Low-cost country sourcing (LCCS) is an international sourcing strategy aimed at taking advantage of the lower labor and production costs in other countries ( Lorentz, Töyli, Solakivi, & Ojala, 2015) . LCCS is often considered as an alternative by firms to remain competitive and create more value for their clients. This strategy has been associated with many benefits. Outsourcing facilitates low-cost manufacturing which may translate into higher profit margins ( Lorentz et al ., 2015). It also enables companies to tap resources and skills that are not locally available enabling them to maintain a competitive advantage. With cheaper access to labor and raw materials, a company can increase its productivity. This is particularly important for companies with twenty-four-hour labor-intensive work cycles.
Despite its many advantages, outsourcing to low-cost countries is also associated with various disadvantages. One of the major shortfalls with this approach is the challenge that comes with a lack of exposure to international traditions and cultures. This is often a problem when sourcing labor from low-cost countries. Moreover, with outsourcing comes the uncertainty of political and financial risks often associated with low-cost countries. Future projections may thus be inaccurate. Outsourcing may also lead to unnecessarily long lead times resulting from unprecedented supply interruptions and shutdowns ( Lorentz et al ., 2015). Sourcing companies are at an increased risk of losing their intellectual property including copyrights and patents to the countries from which they source. Outsourcing is mainly geared towards increasing productivity. This in most cases may be achieved at the expense of quality.
Delegate your assignment to our experts and they will do the rest.
Various strategies can be employed to mitigate the risks associated with outsourcing. Employees sourced from low-cost countries may be asked to sign non-disclosure agreements to prevent the leakage of trade secrets. Contracts between the sourcing companies and service providers must detail all the relevant issues to guarantee satisfactory service provision. The sourcing firm must also clearly outline its goals to the service provider so that the latter works with the end goal in mind. Importantly performance indicators and quality standards should be maintained. The risks associated with political instabilities may be mitigated by conducting a thorough background check on the low-cost country of interest.
References
Lorentz, H., Töyli, J., Solakivi, T., & Ojala, L. (2015). The effect of low-cost country sourcing on supply chain administration cost. International Journal of Logistics Research and Applications , 18 (1), 1-15.
