Global Procurement Australia Discussion 2022

Running head: GLOBAL PROCUREMENT
GLOBAL PROCUREMENT
Name of the Student:
Name of the University:
Author note:

1GLOBAL PROCUREMENT
Abstract
There are chief principle related to LCCS depending on the procurement of sourcing
proficiencies, by distinguishing and using cost arbitrage amongst geographical boundaries.
Procurement strategy aids organization to use foreign business enterprises with reduces wages in
order to produce resources for manufacturing process. LCCS is explained as an extensive
category of procurement efforts known as global sourcing. LCCS mainly involves two parties.
Procurement strategy benefits organization to exploit overseas business initiatives with decreases
incomes in order to produce properties for manufacturing procedure. However, with related
establishments, which are serviceable on leaner funds in contrast to local operations,
corporations possibly will gather capability to reduce operational budgets. The paper has offered
inclusive insights related to role and significance of LCCS and provide relevant illustration of
organization who has applied any form of sourcing in recent times.

2GLOBAL PROCUREMENT
Table of Contents
Introduction......................................................................................................................................3
Part 1................................................................................................................................................4
Methodology....................................................................................................................................4
Literature Review............................................................................................................................5
Exploration of sourcing in procurement......................................................................................5
Understanding Context, drivers and challenges of LCC sourcing..............................................6
Suitability of products and services sourcing..............................................................................9
Part 2..............................................................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

3GLOBAL PROCUREMENT
Introduction
Low Cost Country Sourcing (LCCS) is recognized as a form of procurement or sourcing
method in which organizations typically source supplies from nations with lesser labour and
manufacture expenses in order to reduce operational outlays. However, LCCS is explained as a
broad category of procurement efforts known as global sourcing. According to Lorentz et al.
(2015), process of LCCS mainly involves two parties. Consumer and supplier nations like the
United Kingdom, U.S, West European nations, Australia and Canada are viewed as HCC that is
High-cost countries, while resource opulent and controlled income labour locations namely
China, Indonesia, India, Brazil, East European countries and Mexico are recognized as LCC.
Min, Park and Ahn (2017) have noted in LCCS products distributions from LCC to HCC,
although skills and expertise typically runs from HCC to LCC. There has been recognized major
principle related to LCCS, which rely on the acquisition of sourcing efficiencies, by recognizing
and exploiting cost arbitrage between geographical borders. Procurement strategy helps
organization to use foreign business enterprises with reduces wages in order to generate
resources for manufacturing process. However, by finding relevant organizations, which are
functional on leaner budgets in comparison to domestic operations, companies, may gather
competence to lessen operational costs (Lorentz et al. 2015). Thus, LCCS is recognized as vital
part of company’s global sourcing strategy. The following paper will contain comprehensive
review of literature of role and significance of LCCS and provide relevant illustration of
organization who has applied any form of sourcing in recent times.

4GLOBAL PROCUREMENT
Part 1
Methodology
A search strategy is recognized approach and strategy regarding ways to search for
relevant information. Developing search strategy is important as each database functions
differently (Madsen and Walker 2015). Also using information sources in reliable, structured and
systematic manner will provide researchers with overall structure for the particular search and
provides data of search history. Business Source Complete, ProQuest, Google Scholar and
Emerald Journals databases were extensively searched in order to retrieve relevant articles for
literature review.
The search terms used for searching the articles were “Low Cost Country Sourcing”,
“LCCS”, “Low Cost Country Sourcing in Procurement”, “Sourcing in Procurement”, “LCC
sourcing challenges”, “strategic sourcing”, “barriers of LCCS” and “modern purchasing” and
were combined with Boolean operators such as AND, OR and NOT. The reference list
comprising names of articles were further searched manually with the use of snowballing
procedure. In addition, hand searching bibliography of articles and consulting citation analysis
had assisted in exploring studies, which were relevant to the review.

