topics

1.Global Sourcing - Reasons for global sourcing,progression in global sourcing as to how a company may initially start sourcing and later it may join as a share holder or joint venture partner like Pfizer- Strides Arco Labs JV, or Boeing - HAL JV and may also take over the supplier company like Acquisition of Ranbaxy Labs by Daiichi Sankyo of Japan. 2 Responsible Sourcing - Examples of Responsible Sourcing Practices by Cummins.com ,Wal Mart ,Bose Corporation etc 3.Vendor Evaluation 4. Phases of negotiations 5.Planning for negotiations 6.Risks of Global Sourcing 7.Role of Power in Global Sourcing 8.Role of Global Sourcing Agents like Lifung and Samtelglobalsourcing.com 9.Role of certain Institutions in promoting International Trade 10.eProcurement - ntpctenders.com 11.International Commercial Terms

E-PROCUREMENT Definition E-Procurement is the purchasing of goods and services using the internet. It covers full life cycle of purchasing (indent to receipt of goods) It connects buyers and suppliers through electronic exchange of Tenders, Catalogues Contracts, Purchase Orders, Invoices etc Definition of E-Procurement E-Procurement or electronic procurement is an automated, Internet-based method for a company to purchase the goods and services which it needs , to conduct its business . It is web based method of procurement. eProcurement Includes all web enabled transactions in Goods and services Components Raw materials Special customized supplies Or for maintenance and repair purposes eAuctions

What is eAuction? It is a part of the Sourcing Process. It is a procurement tool using web based software that allows suppliers to bid online for a contract to supply goods and services. It is sometimes called Reverse Auction because bids are reduced and not increased as in a traditional auction .The objective is to arrive at the lowest total cost.

E-Tendering Using E-Tendering, the suppliers can Receive notification of the relevant tenders Purchase tenders document Submit Bids Online Track the status of their bids Benefits Of eProcurement It is an open, transparent and non-discriminatory way, to fix the conditions for purchasing. It is cost efficient as it reduces the overall cost of purchasing/procuring goods and services. And to establish rules for tendering electronically. All elements of the buying process can be included in E-Procurement . eProcurement unites buyers, sellers and brokers, and offers many interesting procurement possibilities, such as, Procuring companies can search for the best suppliers globally, All potential suppliers can access the same catalogue from every business location worldwide, or to consult complex contract documentation especially in the case of defense procurement and large infrastructure projects ,Government Projects, World Bank aided projects etc Internal approval steps, like purchase order requests, can be automated and linked to the selected products By electronically tracking and recording the purchasing transactions eProcurement improves reporting and record keeping. It helps to increase order fulfillment accuracy and eliminate untracked, off-contract maverick "or unauthorized buying by certain groups in the company or organization.

Subsequent buying transactions, such as purchase order processing and submission to the supplier, can then be completed over the Web. Follow-up and tracking of the orders, including the fulfillment, delivery, receipt and payment, can all happen through Web applications, providing improved and real-time control of order status, at any time. eProcurement also increases the companys purchasing efficiency by automating many routing tasks and eliminating redundant/obsolete internal procedures. Therefore, administration costs are lower and the purchase cycle, from order initiation to fulfillment, is much shorter

Successful eProcurement Implementation

Requirements For Success Internal Sponsorship means that Management should adopt eProcurement Process as eProcurement will have a significant impact on the company and its profitability. Internal sponsorship is therefore a must for a successful implementation of this eProcurement approach. Companies must analyze its existing procurement operations and how they will be impacted by the introduction of eProcurement tools and processes. The Project needs to be planned ,prepared and managed carefully .. Training is an area that should not be underestimated. Procurement team needs to learn the new applications and processes and to understand how new purchases should be requested, approved, submitted by bidders/suppliers and followed up till the required goods and services are received in the stipulated time lines , at the prescribed quality and quantity.

How To Plan For Negotiations What is a Plan ? It is a method or scheme , devised for making or doing something to achieve a desired objective

Negotiation Planning It involves identifying , 1.Who will negotiate ? 2.What are the key issues to be negotiated? 3.When and where the negotiations will take place ? 4.How to conduct the negotiation ?

Successful Negotiation Planning Successful Negotiation Planning Involves 1.Developing Specific Objectives 2.Analysing Each Partys Strengths And Weaknesses. 3.Gathering Relevant Information 4.Recognizing Your Counterparts Needs 5.Identifying Facts And Issues Establishing A Position On Each Issue For Example Mittal Steels may have decided to offer only Euros per share to Arcelor at the time of negotiations. Briefing Each Member Of The Negotiation Team Before Going For Negotiations So That Conflicting Offers Are Not Made By Each Member Of The Team. Practicing The Negotiation

Developing Specific Objectives Objective To Reach An Agreement On A Fair

And Reasonable Price. For Example, The Buyers Objective could be, Achieve FOB Unit Price Of 10 $ Per Component Achieve A Delivery Lead Time Of 4 Weeks Improve Quality By Asking Supplier to reduce defects from 500 Parts Per Million To 50 Parts Per Million .

Developing Specific Objectives Categorize The Objectives As Follows Based On Importance Must Have Objectives Under Any Circumstances. For Example Wal Mart May Decide To Offer Only

5 $ CIF Los Angeles Airport,USA For Each Toy Sourced From A Supplier In China. Wal Mart May Plan Not To Offer A Price Higher Than 5 $ Under Any Conditions At The Time Of Negotiations. Would Like To Have Category Of Objectives

In This Case, Wal Mart May Plan To Be Flexible During The Negotiations . For Example ,Wal Mart May Stipulate Delivery Of Toys Within 2 Weeks Of Placing Order . Wal Mart May Plan To Have A Flexible Approach To Accept Delivery Time Of 2.5 Weeks If Supplier Makes A Request .

Successful Negotiation Planning Developing Negotiating Strategy And Tactics

Strategy means that you have determined, in advance, an ultimate goal which you would like to achieve . Tactics are the things you do to achieve your goal. For example a meeting Is scheduled In USA Between An American Company and a Supplier Of electronic components from Japan. When The Supplier arrives, he is kept waiting in reception for half an hour, without being told why. As he walks through the door into the other person's office they indicate to him to sit down, but they don't look up. Instead, they sit , leafing through the competitor's brochure, in silence, ignoring his efforts to make conversation .This is a tactic employed to send a message to the Supplier that the American Company would deal with his Competitors if his prices are not acceptable to the American Company. Understand The Power Relationship It Refers To The Power Exercised By Parties At The Time Of Negotiations. Example Pfizer Vs Strides Arco Labs. Power Is The Ability Or Strength To Influence Another Person Or Organization . Though Pfizer Is A World Famous Pharma Company, Strides Was Not Intimidated During The Negotiations. Finally Strides Was Successful Interests Of Both The Parties. In Finalising A Joint Venture Which Was In The

Power Can Influence The Outcome Or Result Of Negotiation .For Example ,The Buyers Ability To Reward Or Punish A Supplier Represents Use Of Power To Influence The Outcome Of Negotiation 12. Brief Members Of The Team 13.Practise Negotiation .

