International Sourcing: A Method to Create Corporate Success

252 Pages·2014·5.863 MB·English

by  Daniel Senft (auth.)

International Sourcing
Daniel Senft
International Sourcing
A Method to Create Corporate
Success
Daniel Senft
Geiselwind, Germany
ISBN 978-3-658-02779-7 ISBN 978-3-658-02780-3 (eBook)
DOI 10.1007/978-3-658-02780-3
Th e Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografi e;
detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Library of Congress Control Number: 2013949179
Springer Gabler
© Springer Fachmedien Wiesbaden 2014
Th is work is subject to copyright. All rights are reserved by the Publisher, whether the whole
or part of the material is concerned, specifi cally the rights of translation, reprinting, reuse of
illustrations, recitation, broadcasting, reproduction on microfi lms or in any other physical
way, and transmission or information storage and retrieval, electronic adaptation, compu-
ter soft ware, or by similar or dissimilar methodology now known or hereaft er developed.
Exempted from this legal reservation are brief excerpts in connection with reviews or schol-
arly analysis or material supplied specifi cally for the purpose of being entered and executed
on a computer system, for exclusive use by the purchaser of the work. Duplication of this
publication or parts thereof is permitted only under the provisions of the Copyright Law of
the Publisher’s location, in its current version, and permission for use must always be obtained
from Springer. Permissions for use may be obtained through RightsLink at the Copyright
Clearance Center. Violations are liable to prosecution under the respective Copyright Law.
Th e use of general descriptive names, registered names, trademarks, service marks, etc. in this
publication does not imply, even in the absence of a specifi c statement, that such names are
exempt from the relevant protective laws and regulations and therefore free for general use.
While the advice and information in this book are believed to be true and accurate at the date
of publication, neither the authors nor the editors nor the publisher can accept any legal re-
sponsibility for any errors or omissions that may be made. Th e publisher makes no warranty,
express or implied, with respect to the material contained herein.
Printed on acid-free paper
Springer Gabler is a brand of Springer DE.
Springer DE is part of Springer Science+Business Media.
www.springer-gabler.de
Preface

„Der Mensch kann nichts Gutes hervorbringen, wenn ihm nicht zuvor die
Erkenntnisse eingesät sind, aus denen er wissen kann, was er glauben und
tun soll.“1
Emanuel Swedenborg

In accordance with the quotation above, I would like to thank here the companies and
institutes and, most of all, all of its employees who contributed to the elaboration of the
methodology of this scientific paper by providing the needed material and giving me the
necessary insights in numerous important documents. I would notably like to thank my
colleagues of the purchase department, who always offered to help me with their
expertise and advice, for their tireless efforts. What is more, I would like to show gratitude
to the superiors of the related departments. Thanks to their commitment, I was able to
provide a more practical point of view, since they created the necessary context to test the
theory in practice.
With the help of all people mentioned in the previous acknowledgment, it was possible to
develop a method, which has gained recognition in scientific theory and practice. This
method was honored with the „BME-Hochschulpreis 2013” by the Bundesverband
Materialwirtschaft, Einkauf und Logistik e.V. (BME e.V.) for its convincing scientific
research on material economy, purchase and logistics on the topic of „How to manage
international sourcing in order to achieve competitive advantages“.2 Moreover, the Hans-
Wilhelm Renkhoff foundation has awarded this academic paper as a notably outstanding
achievement and it has received numerous positive appreciations from renowned experts,
institutes, associations and enterprises.3
“The elaboration is especially characterized by the actuality, the high quality
and the well-structured, basic research approach.”
Prof. Dr. Christian Kille

1 The English version based on own translation: ”Human cannot do good if he has not gained the insight to
know what to believe and what to do”
2 The English version of the awards name is ”BME University Award 2013”. Compare BME (1), 2012; BME (2),
2013; BME (3), 2013; BME (4), 2013; Newscomm, 2013; Grimm, C., 2013; Technik + Einkauf, 2013; The
Bundesverband Materialwirtschaft, Einkauf und Logistik e.V. (BME e.V.) represents 8,500 members, amongst
them the 200 most important businesses in Germany as well as many medium-sized businesses.
3 Compare FHIW-S (1), 2013; FHIW-S (2), 2012; Mainpost, 2013; Mystipendium, 2013; The Hans-Wilhelm
Renkhoff foundation aims at supporting science, research and development. The foundation awards every
year notably outstanding papers of technics and economy.
VI Preface
“This sourcing methodology has been reviewed and highly recommended, in
particular for its comprehensiveness and clarity, by the Förderverein der
Logistiker. It covers all the essential elements to consider for international
sourcing in a detailed and thorough manner.”
Balthas Klein, Chairman of the Executive Board, Förderverein der Logistiker