5GLOBAL PROCUREMENT
Inclusion criteria Exclusion criteria
Articles focused on Low Cost Country
Sourcing in Procurement
Articles focused on outsourcing
Articles published on or after 2015 Articles published prior to 2015
Articles that published in English Articles that published in other foreign
language
Articles that comprise of information on
factors and challenges of LCC sourcing
Documents, unpublished articles, abstracts
Primary as well as secondary research
articles
Supply Chain Management guidelines
Peer reviewed articles
Inclusion and exclusion criteria used for the proposed literature review
Literature Review
Exploration of sourcing in procurement
Sourcing or tender process is typically used to select best product or service for particular
category of outlays. Kim, Suresh and Kocabasoglu-Hillmer (2015) explained strategic sourcing
as inclusive method of procuring contributions and working with supplier associations by
attaining company’s long-term objectives. Subramanian, Rahman and Abdulrahman (2015) have
drawn insights from previously conducted studies, which perceived tactical sourcing as primary

6GLOBAL PROCUREMENT
use of seller capacities in the procedure of design as well as trading to obtain strategic
objectives. It is broader, more transformational method implemented at elevated organizational
level. Strategic obtaining advances procurement procedure, perceiving whole supply chain
system, networks and ways in which they affect procurement and purchasing decisions. Primary
focus tends to remain on Tier 1 supply network, risk, insecurity and value creation in supply
chain besides generic responsiveness and flexibility of supply chain.
Number of organizations has been recently considering accepting tactical sourcing as
well as procurement efforts by means of objective of increasing enactment level of companies.
Additionally, Kim, Suresh and Kocabasoglu-Hillmer (2015) have mentioned in their studies that
e-procurement has promoted strategic sourcing determinations through facilitation of effective
organization of suppliers and their enactment. They have cited examples of Burlington Northern
Santa Fe which has experienced around 8% advance in revenues from procurement of
locomotives and more than 9% upsurge on locomotive filers in comparison to manual auctions
prior to approval of e-procurement on strategic sourcing execution. Thus, using strategic
sourcing as well as e-procurement can be anticipated in order to produces synergistic gains.
Understanding Context, drivers and challenges of LCC sourcing
D’Amico et al. (2017) in their studies have found that usual sourcing threats occur owing
to variances in buyer-supplier capabilities, processes, uncertainty, managerial view of indecision
and volatility. Moreover, identical forms of connection relying on capital specificity further show
great challenges. They have mentioned that for standardised, reduced-cost of supplies for
example, items like nuts as well as bolts involving substantial competition show inclination
towards transactional relationship. Meanwhile, Stanczyk et al. (2017) in their studies have found
that although pay rates in LCC have provided managers expectations of substantial savings,

7GLOBAL PROCUREMENT
currently these savings have failed to materialize. Furthermore, globalized supply chains tend to
show increased risk where geographical as well as cultural distance combined with
organizational complication restricts achievable profits of GS. Thus, in their opinion, while GS
attained increased precedence for number of businesses in industrialized nations its rate of
impact on organizational performance is misleading. On the other hand, formerly conducted
studies mentioned by Gunasekaran, Subramanian and Rahman (2015) mention challenges of
determining relations with overseas suppliers, which have been drawn from case studies on
developing-economy supplier countries like China, which experience liaison and contractual
issues. Furthermore, challenges linked to diverse explanations of flexibility in contracts along
with challenges of sustained obligations and supplied products tend to reveal issues. However,
shortage of relevant skills and incompetence of proper identification of project intricacy have
further been considered as LCCS challenges.
Another major challenge of LCCS is related to the distance between R&D as well as
production. Electrolux AB, operating as one of the renowned home appliance manufacturer
major markets is located in US and Europe. Considering its principal markets it performs
conforming to customer knowledge besides product development. D’Amico et al. (2017) in their
studies have mentioned production in LCC encounters challenges due to major geographical gap
between product development and the consumer market. Thus, resulting to lack of contact
amongst suppliers and manufacturers on immediate basis or generate new ideas or errors.
On the other hand, Nordigarden, Rehme and Chicksand (2015) have drawn insights from
previous studies, which focus on mitigation of post-contractual re-concession since
modifications can be postulated in the agreement. Thus, there can be found “flexible”
agreements or “framework agreements” to establish contact, which can offer set of alternative