Power In NegotiationThe Impact of Power Power Influences the outcome or result of the negotiations in favour of the organization exercising the power Power is a part of the negotiation strategy Sources Of Negotiation Power 1. Informational Power 2.Reward Power 3.Coercive Power 4.Legitimate Power 5.Expert Power 6.Referent Power Informational Power It is the power exercised by one party having complete information, data and statistics about the other party , so as to restrict the options available to the other party. For example, the complete information gathered by Daiichi Sankyo on Ranbaxy Pharma before starting negotiations to acquire Ranbaxy successfully. For example a purchaser may do research on the other party's financial strength ,debts, share value etc and prepare for a negotiation with relevant information. Such info increases his power during negotiations. Power To Reward It refers to the power of one party to offer something of value to the other party. For example a sourcing companys ceo may tell a potential supplier that the volume of orders will be increased if supplies are as per agreed quality and time lines. The other party should value the reward, only then the party offering the reward will have power. Disadvantage of reward The other party may get conditioned or accustomed to the rewards

Coercive Power It is the power held by one party to punish the other party financially ,physically or mentally. For example, Purchaser may threaten to withhold business or reduce the price unilaterally if supplier does not agree to certain demands. Legitimate Power Legitimate Power emerges from the position held by one party to the negotiation . For example , a purchaser may have legitimate power because he or she represents a prominent company. For example , the purchase executive from an internationally well known company like Wal Mart may exercise power over a supplier located in China or India by virtue of representing a well known company. Referent Power Referent Power Is the power exercised by an individual due to personal qualities like Charisma,Honesty,Friendliness and Sensitivity. He attracts the other party(Non Referent) who wants to be like the power holder. The Non Referent wants the Referent to look favourably upon him or her .For eg,Mr Ratan Tata Chairman ,Tata Group, Mr. Bill Gates of Microsoft, Mr. N.R.Narayana Murthy,Founder of Infosys and Mr L.N.Mittal of Arcelor Mittal Steel. Their Presence at the negotiation table radiates power by virtue of their personal qualities . Expert Power An expert is respected as having vast knowledge and mastery over a subject , with Credentials to verify and evidence the mastery. The presence of an expert with one party will strengthen its position, views and opinions which cannot easily be refuted by the other party. For example, a pharma manufacturing company may negotiate with a vender for raw materials called Active Pharma Ingredients. The supplier may demand unreasonably high price .If the purchaser is accompanied by a pharma expert who knows the process and manufacturing cost of such raw materials, then it will be difficult for the supplier to quote unreasonable price when confronted with the pharma expert .Thus , a party who is accompanied by an expert exercises relatively more power over the supplier.

Risks In Global Sourcing 1. Risk of not estimating the labour cost. The sourcing company has to study the prevailing costs and wages in the target country from where it plans to procure the goods and services ,failing which it may end up paying more than fair price for the products and services,which will affect its profitability. 2. Estimation of Prevailing Wages For example, salaries in Northern and Western China are 60% lower than Shenzhen. So if the sourcing company does not know this fact and sources from Northern China,it may pay more for the goods and services thinking that Northern China salaries are equal to Shenzhen.

Basis Of Estimations Statistics on Labour Costs given by The International Labour Organization www.ilo.org (Publications and Statistics) or by The Bureau of Labor Statistics In Each Country,and other studies to benchmark labor rates in global markets could be relied upon to get a clear idea about prevailing wage rates

Improper Product Classification Different products attract different taxes & tariffs In the country of supply say China. Different products attract different shipping charges In the Country of supply say China. Different products attract different taxes, & tariffs in the country of Import (destination) say USA.Proper Classification Facilitates Proper calculation of total costs .otherwise the products which should attract lower tariffs may attract higher tariffs causing loss.

Ambiguity In Terms Of Trade The International Commercial Terms (Inco terms) were devised by Intl Chamber Of Commerce so that there is uniform understanding all over the world about each of the terms. Ambiguity or lack of clarity about the terms of trade in the agreement may lead to disputes supply interruptions and expensive litigation.

The agreement should mention whether the price offered and accepted is Ex Factory,FOB,CIF Etc

Overlooking Packaging Process Depending on the product shipped and transportation mode chosen, product packaging must be given consideration for protection against damage, spoilage and corrosion. The wrong packaging can negatively impact the cost savings potential of a global sourcing model In House Logistics Management Sourcing Companies lacking In house experienced team, in supply chain management, may invite the risk of losses by procuring the products through longer shipping routes ,delayed arrivals, etc. It is better to outsource the work to 3 PLs that is third party logistic companies which have the expertise to ensure supply through the cheapest,quickest and most efficient mode and route of transportation. Product Quality Deviations by supplier from prescribed quality causes multiple losses. Rectifying the defect at destination plant or business also increases the cost . Cost Of returning the defective parts to Supplier will also entail losses.Some multinational sourcing companies station their quality control experts at suppliers plant to ensure quality of production. Sourcing Energy Intensive Products Sourcing Products Requiring Intensive Electrical Consumption . Electricity supplies in countries like India & China are prone to frequent interruption impacting on cost . Frequent Black Outs (Power Cuts) In Suppliers Plant May Impact Supplies.So sourcing companies should be careful while procuring power intensive products globally . Fluctuations In Exchange Rates Fluctuations In Exchange Rate may cause uncertainty In total costing .Usually Sourcing Companies (Clients) And Service Providers (Suppliers ,Vendors) agree at the time of Contract

,to renegotiate price if the exchange rate say between US $ and Chinese Yuan. rises above or falls below, a certain level. Fluctuations in Exchange Rate Let us assume that Bose Corporation USA,sources a Chinese electronic component at US $ 100 .At the time of negotiation the exchange rate may be 100 $ = 682 Chinese Yuan Renmimby (CNY).Then in the agreement, both the parties may agree that the price will not be renegotiated in future if exchange rates do not rise or fall below 5 % of the above exchange rate. Political Risks Macro level risks all over the suppliers Country,such as unforeseen increase in customs duty,value added tax(VAT),riots, strikes ,terrorism, coups,civil war etc..For example in the case of Iran,during recent Presidential election, Iran`s embattled President Mahmoud Ahmadinejads disputed re-election,unleashed the worst crisis in the Islamic republic`s history.

