The “Made In China” labels are becoming irrelevant. There are so many elements that go into a product before it hits market. In fact “Made In” labels only tell part of the story. Where are the materials from? Who designed it? Who shipped it? All of these elements determine the quality of product you are purchasing, as well as the price.
We are well beyond the traditional trade days when countries traded their native-made goods with each other. Companies are now combining materials from all over the world to create new products, as well as outsourcing, off-shoring and now, world-sourcing.
Outsourcing is the transfer of in-house jobs to an outside firm that can be abroad or not. This was appealing because companies that did not have the funds or expertise to expand vertically, could outsource specialized functions so they could avoid paying full-time payrolls, training costs and infrastructure development. Initially this is what companies did until they realized they could reduce costs even more and retain control internally of their functions, processes and products by moving their entire operations abroad to less expensive countries, also known as “off-shoring.” Just as out-sourcing was the baby step to off-shoring, off-shoring is the baby step to “world-sourcing.” Businesses are now smartening up and realizing they don’t have to co-locate their entire operation abroad. Businesses are now decentralizing by distributing their business functions all over the world based on where the best resources for that particular function lie as well as proximity to key markets. This includes going to the resources, for example, manufacturing goods in China, establishing call centers in the Philippines and India or IT services in India and Eastern Europe; and also bringing the resources to us, such as hiring talent on H1B visas. (Wikipedia, 2009)[1]
As always, there are pros and cons to world-sourcing. The most profound effect is the higher standards of quality, compliance, safety, governance and transparency that companies and their products must adhere to remain competitive. A lot of this has to do with having to comply with multiple government regulations across many countries, instead of one. Countries with lower standards are now receiving a higher end product than they otherwise would, increasing their standard of living. It’s also a win for businesses because it gives them a foot up in new markets. It gives poorer countries a chance to boost their economy by increasing employment and therefore increasing the amount of tax income those governments use to sponsor social programs, which could be seen a form of philanthropy. There is also an opportunity for businesses to strategically place antecedent business functions time zones slightly left, yet overlapping, on the globe of precedent business functions, that would allow the precedent function to work ahead of schedule and when they wrap up for the day the antecedent function would wake up and work on the next steps, so there is no down time in operations.
At the same time, it takes jobs away from native countries, especially blue-collar jobs in countries where everything is more expensive. Expensive countries will rake in less income tax for their social programs. What businesses sometimes don’t take into consideration is doing business in different time zones reduces opportunity for collaboration and real-time communication, “exposure to financial and political risks especially in emerging economies, increased risk of the loss of intellectual property, and increased monitoring costs relative to domestic supply. For manufactured goods, some key disadvantages include long lead times, the risk of port shutdowns interrupting supply, and the difficulty of monitoring product quality.” (Roth et al, 2008)[2]
These pros and cons have a leveling effect similar to socialism. Rich countries and poor countries will become more equal economically. Eventually countries that lost jobs will get them back as other countries decide to world-source from them when their costs even out with the previously poorer countries. It will be at this moment in time that the reason for world-sourcing will become less a reason of reduced costs, since all costs will become similar, but more of a reason of where talent can be found. This is when governments and businesses will begin to lobby harder for higher education initiatives and begin partnering with educational institutions to bring education up to a global standard and focus on programs that nurture the specific skill sets desired by countries.
Companies are taking steps to comply with the new higher world standards. For example, Nike launches surprise inspections on its global manufacturers; Carrefour, a French retailer uses a standardized training program across the globe for all of their supplier-farmers; McDonalds create closed, proprietary supply chains to maintain internal control of quality; Goodyear Tire and Rubber requires their suppliers to be ISO 9000 certified. (Forbes, 2007)[3]
World-sourced brands are more trusted because of these higher standards. Jessica Alba has led the way with the launch of her “Honest” brand, a world-sourced company. Products are designed in California, made in Mexico, and the materials come from all over the world. The idea of her company is to provide products that not only meet the new global standards being set, but to share with the consumer exactly how the products were made, with what materials, and from where. Since most of their products are baby related, they are all about quality and using the safest materials. By taking on the social responsibility of “sustaining life” as part of their company’s mission, they have immediately connected on a global level since the environmental health of the world has now become a global issue and initiative. “Honest” is an example of how many global companies have taken a social responsibility upon themselves in order to speak to consumers on a more global level. By purchasing products from companies like “Honest,” that share and support global initiatives and responsible business practices, it has put more focus on educated and ethical consumerism. Just like world-sourcing, this is also on the way to becoming a global consumer standard.
Obtaining global reach and impact is a huge objective, however, as a result of world-sourcing, it is becoming a more common one. There is no doubt that we will be seeing more companies like “Honest” become global brands.
SOURCES
[1] Wikipedia. “Global sourcing.” https://en.wikipedia.org/wiki/Global_sourcing. 2009.
[2] Roth, Tsay, Pullman, Gray. “Unraveling the Food Supply Chain: Strategic Insights from China and the 2007 Pet Food Recalls.” Journal of Supply Chain Management, 44(1), 22-39. 2008.
[3] Amelio ,William J. “Worldsource Or Perish.” http://www.forbes.com/2007/08/16/lenovo-world-sourcing-oped-cx_wja_0817lenovo.html. August 17, 2007.
[4] FreeDigitalPhotos.net
