The Merits and Demerits of Local Sourcing
There are many advantages associated with local sourcing. Chief among them is the reduction of business costs, mainly on transportation. Also, the endeavour permits a firm to monitor the quality of the goods or services supplied by the vendor more closely. Local sourcing also enables businesses to establish more meaningful buyer-supplier relationships with vendors. The endeavour also allows firms to enact a positive global footprint on the environment by fostering sustainability. Finally, local sourcing also adds more benefits to businesses by ensuring that they derive the benefits associated with working in a region in which they share the language and culture with the locals. This endeavour is fundamental in minimizing the emergence of misunderstandings or conflict among the buyer and supplier due to language barriers or culture shocks. It, thus, helps to foster business efficacy.
On the downside, however, local sourcing can prove costly to an organization when the production and labour costs in the country are higher than those incurred by overseas businesses. This factor often leads a firm to spend more on a product or service, which they could have obtained more cost-effectively if sourced abroad. Also, depending on the size of the vendor, the concept limits opportunities for a firm to enjoy economies of scale, which are critical in boosting its profit. Terminating the buyer-supplier relationships are also often more hard in local compared to international sourcing. Mainly, it exposes the firm to the risk of negative PR by the vendor, primarily if the supplier feels the termination of their contract was unjustified. Such outcomes hamper the image of a brand. Finally, local sourcing also provides a problem with competition, mainly if the organization and its rivals engage one supplier for their product or service needs. Such eventualities often see a vendor struggle with their decision to please either one of the businesses, hence straining the supply chain system.