8GLOBAL PROCUREMENT
scenarios such as distinguishing accurate number of products required during tenure of contract.
However, at this juncture, Gunasekaran, Subramanian and Rahman (2015) have claimed likely
disruption may be linked to altered input costs. However, accurate nature of possible disruption
and threats cannot be foreseen during LCCS, yet it exhibits likelihood to expect array of
variations and incorporate the necessary during contractual agreement proceeding. Moreover,
considering requisites of bounded rationality and opportunism, capital specificity and risk tend to
rise. Furthermore, asset specificity causes one or both parties in order to be sealed to one another.
Jia et al. (2018) have given insights regarding cases when if purchaser is involved in major
transaction-specific venture, it can re-penetrate the market with documentation of investment and
speculation at major loss. These conditions in the buyer are aligned to suboptimal dealer as
monetary, operative and perceived uncertainties of replacing supplier can be considered as
constructive decision. However, it tends to show challenges if the transaction is characterised by
indecision and risks. Comprehensive studies of D’Amico et al. (2017) have mentioned that
companies working as second-tier merchant of elements for locomotive and industrial goods
industry show robust corporate directive in order to rationalise procuring and sourcing from
LCCs as primary strategies of establishing competition into the current supply base. However,
with relentless demands of clients into LCCS affecting continual upgrading of charge
competitiveness, companies has begun LCC sourcing initiatives for simple elements mainly the
ones without any design modifications band and standard requirements. Additionally, one major
challenge in supplier risk management includes material specification. Furthermore, owing to
material standard divergences across number of nations, overseas suppliers tend to produce
products, which do not align to essential standards. Jensen (2017) has mentioned in their studies
that technical advancement and manufacturing lead-time shows great variance to suppliers in

9GLOBAL PROCUREMENT
Europe. Moreover, in comparison to geographically integrated suppliers tends to be misplaced in
establishing transportation rather than in emerging components. Thus, in the view of Jia et al.
(2018), handle supplier indecisions, the product assortment is established internally, yet supplier
selection as well as logistics direction with suppliers befalls via additional business division
present in the LCCs themselves. Although, agents typically show willingness to achieve LCC
sourcing, companies strategize to establish global international purchasing agency.
Meanwhile, Ocicka (2016) has mentioned in their studies that reshoring is vital practice
of successfully re-establishing manufacturing and operations in the United States from
international market. Additionally, they have found examples of reshoring companies for
example, General Electric, Universal Plastics and Mitchell Metal Products. Similar conditions
can be encountered in the U.K. Furthermore, the study argued that there are number of examples
related to reshoring companies in several nations such in the U.S. Nordigarden, Rehme and
Chicksand (2015) at this juncture, cited example of General Motor that has improved its supply
chain management by pull strategy as well as lean planning system. Such a strategy, upsurged
affordability of GM’s products with decrease of retail outlay from 1,600 USD manufactured in
Asia to around 1,200 USD manufactured locally. Regardless of these thriving business strategies,
assessment of the reshoring role in sphere of global supply chains management must possess
extensive perspective.
Suitability of products and services sourcing
International supply chains are categorized by geographic distribution of individual chain
links as manufacturers, distributors, traders; sub-suppliers as well as negotiators have been
essentially cited in several nations and in diverse parts of the world. On the other hand, during
decision-making procedures related to procurement or purchasing in LCCS, trade-off mechanism