However, not only the numerous awards and recognitions have shown that strategical
successful international sourcing is today extremely real and current in all business
divisions, independent from the kind of enterprise, but it is most of all evident due to the
fact that several specialist journals, executives and other interested experts contacted me
to get more information and a deeper insight in the scientific paper. On the one hand,
those newly built up contacts helped the enterprises to sharpen their awareness for
chances and challenges of globalization. Different renowned international businesses
already put this method into practice and have ever since achieved lasting success. On
the other hand, the feedbacks, critical remarks and suggestions have helped to
continuously improve the method. This win-win situation has induced me to publish this
method, which was first developed in a scientific paper, in a book. Interested people can
so hopefully find solutions to their problems. If you have any suggestions with regard to
the method, or if there are questions, problems or if you need help, please do not hesitate
to contact me via the following e-mail address:

[email protected]

Daniel Senft
Table of Contents

Index of Figures ............................................................................................................. IX
Index of Tables ............................................................................................................. XIII
List of Abbreviations ................................................................................................... XIII
1 Globalization ............................................................................................................ 1
1.1 Globalization forces companies to source internationally ........................................ 1
1.2 Driving factors of globalization ................................................................................ 3
2 Differences and impacts of global sourcing .......................................................... 7
3 Research question and targets ............................................................................. 11
4 Managing global sourcing economically ............................................................. 13
4.1 Ten steps to evaluate global sourcing successfully ............................................... 13
4.2 Visualization of the ten steps in a cause-effect-diagram ....................................... 19
4.3 Step one: Market analysis .................................................................................... 22
4.3.1 Define the market correctly .......................................................................... 22
4.3.2 Market segmentation ................................................................................... 24
4.3.3 Relation between the strategy of entering a market, the product life
cycle, and the attractiveness of international sourcing ................................. 29
4.3.4 Portfolio of market growth and market share ................................................ 33
4.3.5 Customer analysis and determination of key success factors ...................... 39
4.3.6 Location of customers and local content regulations .................................... 48
4.3.7 Summary market analysis ............................................................................ 50
4.4 Step two: Competition analysis ............................................................................. 51
4.4.1 Porter’s five forces of competition ................................................................ 52
4.4.2 Analysis of the most important forces of competition.................................... 59
4.5 Step three: Company analysis .............................................................................. 63
4.6 Step four: Product analysis ................................................................................... 66
4.6.1 Product cost formation analysis ................................................................... 67
4.6.2 Product value analysis (ABC-analysis)......................................................... 72
4.7 Step five: Strategic determination ......................................................................... 74
4.7.1 Potential strategic options ............................................................................ 75
4.7.2 Impacts of sourcing strategies ..................................................................... 76
4.7.3 Determination of a sourcing strategy ............................................................ 85
4.8 Step six: Country analysis .................................................................................. 100
VIII Table of Contents
4.8.1 Important criteria for the country evaluation ............................................... 100
4.8.2 Important indexes and agencies in a country selection .............................. 118
4.8.3 The current major procurement markets ................................................... 122
4.9 SWOT analysis ................................................................................................... 125
4.10 Step seven: Supplier analysis ............................................................................. 128
4.10.1 Supplier selection process ......................................................................... 128
4.10.2 Supplier pyramid ........................................................................................ 134
4.11 Step eight: Logistics management ...................................................................... 137
4.11.1 Logistics importance and costs .................................................................. 137
4.11.2 Distinction of kinds of transportations ......................................................... 140
4.11.3 Supply chain risks ...................................................................................... 142
4.11.4 Most important logistics service providers .................................................. 144
4.11.5 INCO-terms ............................................................................................... 146
4.12 Step nine: Total cost of ownership ...................................................................... 147
4.13 Step ten: Profitability of international sourcing .................................................... 152
5 Open points, outlook on further research approaches and learned topics ..... 155
6 Appendix .............................................................................................................. 159
Table of Appendices ................................................................................................... 159
7 Bibliography ......................................................................................................... 219
Index of Figures

