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loW-cost country sourcing:
the past, the present
and the Future?
For decades, low-cost country sourcing (LCCS) has been one of the most popular sourcing strategies.
Employing suppliers that operate on leaner budgets than those found domestically has been an obvious
choice for organizations wishing to reduce operational expenses and make greater returns on investment.
In the UK, there doesn’t seem to be an industry that hasn’t benefited in some way: from labour-intensive
manufactured products made using Chinese labour to call centres staffed with low-cost English-speaking
workers in India and IT work performed by low-cost programmers in both India and Eastern Europe.

H           owever, according to a recent IDG report by Simon Ellis, LCCS
            should be thought of as a shortsighted strategy for the long-
            term. Ellis suggests that the focus shouldn’t be on LCCS, but
on Profitable Proximity Sourcing (PPS), which encourages organizations
to look at “balancing cost and service, with greenness or sustainability
                                                                                really do understand the extent of US consumer worries and whether
                                                                                they actually adhere to the standards required. This type of high-profile
                                                                                scandal is extremely damaging to low-cost countries, even though in
                                                                                this case it was the responsibility of Mattel to stipulate what processes
                                                                                should be used and to regulate their suppliers. When selecting
increasingly playing a role in the decision making process.” Examining          suppliers in low-cost countries, Western organizations can be guilty of
the supply chain in this way certainly shows that the initial savings           perceiving Asian suppliers as having low standards, therefore opting
associated with LCCS — without considering whether there may be a               to source from Eastern European countries. In fact, US imports from
more cost-effective and ethical alternative in the long-term — can blind        European low-cost countries have begun to outpace those from both
organizations. But this fails to take into account the developments and         Asia and the Western Hemisphere in the noughties (Journal of Supply
innovations that the countries that provide LCCS are undertaking, and           Chain Management, September 2007).
that still make them excellent options for organizations in the West.
                                                                                LCCS = Low Standards?
Problems with Production: Who’s to Blame?                                       However, this perception of low process standards in Asian low-cost
This is not to say that there aren’t problems with sourcing from LCCS           countries is undeserved. Countries such as China are becoming
suppliers, and there are instances when problems arise, particularly in         evermore competitive as training schemes for labourers are now
terms of the quality control of materials. For example, in August 2007,         producing more highly skilled workers and factories that operate to EU
Mattel’s Fisher-Price division announced that it was recalling 1.5 million      and US standards, and all still at lower costs than Eastern European
                                                                                production can deliver. Even tasks such as high-tech laboratory work,

suppliers from low-cost countries are                                           which were previously perceived as being too technical for these
                                                                                countries, are increasingly being catered for. At the end of September
evolving and should not be discounted                                           2008, Huawei, a Chinese firm specializing in telecoms solutions, had
                                                                                more than 96,000 employees, of whom 44% were dedicated to research
when it comes to the global sourcing                                            and development. This is just one example of a supplier from a low-cost
                                                                                country competing on an international level and driving innovation within
of higher-calibre prod
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