10GLOBAL PROCUREMENT
must be considered. Nevertheless, considering resource and production in the LCCS, fabrication
or procurement expenses tends to be lessened. Milewski and Milewska (2018) while exploring
supply chain in LCCS countries have cited examples of major apparel companies in Poland like
LPP S.A along with overseas market rivals operating in Poland do not comprise of individual
production plants. These businesses manage, design and distribution and trade of apparel via
their individual logistics centres plus individual stores. Furthermore, study has mentioned that
these companies have been outsourcing production principally to nations with low production
costs China, Mongolia, Macao and Hong Kong from where goods are primarily shipped in
ampules by sea. According to Jensen (2017), companies like LPP S.A typically order majority of
their productions in Southeast Asia. Drawing insights from studies of other scholars , Milewski
and Milewska (2018) have claimed that manufacturing of less complex products are done in
LCCS nations like Bangladesh, where the expenditures are lesser in comparison to China. On the
other hand, fabrication of highly intricate products takes place in China. Considering these cases,
LPP S.A has attempted to collaborate with Chinese sewing factories in order to establish
advanced machine plant. Meanwhile, Jensen (2017) has posited that variations in exchange rates
have been considered as vital factor related to suitability of products and services sourcing. Such
a factor draws criticality since its production costs are estimated in dollars, whereas revenues are
estimated in EUR and in Polish exchange. Nonetheless, for significant period, there has been
observed substantial upsurge in the share of domestically or county-wide systematic apparel
production. This is owing to minimal time stipulated for product delivery in LCCS countries.
Despite of this minimal delivery period, LCCS countries in Asia has shown lack of rapid
responsiveness to fashion variations. Consequently, major Polish clothing businesses for specific

11GLOBAL PROCUREMENT
products, have restricted their order production in overseas and chose domestic or regional based
manufacturing plants.
Part 2
IKEA, recognized as globally renowned multinational groups sells home furnishing
products, home accessories, and kitchen appliances amongst other convenient products across 31
nations. As per Hultman (2017), IKEA as yearly turnover of approximately 11.3 billion Euros
and has 186 stores.
Reports reveal that IKEA initiated its sourcing from Poland during 1960s and initially
procured from overseas nations. According to Jiang, Jia and Gong (2018), reasons behind
IKEA’s initial procurement from overseas nations has been related to prohibition IKEA
encountered by Swedish furniture manufacturers who rejected trade agreements with IKEA in
lower costs. However, in 1980s, IKEA initiated establishing units on global scale. In recent
times, LCC sourcing has become necessity for the company. Comprehensive studies revealed
that global sourcing procedure at IKEA changes significantly.
IKEA merchandise, that is the PAX wardrobe system has been involved in the sourcing
from LCC. According to Gelderman, Semeijn and Plugge (2016), major part of the tempered
glass obtained for PAX has been sourced in 2009 from LCC China.
Considering entirety of the business regions plus product supply chains, numerous
distinct factors linked to sourcing standards have facilitate the company to sustain its
competitiveness in the interface of its suppliers. Such a strategy aimed at the proprietorship of
product rights thus permitting IKEA to change suppliers when required.

12GLOBAL PROCUREMENT
Additionally, target of sourcing market information from IKEA has been regarded as key
factor in the development. Jiang, Jia and Gong (2018) have noted that sourcing capabilities from
the Slovakian operations have been constructive with its development in global sourcing of
tempered glass.
Conclusion
Therefore, from the above argument it can be concluded that IKEA and its PAX supply
chain as particular unit of analysis has added to improved understanding of the way global
sourcing procedures will not only exhibit linear and incremental stage-based procedures.
Additionally, buying integration by means of strategic sourcing results stimulates improved
buyer-supplier dealings and supplier development. Global sourcing shows possible threats
related to quality defects, high inventory levels and delays, which are controllable from
functional perspective. For supplies with elevated capital specificity there is an interest for
strategic association if not being generated in-house. Moreover, it is also considered as process
regulated by interaction between network actors were the performance of some network actors
advance via supply chain or network prompting other performers to follow suit.