Figure 1: Managing international sourcing .................................................................... 2
Figure 2: Drivers of globalization ................................................................................... 5
Figure 3: Differences of doing business abroad in comparison to a mere
business at home ........................................................................................... 7
Figure 4: Impact of low cost country sourcing on a company’s business ...................... 8
Figure 5: Problems and goals on emerging markets ..................................................... 9
Figure 6: Ten steps to evaluate global sourcing .......................................................... 14
Figure 7: Cause-effect-diagram to evaluate the economic of international sourcing .... 20
Figure 8: Definition of markets .................................................................................... 23
Figure 9: Criteria for market segmentation .................................................................. 25
Figure 10: Relation between customer orientation and product type market
segmentation ............................................................................................ 27
Figure 11: Advantages of market segmentation ........................................................ 28
Figure 12: Connection between entry strategy, product life cycle and
attractiveness of international sourcing ..................................................... 30
Figure 13: Market growth – market share portfolio (Boston Consulting Group) and
attractiveness of international sourcing in a water fall entry strategy ......... 34
Figure 14: Market growth – market share portfolio (Boston Consulting Group) and
attractiveness of international sourcing in a sprinkler entry strategy ......... 36
Figure 15: Key Success Factors for international sourcing (part 1) ........................... 40
Figure 16: Key Success Factors for international sourcing (part 2) ........................... 42
Figure 17: Key Success Factors for international sourcing (part 3) ........................... 44
Figure 18: International sourcing function and Taguchi’s loss function ...................... 47
Figure 19: Summary market analysis ........................................................................ 50
Figure 20: Two different situations of competition ..................................................... 51
Figure 21: Porters five forces of competition ............................................................. 52
Figure 22: Driving forces of rivalry among existing firms ........................................... 53
Figure 23: Entry barriers for new competitors............................................................ 54
Figure 24: Connection between entry and exit barriers and returns .......................... 56
Figure 25: Essential driving forces for substitute products......................................... 57
Figure 26: Criteria influencing the bargaining power of buyers .................................. 58
Figure 27: Criteria influencing the bargaining power of suppliers .............................. 59
Figure 28: Elements of a strategic competition analysis ............................................ 62
X Index of Figures
Figure 29: Critical factors in case of a breakdown of international sourcing
activities ................................................................................................... 63
Figure 30: Questionnaire: Company check for global sourcing readiness and
orientation ................................................................................................ 65
Figure 31: Cost components for calculating the manufacturing costs of a product .... 67
Figure 32: Graphic evaluation of the product costs ................................................... 69
Figure 33: Relation between high cost components, sourcing behavior and
internal effects .......................................................................................... 71
Figure 34: Morphological box for the purpose of defining a sourcing strategy ........... 75
Figure 35: Impact of the sourcing strategy on the target factors ................................ 78
Figure 36: Portfolio for determination of a sourcing strategy ..................................... 91
Figure 37: Sourcing strategies of the four portfolio fields ........................................... 95
Figure 38: Typical strategies and proceedings in the sourcing portfolio and
relations to the BCG-matrix ...................................................................... 98
Figure 39: Criteria for the country evaluation based on a PESTE analysis ............ 102
Figure 40: GDP (nominal) in millions of USD in 2009 .............................................. 104
Figure 41: Brazil’s, China’s, India’s and Russia’s shares of world economy
capacities in percent (in current prices, US-dollar) .................................. 105
Figure 42: Countries with the largest GDP in 2007 and 2050 .................................. 106
Figure 43: Public debts in percent of the countries’ GDP ........................................ 107
Figure 44: Comparison of industrial labor costs per hour including social charges .. 108
Figure 45: GES-values for different economies ....................................................... 110
Figure 46: Visible and invisible cultural values ........................................................ 112
Figure 47: Cultural dimensions ............................................................................... 113
Figure 48: Labor force of the fifteen biggest employable economies and
Germanys labor force per occupation in 2009 ........................................ 116
Figure 49: GES-values for education ...................................................................... 117
Figure 50: Index of Economic Freedom (world view) .............................................. 119
Figure 51: Corruption Perceptions Index 2011 ........................................................ 120
Figure 52: Comparison of the most important current procurement markets ........... 122
Figure 53: Which country is most suitable for which product ................................... 123
Figure 54: SWOT-analysis ...................................................................................... 126
Figure 55: Flowchart of supplier selection ............................................................... 129
Figure 56: Tools and organizations involved in the determination of supplier
position ................................................................................................... 130
Figure 57: Criteria for evaluating suppliers .............................................................. 132
Figure 58: Number of suppliers vs. amount of information per supplier ................... 133