Low-cost country sourcing
Encyclopedia
Low-cost country sourcing (LCCS) is procurement
strategy in which a company sources materials from countries with lower labour
and production costs in order to cut operating expense
s. LCCS falls under a broad category of procurement efforts called global sourcing
. The process of low cost sourcing consists of two parties. The customer and the supplier countries like US, UK, Canada, Australia, and West European nations are considered as high cost countries (HCC) whereas resource rich and regulated wage labor locations like China, India, Indonesia, Bolivia, Brazil, Russia, Mexico, and East European nations are considered low cost countries (LCC). In low cost country sourcing the material flows from LCC to HCC while the technology flows from HCC to LCC.
The primary principle behind LCCS is to obtain sourcing efficiencies through identifying and exploiting cost arbitrage between geographies.
, modern infrastructure and acceptably compatible legal system are considered to be ideal for sourcing. Examples and most popular regions are China, Indonesia, Thailand, Vietnam, Malaysia, India, Ukraine, Romania, Bulgaria, Mexico, Bolivia, Brazil and Czech Republic.
Procurement
Procurement is the acquisition of goods or services. It is favourable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location...
strategy in which a company sources materials from countries with lower labour
Workforce
The workforce is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, country, state, etc. The term generally excludes the employers or management, and implies those involved in...
and production costs in order to cut operating expense
Operating expense
An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an ongoing cost for running a product, business, or system . Its counterpart, a capital expenditure , is the cost of developing or providing non-consumable parts for the product or system...
s. LCCS falls under a broad category of procurement efforts called global sourcing
Global sourcing
Global sourcing is a term used to describe practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service...
. The process of low cost sourcing consists of two parties. The customer and the supplier countries like US, UK, Canada, Australia, and West European nations are considered as high cost countries (HCC) whereas resource rich and regulated wage labor locations like China, India, Indonesia, Bolivia, Brazil, Russia, Mexico, and East European nations are considered low cost countries (LCC). In low cost country sourcing the material flows from LCC to HCC while the technology flows from HCC to LCC.
The primary principle behind LCCS is to obtain sourcing efficiencies through identifying and exploiting cost arbitrage between geographies.
Destination
Not necessarily all "low cost countries" are destinations for LCCS. Only those countries with relatively stable politic and economic environmentPEST analysis
PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management...
, modern infrastructure and acceptably compatible legal system are considered to be ideal for sourcing. Examples and most popular regions are China, Indonesia, Thailand, Vietnam, Malaysia, India, Ukraine, Romania, Bulgaria, Mexico, Bolivia, Brazil and Czech Republic.
See also
- Global sourcingGlobal sourcingGlobal sourcing is a term used to describe practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service...
- International tradeInternational tradeInternational trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...