Promises and Perils of Sourcing from India

Sourcing from India fast became a popular phrase as soon as the Indian economy started following policies of liberalization in 1990s. The practice enabled foreign companies to exploit the efficiency and advantages that India offers.

Apart from manufacturing, the metalwork, electrical, hydraulic and plastic industries are among the major product sourcing industries in India. Additionally, the call center, business process outsourcing and software development industries in the country are fine examples of the service sourcing sector.

However, there are problems with Indian sourcing too. The following is a look at some of the pros and cons of sourcing from India to help people understand both sides of this concept.

Growing economy and intended super power
India, apart from China, is a strong contender to become an economic superpower within coming decades. The economic development of the country has been much talked about over the past few years. This factor has maintained the trust of global companies in sourcing from India.

Skilled and low cost labor
India has a huge pool of skilled workers who work in different industrial sectors. Apart from being highly schooled the labor is available at a cost which is much lower than what the labor forces of more developed countries command.

However, the problem of attrition has been plaguing this advantage. Employees in India have a generally more open attitude towards switching jobs frequently.  This trend is more pronounced than it is in Western countries and can be considered a serious con of sourcing from India.

The cost of sourcing work from India is no longer restricted to low-wage work, especially in case of software development industry. The sourcing of Indian products and services is getting more expensive with time to the point there are countries that have comparatively lower cost advantages.

High-end research and development
There are excellent opportunities to carry out the research and development work for different industrial sectors in the country. The cost of research and development in the country is much cheaper than what is required in other countries.

English speaking population
Another good reason, which is credited for the popularity of sourcing from India, is that a huge portion of the Indian population can speak, write and communicate in proper English. This is one big advantage that the country has over China and other countries with non-English speaking populations.

Availability of infrastructure
It should be noted that Indian infrastructure still needs a lot more investment and is lagging when compared to China. Lack of sufficient infrastructure, combined with excessive bureaucracy and problems with corruption, are continued drags on the Indian economy and will likely remain so for the foreseeable future.

Working culture
Sourcing from IndiaThis should be considered as a drawback of sourcing work from India. Relatively simple problems such as the need to clarify a process can bring work to a standstill. As a result, the overall productivity and turnaround times can be seriously affected.

The country has a huge manufacturing base to boast of. This is an advantage in various manufacturing sectors, including automobile manufacturing and electrical manufacturing. While textile and other more traditional industries remain important, India is poised to do well in more skill-based manufacturing in spite on its problems with power and other infrastructure.

More developed economies are looking to maintain low cost bases, and India is one of the best choices for many of them. A unique aspect of Indian sourcing is that foreign companies are more focused on developing partnerships with their Indian counterparts rather than starting rivalries with them.

In order to make sourcing from India a growing global phenomenon, it is important for the Indian industries to work on their drawbacks. This will make India more attractive and certainly contribute to its economic development.

Making International Sourcing Work for You

Thanks to technology and the work of early pioneers, international sourcing has become more accessible than ever before. However, this does not mean it is free from peril as well as promise. From political and currency instability to quality control and intellectual property, there are various factors any international sourcing strategy must take into consideration for the company to be successful.

International sourcing is about a lot more than just finding the lowest production costs. Any company focused only on the bottom line will likely miss out of the most important opportunities and may do more harm through sourcing than good. All the positive benefits must be kept in mind so that they can be properly pursued.

Advantages of international sourcing
Companies looking to source overseas often want to sell there too. By sourcing from other markets, they can learn about the tastes in these markets and develop the contacts who will make their products more accepted there.

For larger companies, international sourcing can be a way to “follow-the-sun.” For example, when engineers in one time zone retire for the night, those in another may just be reporting for work. This keeps projects moving 24/7.

It also brings companies closer to materials and new sources of capacity. Instead of transporting raw materials to be worked elsewhere, it may make sense to work them nearer the source. This also may be a way around government quotas and other regulations that do not make economic sense. Sourcing allows capacity and resources to be accessed much more efficiently.

The meeting of the minds that sourcing offers can pay off in ways that are not easily measured. Different cultures bring different ways of thinking. Sometimes a problem can be solved quite easily with something as simple as a new perspective. This melding of cultures, ideas and technology can be the greatest benefit of international sourcing.

There are of course the direct cost savings that international sourcing can bring through access to cheaper labor and the like. However, it is also important to be aware of the drawbacks that may outweigh the benefits in some cases.

On the other side of the coin
There aspects of international sourcing that can work both ways or against it. Having an international supply chain can be both a plus and a negative. On one hand, it opens up a world of possible new suppliers if there are disruptions in a region. At the same time, it makes the supply chain more susceptible to a greater number of potential problems from political instability to natural disasters.International Sourcing

Sourcing out work invariably leads to the need to share ideas, strategy and intellectual property. Be it intentional or not, this can lead to ideas being stolen and competitors finding out their rival’s strategy. A balance has to be found between the need to share information and build a proper working relationship with not revealing too much.