13GLOBAL PROCUREMENT
References
D’Amico, F., Mogre, R., Clarke, S., Lindgreen, A. and Hingley, M., 2017. How purchasing and
supply management practices affect key success factors: the case of the offshore-wind supply
chain. Journal of Business & Industrial Marketing, 32(2), pp.218-226.
Gelderman, C.J., Semeijn, J. and Plugge, N., 2016. The role of critical incidents in the
development of global sourcing-results of an in-depth case study. Journal of Purchasing and
Supply Management, 22(3), pp.214-224.
Gunasekaran, A., Subramanian, N. and Rahman, S., 2015. Supply chain resilience: role of
complexities and strategies. International Journal of Production Research, 53(22), pp. 6809-
6819
Hultman, J., Johansson, U., Wispeler, A. and Wolf, L., 2017. Exploring store format
development and its influence on store image and store clientele–the case of IKEA’s
development of an inner-city store format. The International Review of Retail, Distribution and
Consumer Research, 27(3), pp.227-240.
Jensen, P.A., 2017. Strategic sourcing and procurement of facilities management
services. Journal of Global Operations and Strategic Sourcing, 10(2), pp.138-158.
Jia, F. and Jiang, Y., 2018. Sustainable global sourcing: A systematic literature review and
bibliometric analysis. Sustainability, 10(3), p.595.

14GLOBAL PROCUREMENT
Jia, F., Zuluaga-Cardona, L., Bailey, A. and Rueda, X., 2018. Sustainable supply chain
management in developing countries: An analysis of the literature. Journal of Cleaner
Production, 189, pp.263-278.
Jiang, Y., Jia, F. and Gong, Y., 2018. IKEA: global sourcing and the sustainable leather
initiative. International Food and Agribusiness Management Review, 21(5), pp.627-640.
Johnsen, T.E., Howard, M. and Miemczyk, J., 2018. Purchasing and supply chain management:
A sustainability perspective. Routledge.
Kim, M., Suresh, N.C. and Kocabasoglu-Hillmer, C., 2015. A contextual analysis of the impact
of strategic sourcing and E-procurement on performance. Journal of Business & Industrial
Marketing, 30(1), pp.1-16.
Lorentz, H., Töyli, J., Solakivi, T. and Ojala, L., 2015. The effect of low-cost country sourcing
on supply chain administration cost. International Journal of Logistics Research and
Applications, 18(1), pp.1-15.
Madsen, T.L. and Walker, G., 2015. Modern competitive strategy. McGraw Hill.
Milewski, D. and Milewska, B., 2018. The efficiency of a supply chain with the use of maritime
transport on the example of the apparel industry. In SHS Web of Conferences(Vol. 58, p. 01019).
EDP Sciences.
Min, H., Park, H. and Ahn, S.B., 2017. Measuring the supply chain risk in offshoring countries
using data envelopment analysis and the analytic hierarchy process. Benchmarking: An
International Journal, 24(7), pp.1977-1994.

15GLOBAL PROCUREMENT
Nordigarden, D., Rehme, J. and Chicksand, D., 2015. Sourcing uncertainties: The case of
outsourcing and global sourcing. Modern Management Science & Engineering, 3(1), pp.1-21.
Ocicka, B., 2016. Reshoring: implementation issues and research
opportunities. Management, 20(2), pp.103-117.
Rottman, J. and Lacity, M., 2017. Role of Social Capital in Global Sourcing. In GLOBAL
SOURCING OF SERVICES: Strategies, Issues and Challenges (pp. 609-639).
Stanczyk, A., Cataldo, Z., Blome, C. and Busse, C., 2017. The dark side of global sourcing: a
systematic literature review and research agenda. International Journal of Physical Distribution
& Logistics Management, 47(1), pp.41-67.
Subramanian, N., Rahman, S. and Abdulrahman, M.D., 2015. Sourcing complexity in the
Chinese manufacturing sector: An assessment of intangible factors and contractual relationship
strategies. International Journal of Production Economics, 166, pp.269-284.
Thanh, H.L.T. and Hoang, A.T.T., 2018. Evaluating the Best Outsourcing Service Country in the
Southeast Asian Region: A Fuzzy-AHP Approach. Journal of Testing and Evaluation, 46(5),
pp.2227-2239.