Micro Level Unrests Micro level risks at the suppliers plant like strike by workers, change of ownership, wanton default by suppliers,, their refusal to share financial data ,seizure of plant and equipment of defaulting suppliers by financial institutions etc.For example The vast accounting scandal at Satyam Computer Services increased investor nervousness about weak corporate governance in emerging markets and strained its relations with existing clients till Tech Mahindra Ltd ,took over the company. Risks Of IPR Violations Supplier May Violate Intellectual Property Rights (IPRs) of sourcing company (Client). For example, the product plans, specifications, drawings may be given for rival companies of clients. The specifications, drawings could be given to another country Inimical To clients country .India & China figure among major violators of IPR

Global Sourcing

Question: What is Global Sourcing? In an increasing competitive marketplace, firms are seeking new methods like global sourcing for enhancing their competitive advantage. Global Sourcing is defined as a disciplined, systematic process. wherein a business enterprise, views the entire world as a potential source for components, services, finished goods and Partners. It is also called as Worldwide Sourcing, Outsourcing orLow Cost country sourcing. It can also be defined as the process of identifying, evaluating, negotiating and configuring supply across multiple geographies or nations inorderto reduce costs, maximize performance, mitigaterisks etc. Most companies report an average savings of up to 30% when they begin global sourcing. For example ,Toshiba of Japan ,which is a world leader in high technology and manufacturer /marketer of advanced electronic and electrical products, spanning information & communications equipment, systems, Internet-based solutions and services, electronic components and materials, power systems, industrial and social infrastructure systems, and household appliancesetc, has opened International Procurement Offices (IPOs) in 10 strategic locations around the worldin San Francisco, Boston, London, Singapore, Taipei, Hong Kong, Shanghai, Dalian, Shenzhen, andTokyo, to identify world class suppliers for all its requirements at significant cost savings.

Question: Explain the reasons for global sourcing with suitable examples? 1.Costs A global sourcing strategy is often used to benefit from lower labor costs abroad. Global sourcing affords the opportunity to purchase goods, materials and services at significant cost savings. Global sourcing allows companies to improve their financial position through cost savings that contribute directly to profits. Companies are increasingly using global sourcing to shift work to less expensive locals, cut costs, offer more competitive pricing and grab market share. Global Sourcing does not mean sourcing for the cheapest materials. In fact it means sourcing for materials and services which are relatively cheaper in other countries than the costs in the sourcing country. Forexample, Valeo, a leading French automotive equipment supplier, recently announced plans to source a whopping 70 percent of its procurement from low-cost countries. It employs 52,200 employees in 120 production sites, 21 research centers, 40 development centers and 10 platforms for distribution in 27 countries .(www.valeo.fr) 2. Quality Requirements

Global Sourcing is an important strategy to obtain goods and services of required quality either in the form of raw materials, components or finished products and services,so as to offerthe final products of high quality to customers , commensurate with the quality standards of the sourcing companies. Quality is the result of dedication and hard work, and an unyielding commitment to excellence. For Example ,Cummins Inc,is a global company which manufactures Power generation systems and several other products of international quality .It serves customers in approximately 190 countries with reported sales of $10.8 billion US $in 2009.The Cummins Supplier Handbook contains quality requirements plus other requirements that a supplier must meet to do business with Cummins. The Supplier Handbook applies to all suppliers that provide direct materials to Cummins and any of its subsidiaries, joint ventures, divisions, or affiliates .Cummins relies only on high quality suppliers which it treats as Global Partners in quality.Global sourcing is a powerful factor in developing a global competitive advantage. (www.cummins.com) 3.Availability of Materials orTechnology only from Global Sources There are several firms even in developed countries like USA, Germany, and Japanetc which do not get the raw materials, components andservices from their domestic markets. Hence they have to source globally for their requirements as is evident from a study of the US Based Company Leopold and Stevens (www.leupold.com) Leupold& Stevens is a fifth generation, family owned company that has been in business for 102 years and employs over 600 American workers. All Leupold Golden Ring Riflescopes are designed, machined, assembled, and tested in Leupolds state of the art manufacturing facility in Beaverton, Oregon, USA. Leupold uses over one million pounds of aluminum, amounting to over 100 miles of extrusion, in its facility every year. Leupold uses foreign sourced components for some parts of Golden Ring products, primarily lenses. This is because at this time, there is no American manufacturer which can supply the quantity of high quality lenses that Leupold needs for its annual Golden Ring Optics production. The second example is that of The National Aeronautics and Space Administration, NASA in USA which had to source and use the Hasselblad cameras made in Sweden to take pictures of the earth and the moon from the manned spacecrafts launched by NASA. Hasselblad, the Swedish camera manufacturer, has a long and fruitful relationship with The National Aeronautics and Space Administration, NASA (USA). On one of the first space missions, NASA used a camera of another make that did not work to their satisfaction. One of the astronauts, also a skilled photographer, suggestedthat Hasselblad cameras be used to their extremely high standards and requirements. A standard Hasselblad camera was purchased in a camera store in Dallas and in 1962 it was taken up into space for the very first time. Ever since,

Hasselblad is to have had cameras onboard all manned American space missions and lunar landings. The following are some of the photographs taken of the moon and on the moon by Hasselblad Special Quality Cameras made in Sweden.(www.hasselblad.com) .Another example is Swiss pharmaceutical giant Rochewhich wantedto produce the flu medication Tami flu, which at that time, was the only medication effective against the deadly H5N1 strain of avian flu. A key ingredient of Tami fluis shikimic acid, which is extracted from wild star anise, which is only available from four provinces in China. 4. The fourth major reason for Global Sourcing is to establish additional sources of supply. Shoe and athletic apparel giant Nike, is a prominent example. It contracts with more than 700 factories in 52 nations. Having such a broad supplier base ensures that supply chain disruptions in one factory or region can be absorbed by suppliers in other regions, and thus minimize the impact to Nike. Nike contracts with manufacturers in China, Vietnam, Indonesia,Thailand, India, Mexico etc, to produce virtually all of its footwear. One small exception is the Air-Sole cushioning components used in its footwear. They are manufactured in Beaverton and Missouri in USA and are shipped overseas to manufacturing plants. Anticipation of actual material shortages Global Sourcing is the only means to source and procure productslike oil and coal whose shortage is anticipated in the domestic market .For example, the American energy industry doesnt have the production capacity it needs to meet the energy requirements of this country. Although America has vast resources of oil and coal, much of it remains untapped in regions that are declared off limits to extraction or that are in difficult to access areas. The result is a perennial shortage that forces the US Companies to import oil from Canada and the OPEC nations, and to buy coal from Asia. Till recently, India was a major exporter of refined sugar to the world markets .However due to steep rise in the price of domestic sugar due to non availability of sugar from domestic sugar industry, the Government of India permitted import of sugar in 2010, to tide over the crisis and to contain the high domestic prices. 6. Expansion in the domestic market A business enterprise which has been successful in its business in the domestic market with its existing portfolio of products may resort to Global Sourcing, for acquiring andselling more products under its brand name in the domestic market. Pfizer Inc, which is the worlds largest research-based pharmaceuticalcompanyentered into a collaboration agreement with Strides Arco Labs of India and announced on 6th January 2010,thatPfizer will in license about 40 off5.

