In apparent industry, the manufacturer can source locally or globally depending on their scale of operations. The manufacturer decides to outsource its operations in locating the supplier for textile, machinery, design, skilled labor or the infrastructure. The manufacturer decides on its sourcing operations depending on the demand of the buyer. Global Sourcing follows the global procurement strategy, to satisfy local or foreign demand. Following are some of the theoretical methodological approaches proposed under different schools:
The transactional cost economics (TCE) school is the widely used school of thought in management research, and deals with analysis and evaluation of global sourcing strategies. For example, Dunning (1980) evaluated the advantage of ownership than outsourcing. He explains that organizations prefer to manufacture their own things in order to retain their hold on the capital, technology, expertise and the management skills. Such organizations perceive disadvantages of external mechanisms and global market imperfections, that results in high transaction costs.
At one point of time, TCE school of thought has been adopted by automobile industry, basing on the assumption that the greater the engineering effort needed to develop a particular automobile component, the more likely a company will resist to outsource the process. Monteverde and Teece (1982) also found an example for positive relationship between engineering effort and the likelihood of internalization in their analysis of GM and Ford’s component procurement policies.
The same presumed risk when applied to apparel industry, can be assumed that when there is a high detail involved in the machinery or craft work, the organizations can tend to internalize their operations than to outsource. Product Life Cycle : A second theory that can be observed for global sourcing is the life cycle theory, in which the decision to produce or outsourcing the product depends on the life cycle of the product. In tesco legal structure, the product life cycle has number of phases to make this decision.
Things like production of fabric, design and production of fabric, architecture and design of the pattern, sewing machinery, skilled workers, buttoning, art work etc. , can create a place to decide upon the sourcing or in house making. According to Bozarth et al. , (1998), a short life cycle is identified as one of the motivators of global sourcing. Swamidass and Kotabe (1993) point to a different effect of the PLC on a firm’s sourcing strategy. A multinational firm in a developed nation may not look to outsource its process with the lack of loosing Intellectual property disclosing to potential competitors.
For example, Volkswagen since 1985 has been produced the Santana in China and started manufacturing the current Golf and Passat Models on its own from the recent years. This explains that the effect of the PLC on the sourcing decisions is also depends on the age of the technology involved, economies of scale relating to the component, the maturity of the product, the degree of standardisation of the product and uncertainties associated with external procurement.
Antras and Helpman (2004) developed a theoretical model to address issues that arise from the strategic ‘make-or-buy’ and supplier location decisions. This model describes an equilibrium under which a manufacturer with different productivity levels would choose different ownership structures and sourcing locations. And according to Handfield (1994) critical items for growth industries are sourced more frequently from international suppliers, whereas buyers in mature industries tend to rely more on domestic suppliers.
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