Globalization is a popular term which bears several meanings depending on the discipline of the study; in some cases, it is used as a synonym for free market. Tallman (2009) shaded more light on globalization in relation to business strategy in describing the increasing integration of regional and national markets and economies. Globalization has become a common characteristic in the world of economics. According to Tallman (2009), a global strategy involves strategic involvement in numerous regions and nations throughout the world. Multinational corporations (MNC) can be extensively spread without disrupting their operations. Today offshore outsourcing is a key issue in international strategy. Outsourcing is a way of controlling costs at the same time maintaining and improving to target customers but this only happens when it is done in the right manner (Tallman, 2009). In this paper, focus is cast on the concept of globally right source and the value-adding activities in maximizing global competitive of a firm.
According to Global Supply Management (2007), manufacturing companies engage in various measures to cut down production costs. One such measure involves consolidating responsibilities for global sourcing, which allows companies to have knowledge regarding the available opportunities that can be better exploited. When carrying out outsourcing, companies are mostly keen on location priorities in outsourcing of duties. Through this, the exploration for more new sources of supply is targeted to countries which are potentially promising opportunities due to their cost and operation conditions. Pressures to provide advanced products at lower costs possible are a significant factor prompting offshore outsourcing (Global Supply Management, 2007).
Locational priorities have frequently been based on predictable wisdom more than hand facts. Sometimes managers’ preferences are rooted in business relationship and their own experiences; this has played a vital role in shaping firm’s priorities in reference to where outsourcing tasks are directed (Global Supply Management, 2007). China and some other few developed economies have been the choice for many countries to set-up outsourcing and production operations with an aim of reducing production costs. Managers understand the need to have a wider range of locations in order to have a variety of selections in regard to prices and skills (Global Supply Management 2007).
During the prioritization of potential outsourcing countries, the focal point is on the extent to which a nation’s cost and operating conditions would maintain a company’s competitive priorities in the market place. Global Supply Management (2007) stated that even as globalisation becomes more popular in the business world, wage cost costs still remain one of the many factors that should be considered during the choice of outsourcing countries.
According to Tallman (2009), competitive advantage can be used to bring about growth in sales, expand into new businesses or markets, increase market share or even to generate huge profits. His argument was that different firms may decide to use competitive advantage for different reasons and that it was possible for a firm to switch from growth to profit and to social objectives in the course of time but this is impossible without a source of competitive advantage; none of the mentioned outcomes is possible without source for competitive advantage. Competitive advantage occurs at the moment a firm provides increased value to its target customers at the same price. This ensures that a firm achieves its goals whether through generating greater profits than normal or through winning customers from its competitors.
Tallman (2009) brought to light the fact that the pressure of multinational corporations to provide enhanced products at lower costs will only worsen the situation. This situation therefore calls for integrated global strategies for networks and affiliated firms to globally outsource some tasks in order to reduce the cost of production.
In order to determine alternative production locations, companies need to gather relevant information regarding the prevailing conditions of production in the considered countries. The other approach is to draw lessons from other companies in the same network of operation in a given area or nation. Value chains cover large areas incorporating nations through which information is costly to gather; the lessons gathered from peers are regarded as valuable sources of insight (Global Supply Management, 2007). More insight has been given on picking the right outsourcing point:
Prioritization of prospective source countries requires information on individual items of local cost and operating conditions. Here, the focus is on the items of particular importance in terms of the operational requirements of a company’s competitive strategy. Furthermore, to assess the bottom-line impact of individual projects (e.g. total cost of ownership), detailed information is needed on all relevant dimensions of a country’s cost and operating conditions. (Global Supply Management, 2007, p. 1)
In this situation where the world economy is experiencing low barrier to trade, a decision regarding establishing new production firms need to be made addressing the strengths and weaknesses of the location where those production firms are to be built. Global Supply Management (2007) stated that a location that allows the supplier to compete against the firm leader both at home and at the international level should be chosen appropriately.
According to Lessard (2003), the core question that a firm should answer before deciding on how to expand is whether it wants to internationalize its activities towards several dimensions such as: where it sell its output, where it outsource its inputs, where it produces their services or products and also where it obtains the knowledge and technology to produce their product or services (Lessard, 2003). On the other hand, Tallman (2009) highlighted that an important part of the mission of any multinational corporation is to clearly describe to what extent a firm has a home or an international interest and how it relates with global economic that unites it with other states while retaining its loyalty. He also stated that a firm should define its objectives and goals in order to know the scope that it is operating in; this will help in its operation and more insights as this will keep the firm focused. However, internationalization is very important unless a firm can recognize a business model that is different from the norm (Tallman, 2009). Internationalization can enable a firm to realise some unique advantages that it can exploit and achieve much through.
In conclusion, the ability of a firm’s global supply management to realise a superior position of activities is set under two important factors. One is the in-depth recognition of locational advantages and how this advantage affects superior performance of its value chain and the second factor is on the structured approach to come up with the most promising locations, which permits an objective search for new opportunities.
Global Supply Management. (2007). Selecting the Right Source Countries. World Bank Group. Web.
Lessard, D. (2003). Frameworks for Global Strategies Analysis. MIT Sloan School of Management. Web.
Tallman, S. B. (2008). Global Dimensions of Strategy. Oxford, UK: Wiley-Blackwell.