patent sterile inject able and oral oncological products from Srides Arco Labs for sale in USA under Pfizers brand name .Oncology products are used to treat cancer patients. 7. Global Sourcing For Joint Ventures Joint Ventures refers to enterprises which are set up by 2 companies or countries to take advantage of Joint ventureswhich may help firms to access local expertise and talent, promote a product or take advantage of trade agreements. The Boeing Company USA and India's Hindustan Aeronautics Limited (HAL) signed a 10-year Memorandum of Understanding (MOU) on 10th January 2007, to bring more than US$1 billion of new aerospace manufacturing work to India. It includes sharing key Boeing business and manufacturing tools and technology upgrade with HAL. The agreement will make Boeing products more globally competitive, while allowing HAL to grow and expand its potential market around the world. Its a win win business for both the companies. Boeing will support HAL in developing manufacturing processes and capabilities needed for the production of hardware for Boeing and/or its subcontractors. Boeing also will support the training and transfer of Boeing best practices to HAL.Such joint ventures also promote the sale of Boeing Aircrafts in India by creating a favourable impression about the company. Boeing already won an order for 68 Boeing jetliners in Dec 2005 from Air India .It was the largest commercial airplane order in India's civil aviation history in terms of price. 8. Global Sourcing for large variety and volume of products It is not always possible for a business enterprise to procure different varieties of products in huge quantities or volumes from the domestic market.Wal- Mart is a good example of this nature of global sourcing .The worlds largest Retailer,Wal Mart sells a large variety of merchandise such as toys, apparel, jewellery, electronic products etc from in equally large quantities sourced from different parts of the world at lower prices. Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric.Wal-Mart serves customers and members more than 200 million times per week at more than 8,416 retail units established under 53 different banners in 15 countries. In fiscal year 2010,it posted sales of $405 billion.Wal-Mart employs more than 2.1 million associates worldwide. It buysa wide variety of lower cost products from more than 60,000 suppliers in 70countries. 9. Global Sourcing to tap worldwide scientific talents and technological skills. It is the strategic policy of manymultinational companies to source and tap scientific talents and skills available worldwide.Boeing and Hindustan Aeronautics Limited (HAL) of India signed an agreement for the production of flaperons for use on Boeings 777 series commercial

jetliner. The work will be performed in Bangalore, India, tapping the vast scientific skills and expertise of HAL.Working with Indias technology leaders helps Boeing assimilate new ideas and innovative processes into our products and programs. This also is good for India because it helps grow the capabilities of the Indian R&D community to meet the emerging needs in country, stated the President of Boeing India. Boeing Research & Technology-India center was also set up in Bangalore in India which will help sustain the companys competitive technological edge while enhancing Indias aerospace capabilities. The center marks another milestone of Boeings long term relationship with India. This centre will carry out continued collaboration with Indian R&D organizations, including government agencies and private sector R&D providers, universities and other companies. Boeing is partnering with the best researchers around the world to find the best technology solutions for our customers, and we look forward to working with our partners here in India on some promising new technologies, said John Tracy, Boeing chief technology officer and senior vice president Engineering, Operations & Technology.Boeings research in India will break new ground in aero structures, aerodynamics and electronic networks with a team of senior researchers, scientists and engineers. This is Boeings third advanced research centre outside the U.S., the others being in Europe and Australia. The centre will also coordinate the work of more than 1,500 technologists, including 100 advanced technology researchers, from across India on projects that will help define the future of aerospace. 10.Global sourcing as a reaction to the sourcing pattern of competitors. Many enterprises resort to global sourcing as a reaction to the global sourcing done by its competitors because it has to survive in the domestic and world market.Many enterprises know that if their competitors are looking offshore to find technology or process support for drastically lower costs, they must follow suit. If their competitors are finding the skills they require through an offshore outsourcing firm, they must do the same. For example, Airbus, the France based Aircraft Manufacturing Company, is a competitor to Boeing. Airbus also has presence in India since more than 30 years. Established as Indias aircraft manufacturer of choice, Airbus is continuing to build long-term partnerships with the countrys airlines, manufacturers, research organizations and IT companies to create opportunities for mutually beneficial industrial cooperation well into the future

Airbus industrial cooperation with India began in 1988 when an agreement was reached with Hindustan Aeronautics Limited (HAL) to manufacture passenger doors for the A320 aircraft. Today, HAL produces half of all A320 forward passenger doors. In addition, Airbus list of Indian partners and suppliers has expanded to encompass engineering, IT services, training, technical publications, research and technology, and the manufacturing of parts and some sub-assemblies. Today, Indian companies and over 1,500 Indian employees contribute to virtually all Airbus aircraft programmes. In recognition of the countrys strategic importance, Airbus has made a long-term pledge to play a major role in the development of Indias aviation sector. The Airbus Engineering Centre India Pvt. Ltd. (AECI) a 100 per cent Airbusowned subsidiary is a recent example of this ongoing commitment. Specializing in high-tech aeronautical engineering, the India engineering centre works hand-in-hand with other Airbus Engineering offices around the world, as well as with the Indian aviation industry. The Bangalore-based centre focuses on the development of advanced capabilities in the areas of modeling and simulation, covering such areas as flight management systems, computational fluid dynamics (CFD), as well as digital simulation and visualization which are critical factors in the design and production of high-performance aircraft such as the A380 and the A350 XWB. As part of AECI Research & Technology activity, Airbus is in negotiations with the Indian Institute of Science, Bangalore, the Indian Institute of Technology and the National Aerospace Laboratory to commence several projects during 2009. In addition, Airbus Training India (ATI) initiated its operations in Bangalore and has since provided maintenance training to Indian-based airline operators. Airbus also works directly with Indian companies in the design and manufacture of aero structures and strongly encourages its major Tier 1 partners to do so as appropriate. Dynamatic Technologies Limited from Bangalore has partnered with Spirit AeroSystems to manufacture a complex machining component and assembly (Flap-Track Beams) for the A320, the worlds most popular single-aisle aircraft programme. Through its Tier 1 suppliers, Airbus also is engaging local companies such as TATA, HAL and Quest for the manufacture of sub-assemblies and detail parts. Additionally, the Airbus Aero-structures Supplier Council has identified India as one of the top Cost Competitive Country destinations for aero structure manufacturing. Furthermore, Airbus has initiated several engineering projects with Indian companies.

Infosys, HCL, CADES, Satyam and Quest have been selected to provide Engineering Services to various aircraft programmes, including the A380 and A350. In addition, Sonovision-Aetos in Bangalore and Infotech in Hyderabad have been set up as dedicated centres for work on Airbus Technical Publications. Airbus continues to pursue other potential areas of cooperation with India, including air traffic control/air traffic management and safety management. From the commercial point of view, Airbus-built aircraft have become a key element in the operations of Indian-based airlines. Starting with the 1976 delivery of an A300 to Indian Airlines, the fleets of Indian carriers now include both single-aisle and wide body Airbus aircraft, and will expand with the future introduction of A350s and A380s by Kingfisher Airlines.

