Assessing consequences of low cost sourcing in China

Journal article, 2009

Purpose – The purpose of the paper is to develop a framework for low-cost sourcing assessment and to explore the consequences of low-cost sourcing in China for a European manufacturer. Design/methodology/approach – The low-cost sourcing framework generated from literature and the consequence analysis is based on a case study of a European company that has outsourced part of its casting processes to Chinese suppliers. Findings – Characteristics of low-cost sourcing are based on a literature review divided into three categories: country characteristics, supply network structure, and supply network relationships and the case study shows that these three categories of characteristics jointly create negative effects. A two-directional cause and effect relationship is proposed between the characteristics and the operational supply chain performances. The presented low-cost sourcing assessment framework should be a good starting point for low-cost sourcing assessment, including mapping a firm’s total characteristics, and for analysing their performance impact. Research limitations/implications – The conducted single case study is not enough for identifying, formulating, and validating all existing relationships between the low-cost sourcing characteristics. The present study has identified the existence of the relationships but has not evaluated their levels of impact. Practical implications – Managers should be aware of how suppliers in low-cost countries may affect the structures, relations, and operational supply chain performances of the supply network. This paper presents a sourcing assessment framework enabling describing what dimensions of the sourcing characteristics would be affected by sourcing to a specific area of the world and what consequences and performance effects this would have. Originality/value – Few prior studies have focused on companies with already established relationships with low-cost-country suppliers and how these companies should make the best out of these supply chains. This study takes a holistic perspective on low-cost sourcing and identifies several streams for further research.