Question

Consider BMW-

Globalization represents the opportunity to deliver improved value to end customer to developing a world class supply relationships in terms of cost,quality,deliver and performance.More and more buyers will have to learn to develop a supply chain base in more than one country in order to remain competitive in the complex and dynamic global business environment. Identify a company of your choice(in a vehicle manufacturing industry) on which you will base your study. Write a detailed report on the above statement considering the following questions:

Question 1 Critically analyse reasons that may cause your company to consider an international supplier over a local supplier. (20)

Answer 1

Firms include international suppliers for various reasons. But, the primary reason for using foreign supplier is that better value can be perceived to be available comparing to a domestic supplier.

The factors that make the international supply look promising will vary. Let's explore some of these factors that may cause a preference for the selection of foreign suppliers.

1.  Unavailability of items indigenously or domestically :  

The first reason for international trade is that domestic sources have not been available.

2.  Cost/price benefits:

The ability of an international supplier to supply product or service at a lower overall cost comparing to domestic suppliers. It is possible because of lower labour rates, productivity levels, willingness to accept lower profit margin, currency exchange rate, lower-cost of raw materials and government policies and subsidies

3.  Government pressures:

Many MNCs consider alternatives to buying from suppliers in customer countries. It makes an economical and political sense. Many MNCs accept that it is a social responsibility to purchase a product from suppliers in states in which they operate plants, as a means of development of those nations. Many countries also insist it as s condition of sale of a major product in their country that the seller must agree to purchase a specified value of goods or material from that country.

4.  Access to product and process technology:

Many firms want to gain access to the most current technology, and it leaves them with little choice except to pursue worldwide sourcing.

5.  Quality: The international suppliers' generally is no higher than from domestic suppliers, but for some items, it is more consistent. This is because of several factors like newer, better capital equipment; better quality control and quality assurance systems; and the motivations to accept responsibility for doing it right the first time, the zero-defects concept.

6.  React to buying patterns of competitors:

It is probably the least mentioned reason for global sourcing because most of the companies don't like to admit that they are following the practices of their competitors. A domestic company try to copy the factors that provide an advantage to its competitor.

7.  Access to the only source available:

Economic recessions, M&A and government's environmental-related regulations often result in suppliers exiting because of higher costs, loss of business volume, or both. A loss of supplier availability or capability often leave buyers with no supply alternative except international suppliers.