Making Global Sourcing Work in 5 Phases By David R. Butcher Analysts agree that strategic global sourcing offers the greatest opportunity for cutting procurement costs. While the value proposition for global sourcing has never been stronger, many businesses still simply don't know how and where to start. Considering common reports at a minimum of prices 10 percent to 35 percent to 50 percent lower than domestic sources, as well as the only-fractional added costs in building a global supply chain, it is no wonder that global sourcing has become so highly attractive. Yet mid-market firms only now are waking to the reality of global sourcing they face. Such sourcing allows firms to improve their financial position via cost savings that contribute directly to the bottom line. A further benefit of global sourcing is the advantage it provides companies for beating competition: enabling adopters to source a wide range of products from a bevy of suppliers greatly increases the portfolio of product offerings. As global trade increasingly expands without an end in sight, it is only a matter of time before global sourcing impacts all industries, notes a recent article from Supply & Demand Chain Executive, and "the supply chain will never be quite the same again." "The benefits that can be gained from global sourcing are real, and understanding the competitive impact of pursuing or not pursuing global sourcing is critical," says Gartner research VP Helen Huntley. "However, the potential advantages of global sourcing won't materialize [sic.] overnight or without work." As such, here we provide an introduction of five phases of the global sourcing process, as well as some basic pointers, courtesy of Supply & Demand Chain Executive.

1. Strategy & Assessment There are many ways to develop a global sourcing strategy. Global sourcing remains broad and complex, with many different vendors bringing different strengths to the table. For a U.S. company to adopt global sourcing effectively, it first must identify why it wants to adopt. Strategy must be well defined, as different approaches are required based on different goals: cost reduction, faster speed-to-market with products, competition differentiation, supply-source consolidation or product-portfolio increase, et al. Process and change management are critical. It is important to win the support of any functions that may be involved or impacted, including engineering, quality, marketing, HR and finance. The defined strategy MUST be flexible, and it is imperative that contingency plans are in place to cope with anomalies or failures in performance. Companies also must be aware of, and comply with, specific legislation that may impact strategy (e.g., the U.S. Customs & Border Protection, Customs Trade Partnership Against Terrorism and the Fair Labor Standards Act). After defining the global sourcing strategy, one must scope the necessary resources: "positive, proactive and structured planning will be key to success," says Supply & Demand Chain Executive. Evaluating the company's preparedness for adopting this new strategy is vital. Lacking a predefined objective and strategy when moving into global sourcing can bring a company to its knees. 2. Start-Up Once the potential adopter has comprehensively defined, assessed and accepted its global sourcing strategy, it is time to implement. During this start-up phase, according to Supply & Demand Chain Executive, it is essential to adopt a strategy that "covers both near- and mid-term plans, leverages existing supplier relationships; allows process and change management to be handled in a structured way, and gently eases the business into the new global sourcing strategy so that benefits can be appreciated from an early stage." Resourcing both corporate home-based and overseas sourcing office teams with appropriate skill sets is paramount. Says Supply & Demand-Chain Executive: Local staff can make a significant contribution to the entire enterprise by providing cultural understanding and knowledge of local supply markets. These will be the people responsible for purchasing and moving the sourced products. However, recruitment can be a lengthy and difficult process, as fluent English-speaking staff is hard to find. Even harder to recruit are very senior individuals who are much in demand from other companies. In addition, the complexities related to training staff in a new culture must be addressed.

3. Formalization The many variables that accompany global sourcing decisions demand a data-collection and analytics approach different from that during the start-up phase. A robust and scalable global sourcing solution enables greater flexibility now and in the future, specifically regarding dynamic evaluation of sourcing options. Prerequisites of a global sourcing solution include the following: It must be proven successful by similar-sized organizations for similar operations; It must be flexible to cope with the ever-changing global sourcing marketplace and processes; and It must be capable of evolving as the business itself evolves. Such a system should also provide meaningful, up-to-date reports for analyzing the benefits and pitfalls of global sourcing. 4. Now it time to "ramp up operations and reap even greater benefits." Scaling

A first step is to extend the proven global sourcing solution to more suppliers. This makes clearer their role and reinforces the trading relationship. It is also a good idea to leverage any particular successes with certain buyers, categories of product or suppliers. Consider doing the following: Increasing volume of products you buy from these suppliers; Buying new products from them for existing customers; or Using reliable suppliers, breaking into new markets with new or existing products. It may also be appropriate to set up strategic alliances with companies similar to your own, in order to source greater volumes of products or maybe even altogether different products. Strategic alliances can bring greater buying power with shared costs and reduced risk. 5. Expansion The marketplace is dynamic, so tying your company to one region ultimately could be detrimental to operations. The most obvious way to expand is to source from other countries or continents. Today's hot areas include China, South America and Eastern Europe (Generally, it is accepted that these areas will remain good sources for the next 10-15 years.). When evaluating other countries, however, consider geopolitical issues, currency fluctuations and economic growth potential. There is a great variation in infrastructure, local laws, customs and attitudes toward business from country to country. Each country has its own set of business practices, cultural issues, legal requirements, and political, environmental and infrastructure risks. Be aware of and understand such issues. Do your research.

After you implement and expand, regularly evaluate your global sourcing strategy, processes and systems. While it is wise to maintain a coordinated strategy and a consistent approach, understand that things change; as they do, so should your sourcing strategy. To remain competitive, all companies should seriously consider global sourcing. Overseas suppliers, global logistics and telecom infrastructures have become more sophisticated and continue to improve. And developing and supporting a global sourcing strategy can bring enhanced capabilities, streamlined projects and greater control of your organization's destiny.

GLOBAL SOURCING vs IMPORTS AND EXPORTS Global sourcing describes a strategy pursued by many international companies. Through global sourcing firms try to produce a good or service in the country where it is done most efficiently. Classical examples are call-centers and software programming in India or manufacturing in China. However, global sourcing does not necessarily imply producing in developing countries. A new fashion collection might be best developed in Paris and a new hybrid automobile in Tokyo. An import and export strategy aims at exploiting global efficiency differences as well. Manufacturing goods are purchased from a foreign company and merely imported. So what is the difference between global sourcing and import and export? The main difference is ownership. Global sourcing implies that the company holds some kind of ownership, e.g. in forms of a subsidiary. Consequently, the amount of control is much higher with a global sourcing strategy. Certainly, if your supplier is partly dependent on your orders you can influence the quality of the output by putting pressure on the company. However, it might be more difficult to maintain such standards, if the company is an independent actor in the market. So essentially, the type of product or service you want to out-source globally determines your strategy. It can be demonstrated with two simple examples. Big retailers need to procure clothing of any kind and many items require a significant amount of manual labor. In addition, cloths are easy to transport and for many middle and low price segments quality requirements are not extraordinary high. Therefore, it is easy to have such products produced by independent suppliers in countries with much lower labor costs and import them. A different case is e.g. software programming.

Developing software is a complex process and it is not always easy to make new software compatible to previous editions and other programs. You cannot simply order a certain software tool and expect to get the exact product desired. However, Indian software programmers are significantly cheaper to employ than their Western counterparts. In order to exploit this advantage global sourcing is often chosen. As said before, this involves some kind of ownership allowing for a higher degree of control and cooperation than an import-export strategy could provide. The decision what is the best option for a company is not always that straightforward. It requires a thorough assessment of a company's needs and business focus. With globalization proceeding, taking those kind of decisions will become increasingly important and contribute to the performance of global companies.

