with more than one supplier and expand your options to not have a single point of failure if something goes wrong.
A hybrid model can work where you can have your main supplier and backup supplier from different parts of the globe. The main supplier can be from an international location while the backup supplier can be from your home country.
At the end of the day, customer satisfaction should be the top priority and you should set up suppliers so that you don’t have a single point of failure in your sourcing process.