Quality control is one of the biggest problems that will arise with international sourcing. While there are cases were outside quality standards may be higher, it is often a battle to make sure quality standards are maintained with foreign suppliers. Although quality may not matter as much with cheap products not designed to last anyway, mistakes made in products like electronics can lead to huge headaches. The needs and expenses in monitoring quality control overseas, with extra business trips and personal on the ground, can sometimes make the costs of producing there more than the savings in labor and other expenses.

Strategies to make sourcing a success
International sourcing requires extra monitoring in areas that may not have been needed in the past. For example, following foreign currency exchange markets becomes much more vital Changes in the value of currency can offer huge challenges and opportunities that those sourcing must stay on top of.

It is also important to follow international events to anticipate problems and have contingency plans, including an exit strategy, when appropriate.

For both human rights and image concerns, companies need to take steps to monitor suppliers to ensure that are not abusing workers or doing other things that could bring bad press or put a company on the wrong side of the law.

Quality control is a huge concern in many sourcing operations, and a strategy to monitor quality must be established. For a variety of reasons, it is often very difficult to get sourcing suppliers to understand the need for quality. Until they do, constant monitoring will likely be required that may make sourcing in some situations impractical.

Be it a lack of quality or other reasons, there needs to be alternative sources ready for times when one supplier can no longer be used. Keep channels open to use these suppliers as needed. Avoid relying on any one supplier too much.

In spite being a great tool, international sourcing is not always the way to go. Every company needs to find the level that is best for them and use sourcing for all its advantages when they do.

Strategic Sourcing and Survival

Strategic sourcing is a business process that seeks to improve the sourcing process by continually examining and re-evaluating purchasing activities. While sourcing is talked about a lot in business, strategic sourcing is one of the most important aspects of sourcing any business will face and must be thought of as much more than talk. It offers both promise and peril, but the competitive nature of today’s world makes facing it inevitable. Thus, every business needs to understand the process and how to go about it.

Advantages of strategic sourcing
Everyone in business knows how tough international competition is and how businesses must continuously improve their processes and keep costs down to survive. Sourcing out parts of any business makes sense for several reasons.

Flexibility is a major advantage. Markets and technology change faster than ever, and it is hard to adjust to those changes with fixed resources, labor and suppliers. Sourcing can reduce the need to make major investments and thus increases the flexibility to change course when needed.

Being able to concentrate on core activities is another advantage. Every business sources part of its functions to some extent. Being it buying supplies or labor, no business does everything in-house. However, there are disadvantages to sourcing out too much to include loss of control, the need to share information outside the company and potentially alienating good employees. Every business must find the optimal point for sourcing out its operations, and there is no level that works for every industry. While some may practice wholesale outsourcing in which very little is done in-house, this is not a model for many businesses.

Misunderstandings about strategic sourcing
Strategic sourcing is about a lot more than just cutting costs with suppliers. Simply seeking out the lowest possible bids for everything is a recipe for trouble. A major component of strategic sourcing involves looking for ways to work together with suppliers to find new ideas. These can turn can be used to continuously improve resource management and maximize efficiency.

To do this, strategic sourcing needs to include setting long-term goals to avoid focusing too much on the short-term bottom line. With these goals in mind, businesses are more likely to use both their in-house resources and those of their suppliers to their full potential.

Strategic sourcing processes
Sourcing out work requires bids from suppliers. Those seeking bids should remember that suppliers have their resource limitations. These suppliers are not likely to devote too much to the bid unless they think they have a real chance at winning the project. Therefore, it is important to approach suppliers in a way that shows true interest in their services to get their full interest and the best bids.

Do not disqualify suppliers simply because they do not have experience in the region. These suppliers may be willing to go lower than others just to get a toehold in the market. This can be especially true with foreign suppliers. Be it this or another reason, suppliers should never be rejected too quickly.

Offering incentives is particularly important in strategic sourcing. Those working on any project will likely be more dispersed with less of a direct connection to the company than they would be with in-house work. Therefore, incentives become more important to bring out their greatest work and ideas. With proper management style, people can still be brought together as a team that will bring out the best in them.Strategic Sourcing

Managing strategic sourcing requires extra effort in avoiding bias. Human nature makes people susceptible to rejecting what they do not know and other assumptions that may not be based on fact. Continuously re-evaluating processes for the best possible solutions demands a great nimbleness and flexibility of mind to get the good adaptability in business. People need to constantly ask themselves if they have the unbiased mindset that allows them to explore all possibilities.

Constant assessment of market and world conditions can never be forgotten. Change now comes more quickly than ever. Businesses need to be working both internally and with their suppliers to be ready for them. With greater connectedness and worldwide sourcing, there is a need to understand how changes outside one’s immediate market might affect future business.

Developing negotiating skills is critical with strategic sourcing. Negotiations do not have to be an antagonistic process. Suppliers that understand what the purchaser is facing in its competition and needs to keep costs down will be far more likely to listen and make the best possible offer. The supplier should be made aware of its own stake in having the company it is supplying succeed. This can help bring out new ideas from the supplier too.

Change is coming faster than in the past and its rate is only going to accelerate in the future. This makes it more important than ever to take advantages of what strategic sourcing offers to continuously upgrade processes. Only the flexible, nimble and constantly improving are likely to survive.