REASONS FOR GLOBAL SOURCING Made in America. The imprint means innovation, high quality, safety and reliability. So why should companies even consider exchanging that stamp for Assembled in USA and components manufactured in other nations? Not so long ago, the main reason was to gain lower prices for labor-intensive goods. Thats still a good reason, but there are several other circumstances in which Made in America isnt the best choice. Here are ten, culled from the experience of Mark Thompson, global commodity leader at Pioneer Hi-Bred International, an international leader in plant genetics.

Material

is

available

only

from

global

sources

Swiss pharmaceutical giant Roche experienced this a few years ago to produce the flu medication Tamiflu, which at that time, was the only medication effective against the deadly H5N1 strain of avian flu. A key ingredient of Tamiflu, shikimic acid, is extracted from wild star anise, which is only available from four provinces in China. Star anise from other countries provides lower yields and inferior purity, according to Roche spokesman Darien Wilson. For a historical example, consider diamonds. Once found only in India, nearly 50 percent of the diamonds mined today come from Africa, although significant deposits are being mined in Brazil, Canada, Australia and Russia. The U.S. has no reliable source of industrial or consumergrade diamonds. (Colorados Lake Kelsey diamond mine opened in the 1990s with sporadic operations, and Arkansas boasts a public diamond fieldCrater of Diamonds State Park near

Murfreesboro,

Arkansasthat

has

yielded

some

multi-caret

stones.)

Sometimes the issue isnt materials, but expertise and geography that cant be found in the right combination in the U.S. Ireland, for example, has become a primary location for call centers, especially for European operations. The country is attracting a young, multi-lingual population of native speakers that can serve all of Europe and much of America during normal business hours before handing off calls to their North American counterparts. Call centers are tapping into linguistic expertise, while technology companies are accessing high level scientific knowledge. With the economic collapse of the Soviet Union and the Warsaw Pact nations in the early 1990s, many Eastern European scientists who had been assigned to government-funded, generally defense-related projects, found themselves out of work or woefully under paid. Western companies were able to thus hire some of the brightest scientific minds for their commercial applications at lower salaries than comparable U.S. scientists would command, if they were willing to work commercially, and to use the time difference to their advantage. This follow-the-sun working strategy lets teams in different time zones provide round-theclock service. Some firms, including Xerox, split some project teams among time zones, ensuring that a particular technical challenge is resolved faster because someone is always working on it.

Technology

is

available

only

from

global

sources

Its hard to believe, but there actually are some things the U.S. doesnt make. Except for a firms core, strategic technologies, access to materials and process technology is gained through the supply chain, according to Richard Weissman, assistant professor at Endicott College in Beverly, Massachusetts. Its also true, though, that bright ideas originating offshore may be adapted to improve products, services and efficiency, developing broader appeal or additional applications. Maglev trains are a good example. The U.S. abandoned maglev transportation research in the 1960s. Germany and Japan carried on. So when the U.S. Transportation Administration began considering high-speed maglev trains, the technology had to come from Germany, Japan or Korea, which began research somewhat later. German firm Transrapid pioneered the technology, opening an exhibition line in Hamburg in 1971 and repeatedly winning world maglev speed records. It designed and built the only currently operating commercial maglev transportation system in existence, in Shanghai, China. So, when Lockheed Martin became involved in maglev transportation in 2000, it teamed with Transrapid International, the U.S. subsidiary of the German firm. Under their agreement, Transrapid provides the technology and Lockheed Martin oversees the projects, ensuring they meet U.S. specifications and codes. Marketing is being conducted jointly.

Likewise, in the 1970s, Gummi Bears candy was only made by Haribo in Bonn. It became a global hit. Later, Trolli and a few other German manufacturers acquired the gummi technology and began making other shapes including, in the U.S., gummi worms. Notably, Thompson says, it was the last new candy product category. Since those early days, the technology has been exported to the U.S. and Mexico, he says. For Oregon-based Leupold & Stevens, need for high quality combined with cost pressures was behind the decision to find Asian sources for the optical glass it uses in his rifle scopes and binoculars. The glass is mainly found in Asia, with a few very high end manufacturers in the U.S. and Germany. Sourcing in Asia allowed the company to have the desired level of quality at a price its customers can afford.

Lower

total

cost

of

goods

Even with the price of the goods, transportation, taxes and import duties, some goods can be acquired cheaper abroad, as Leupold & Stevens found with optical glass. This is one of the major reasons companies first consider offshore sourcing. Generally, any labor intensive item can be produced abroad and delivered to the U.S. for less than the cost of making it here and delivering it domestically. Early in his career, Thompson found this was true with toys and birthday cake novelty items. Its still true today with a wide range of goods, including stone tiles from India and garments from southeast Asia and Central America and computer components from Korea. You really have to be careful in determining total costs, though, Thompson emphasizes. Its more than just the cost of the goods plus transportation. Total costs include direct and indirect costs like insurance, carrying excess inventory, which Thompson says is needed because of the increased shipping time, as well as quality and communications with suppliers. Additional factors may also come into play, though, that obviates any advantage in cost. For example, one electronics manufacturer a few years ago found that air pollution in Shanghai registered 800 ppb of hydrogen sulfide. Inside its suppliers factory, the level nearly doubled to 1500 ppb, versus 7 ppb in the U.S. Such high levels of hydrogen sulfide corrodes electronics, substantially shortening the lifespan of computers and other electronics coming from that area. The total costs of goods may also include direct and indirect costs throughout the items life. Germany, for examples, requires cradle-to-grave attention, with plans for recycling at the end of the items life. So, if components arent recyclable, a lower upfront cost may result in higher end of life costs. Also consider the risks to intellectual property, a concept that often isnt fully understood even by high level execs. To guard against that, Leupold & Stevens, Coca-Cola and other firms keep their most valuable intellectual property at home.

To

meet

quality

requirements

Sometimes quality matters, and sometimes good enough is just fine. Its important to know the difference. A slipped stitch on a $6 shirt doesnt really matter. Corroded circuit boards or inferior optics, however, make a big difference. NASA knew when it sent astronauts into space that the quality of the still photos they took truly mattered, not only for science but to capture the imaginations of people throughout the world and thus garner support for continuing the space program. For those missions, the Polaroid camera that was fine for backyard barbeques wouldnt do. Neither would the Nikons or Leicas used by professional photographers. NASA needed the best of the best. It needed Swedish-made Hasselblad, the Stradivarius of cameras. Perfection, of course, isnt cheap. The digital, SLR H3DII model, released September 2007, retails for just under $34,000. The tradition of quality that surrounds Hasselblad extends to other industries, too, and other countries. The printing industry typically sources its presses from companies like Germanys Koenig & Bauer AG. For centuries, the finest analog watches, like those from Phillipe Patek, were handmade in Switzerland. Its important to note, though, that the definition of the term quality may vary by country and by region, as Mickey North Rizza, Boston-based analyst at AMR Research, points out. So, when discussing quality issues with suppliers, it may be better to discuss specifications and the reasons for such exacting specifications as well as the definition of any confusing words, as it is better to error on the side of clarity, she says. Also look at the suppliers track record to ensure that company really does understand your product, specifications and overall business goals.

