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Problem

Relate core competencies to global sourcing. What costs must be included in this decision and what major problems would a firm possibly encounter in outsourcing?

Step-by-step solution

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Step 1/4

Core competencies are the tools and aptitudes that make up a company’s competitive advantages. Global sourcing is the technique of obtaining goods and services from the global market notwithstanding national boundaries. The goal of global sourcing is frequently to take advantage of worldwide efficiencies in the delivery of a good or service.

Step 2/4

Buyers who are sophisticated are aware that practically every situation presents them with a “make or purchase” choice. A company can either develop and produce all necessary goods and services in-house or outsource those that are outside of their core capabilities. Companies usually chose to outsource either to reduce expenses or obtain access to superior technologies.

Decisions on outsourcing are significantly impacted by core competences. The company will be able to outperform its rivals in its core capabilities. However, the company must be careful to focus management attention on a small number of these tasks. Outsourcing of key competencies is obviously unacceptable since once these core competencies have been chosen, companies should focus its effort on preserving supremacy. Companies can consider outsourcing as a means of cost-cutting and enabling management concentrate more of its attention on what is actually crucial to the company’s performance if these capabilities are clearly defined. Although there are costs associated with finding and managing firms for outsourcing, the company should carefully consider an outsourcing alternative where the costs are outweighed by the advantages. In a global setting, the outsourcing debate becomes crucial. Since a company may decide that domestic production and an export market entry plan will result in anticompetitive pricing in a particular market, product sourcing and marketing should be considered as an iterative process.

Step 3/4

The following are the costs that should be included:

In a global setting, the outsourcing debate becomes crucial. The costs that should be included are the cost of production, packaging, transportation, and installation, training, applicable import tariffs, value-added taxes, and currency exchange rates.

Step 4/4

The following are the major problems that a firm might possibly encounter in outsourcing:

There are some problems that a company might face when outsourcing its core competencies. On-time delivery and thorough product knowledge are the problems that a form might possibly encounter in outsourcing.