To

establish

additional

sources

of

supply

From childhood, weve been admonished, Dont put all your eggs in one basket. Thats why we make contingency plans, and thats why working with multiple suppliers is a good thing. When Thompson was a buyer in the food industry in the 1990s, a California drought severely hurt the garlic industry. He and other American buyers turned to China and to obtain the supplies they needed. That was a good stop-gap strategy, but since then, China has been charged with dumping garlic onto the U.S. market. The U.S. Department of Commerce is investigating. Pistachio growers did this in reverse in the 1970s. At the time, Iran was the sole source of pistachios, Thompson says. American growers planted their own trees and have since become a

dominant player in that marketa smart move in light of the Iranian Revolution and our subsequent embargo against Iran. Shoe and athletic apparel giant Nike, is another example. It contracts with more than 700 factories in 52 nations. Having such a broad supplier base ensure that supply chain disruptions in one factory or region can be absorbed by suppliers in other regions, and thus minimize the impact to Nike. There are indirect benefits, too. These contracts employ some 800,000 workers throughout the world, decreasing the influence of any one supplier or region while increasing the base of skilled workers and making it possible for plants suppliers to work together to develop their own best practices and therefore continue to improve product quality, factory productivity and workers quality of life.

Anticipation

of

actual

material

shortages

Right now, the American energy industry doesnt have the production capacity it needs to meet the energy requirements of this country. Although America has vast resources of oil and coal, much of it remains untapped in regions that are declared off limits to extraction or that are in difficult to access formations, like oil sands. Wind energy, one alternative, too often meets a NIMBY mentality, as evidenced by last autumns debacle off Cape Code. The result is a perennial shortage that forces us to import oil from Canada and the OPEC nations, and to buy coal from Asia. Although that particular shortage is imposed by politics and technological hurdles, other shortages may be sparked by labor unrest, bad weather, warfare, disease, industrialization of other countries and other issues, which may cause delays in the supply chain or put regions temporarily out of the market. For example, when mad cow disease (bovine spongiform encephalopathy) threatened the Canadian been industry in 2003, grocery store meat sections augmented their selections with Australian beef. And, when U.S. citrus crops are damaged by periodic freezes, buyers can augment their supplies with produce from Mexico or India and, during the shoulder seasons, from Australia and Brazil. Sometimes, though, a shortage is global, making good relations with multiple suppliers even more important. Right now, theres a global shortage of steel and, according to Tom Johnstone, president and CEO of Stockholm-based SKF, it will likely continue into 2008. For the worlds largest bearings manufacturer, the shortage leads to steadily increasing costs and negative effects on production, service to the market and operating margins, Johnstone said in the third quarter report. Texas general contractor Brasfield & Gorrie planned for steel shortages, buying 4,200 tons of

concrete reinforcing steel in advance, to help minimize delays while building a $169 million Galveston condo complex. Thats the same strategy companies used during the steel shortage of 2004 and during the 2005 shortage of tires for construction equipment. Sometimes thats all you can do, but its easier if you have multiple suppliers.

Support

in

global

markets

for

domestic

products

The imprint Made in America isnt as important as it once was, as other nations develop increasingly sophisticated, high quality products. And, the backlash against globalization encourages consumers and manufacturers to buy locally. An American-made product that incorporates components from the local country increases its local acceptance and support. Or, as Thompson says, Buying from other nations helps you sell your own products there. In some cases, it may be required, he adds. Its also a way to create awareness and to reduce costs, Rizza adds. The globally-sourced, Made in America business model is particularly true in the aviation industry, Thompson says, which uses it as a sales point. Boeing Corporations 787 Dreamliner, for example, is being constructed in Everett, Washington, but includes components from 43 of the worlds top aviation suppliers and electronically inks more than 130 supplier sites around the world. Major orders have been placed by airlines throughout the world. NASA took the same approach in developing the International Space Station. Dominated by the U.S., its built from modules developed in many countries. The Canada Arm, for example, has been a source of Canadian pride for nearly three decades and appears prominently in many photos of the station. Last October (2007), NASA was preparing to launch an Italian component called Harmony to link the U.S-made Destiny lab with the European Space Agencys Columbus module and Japans Kibo module. International cooperation, in this instance, shares the glory as well as the financial costs of exploring space.

Support

in

global

markets

for

domestic

products

The imprint Made in America isnt as important as it once was, as other nations develop increasingly sophisticated, high quality products. And, the backlash against globalization encourages consumers and manufacturers to buy locally. An American-made product that incorporates components from the local country increases its local acceptance and support. Or, as Thompson says, Buying from other nations helps you sell your own products there. In some cases, it may be required, he adds. Its also a way to create awareness and to reduce costs, Rizza adds.

The globally-sourced, Made in America business model is particularly true in the aviation industry, Thompson says, which uses it as a sales point. Boeing Corporations 787 Dreamliner, for example, is being constructed in Everett, Washington, but includes components from 43 of the worlds top aviation suppliers and electronically inks more than 130 supplier sites around the world. Major orders have been placed by airlines throughout the world. NASA took the same approach in developing the International Space Station. Dominated by the U.S., its built from modules developed in many countries. The Canada Arm, for example, has been a source of Canadian pride for nearly three decades and appears prominently in many photos of the station. Last October (2007), NASA was preparing to launch an Italian component called Harmony to link the U.S-made Destiny lab with the European Space Agencys Columbus module and Japans Kibo module. International cooperation, in this instance, shares the glory as well as the financial costs of exploring space.

Support

to

other

organizational

global

operations

Setting up factories helps you get local buy in and support, too, Thompson says. Arranging joint ventures and research partnerships also can help swing buying decisions in your direction. Boeing is a case in point. That company has a 60-year relationship with India and has become the mainstay of the countrys domestic and intercontinental commercial fleets, according to Boeings news releases. Air India bought its first Boeing jetliner in 1960 and within two years because the worlds first all-jet airline. It continued adding Boeing jets to its fleet, and so did other Indian airlines. The market was strong enough that by 2003, Boeing established a subsidiary in India to strengthen its local presence and to find new ways to pursue growth and productivity initiatives. Those ways include projects with Indias leading companies and research organizations. Even before it established a subsidiary, Boeing began working closely with Indias leading software development companies on information technology projects and engineering data analysis projects. It since has partnered with the Indian Institute of Science to conduct research on aerospace materials, structures and manufacturing technologies, which are then integrated into Boeings aircraft. Some 2,000 Indian researchers are actively involved. Boeings R&D division also is collaborating with Indias national Aerospace Laboratory and has contracted with Hindustan Aeronautics Ltd. to manufacture some components and assemblies and to digitize engineering drawings. Additionally, Boeing plans to invest up to $75 million for training facilities, mainly for Indian pilots and, working an Indian partner, another $100 million to build a maintenance, repair and overhaul facility in central India for Boeing planes. Boeing is there because the market is strong the company can benefit from Indian expertise. A case can be made that India would have purchased Boeing planes anyway, so perhaps its

coincidental that in 2006, Air India ordered 68 Boeing commercial jetsthe largest commercial airline order in Indias history, worth $11 billion. Between now and 2026, Boeing projects that India will need 856 new commercial jets at a price tag of about $72 billion. Boeing spokespersons wont draw any linkages between the companys investment in India and sales of planes. Draw your own conclusions.

Global

sources

can

be

more

reliable

This isnt a given, but its always a possibility, Thompson says. Reliability has two aspects that of the product and that of the supplier. I was buying candles from a supplier in China, and the order always arrived on time and in the proper quantities, Thompson says. This really is about finding a good supplier with a good reputation and then working with them to develop a deep understanding of your needs and their constraints and, oftentimes, a personal relationship. The relationship can be at least as important as the actual business deal, particularly in countries in which the rule of law is still evolving, and suppliers will take care to get to know the potential buyers and their values. Without strong courts to enforce decisions, the deal is enforced by the relationship. You have to travel and meet with them, and lay out your expectations, he emphasizes. With that in mind, dont expect to confine your conversations to the phone and Internet. Sometimes the product itself is more reliable. Take the coatings industry as an example. Right now, red lead paint is the standard for coating steel to prevent corrosion. There are some challenges, though. Lead-based paint isnt accepted in all locations because of environmental concerns. Additionally, steel that needs to be coated while in servicebridges, for example cant necessarily be cleaned sufficiently to allow the paint to adhere, and the paint also cant always penetrate the crevices, joints and overlap points inherent in construction. To address those problems, the Swedish firm Introteknik AB developed a coating system called Isotrol that penetrates the existing paint, rust and grime to protect the steel. Independent tests indicate the coating protects for 15 to 20 years in highly corrosive environments, which is far longer than competing products, according to the just-released Frost & Sullivan report, Advances in Corrosion Protection Technologies.

Joint

ventures

Joint ventures may help firms access local expertise and talent, advance a product or take

advantage of trade agreements. Theyre a mainstay in the pharmaceutical and biotech industries, which rely on joint ventures to get innovative products to market. In those industries, typically the biotech firm develops a drug into or through the clinical trials stage and then partners with a larger pharmaceutical company to bring the drug to market. In recent news, German pharmaceutical giant Boehringer Ingelheim and U.S. biotech firm Vitae Pharmaceuticals, Inc., launched a collaboration to develop and commercialize a compound to treat diabetes and other metabolic diseases. The benefit to Vitae Pharmaceuticals is the upfront and near-term payments of $35.6 million, in the form of cash, research funding and an equity investment, plus the possibility of up to $300 million in future payments as predetermined milestones are met, with royalties also coming from future sales as Boehringer Ingelheim leads the development and commercialization of the compound. Vitae Pharmaceuticals maintains the right to develop the research for other indications. In exchange, Boehringer Ingelheim gets access to an innovative compound without the intensive, early stage development work. Collaborations like the Boehringer Ingelheim/Vitae Pharmaceuticals agreement make business sense because they exploit the skills of both companies to do something neither could do easily alone. When joint ventures are formed mainly to access local markets, however, they may not be such good deals. As companies become increasingly globalized and source from many nations, international joint ventures can actually muddle operations. Research from Harvard University and the University of Michigan indicates the value of working alone has a better financial outcome than collaborating when companies have global production or sourcing operations or when they want to leverage a global network of affiliates. In those scenarios, the interests of the local partnergetting more business from the company may conflict with those of the multinational firm. Oftentimes, the expertise companies seek through joint ventures can be accessed through other vehicles that allow the firms to retain ownership. So, before forming a join venture, look carefully at what each partner offers as well as at the potential pitfalls before proceeding. wt

Sidebar:

The

Sweet

Life

Mark Thompson is the global commodity leader for Pioneer Hi-Bred International, the worlds leader in advanced plant genetics. His background, though, is in candy. Practically all candy comes from outside the U.S., Thompson says. Look at the fine print on the candy bag or box. It usually says distributed by rather than made by, he says. That change occurred shortly after Thompson entered the candy business in the late 1980s. U.S. subsidies to sugar farmers drove the price up, he says, so that it was nearly double world prices.

Candy companies balked, but Congress didnt budge. Consequently, most U.S. candy companies closed their U.S. factories and moved offshore. As purchasing manager for the aptly named Foreign Candy Company, he purchased candy mainly from Mexico, which he says is still a major supplier for the U.S. candy market. But eventually, Thompson decided that man could not live by candy alone. He needed some spice in his life. What he found was the world of garlic, vanilla, cinnamon, which he sourced for Tones Spices, searching out the combination of quality and price that has made Tones Durkee, Spice Islands and Frenchs brands household names. Many of these spices grow only in welldefined regions, but plant geneticists have been working for decades to extend their growing conditions. Thompson is working with them now, at the world leader in advanced plant genetics, Hi-Bred International, Inc., which conducts research in 25 countries and production facilities throughout the world. Ironically, he says, Now I dont do a lot of global sourcing.

Global Sourcing: Is It Really Worth It? Five key questions to ask throughout the product lifecycle By John Brockwell New York October 19, 2007 "Is global sourcing really worth it?"

For a variety of reasons, executives at many companies are reconsidering whether or not they should be buying products from international sources. Companies are facing higher than expected costs of materials and labor, a declining U.S. dollar and rising fuel prices, while some are experiencing the persistent quality issues that we continue to read about in today's headlines. Concerns regarding quality affect consumer choices. A Reuters/Zogby poll recently released on September 19 found that 78 percent of Americans worry about the safety of Chinese imports, and 25 percent have stopped buying food from China. In the poll, 35 percent of respondents were "very worried" and 43 percent were "somewhat worried" about the safety of Chinese goods. Not only must executives be concerned with the quality and reputation of their own products and brand, but now there are risks of being associated with a larger brand "Made in China ". At a time when China has become the largest source of imports for the United States, company executives are evaluating their reliance on China-based suppliers. Though the government of China is working to improve their brand image by instituting and enforcing quality standards, it might not be enough to stave off buyers from reconsidering their sourcing decisions. International sourcing and procurement can have high rewards, but those rewards bring additional high risks. Advantages of Global Sourcing

Many companies are still making procurement decisions based primarily on unit cost. The global explosion of connective technologies, well-educated workers and capital has made it possible to, almost literally, have the entire world compete for the opportunity to sell to your business. And

with that competition comes a tremendous opportunity to reduce costs, especially labor cost. Of course, many companies procure goods from global sources for other reasons as well, including:

Access to fresh research, design or specialized intellectual capital. Availability of new technology and capacity. Many companies source overseas because domestic suppliers lack the capacity and are not making the necessary investments to stay competitive. Plans to sell or service locally. Some companies source locally to help break the barrier to local market entry. Or their customers have now moved manufacturing processes to that country and want to be serviced locally.

Proximity to raw materials. Superior quality. Many companies praise the quality of international source product compared to U.S. products. This is typically due to supplier investment in technology and capacity to attract global business as mentioned above.

Responsible Sourcing Global Sourcing, which is also called as World Sourcing or Low Cost Country Sourcing is Sourcing for required goods and services from countries around the world where the sourcing company hopes to procure the products and services at relatively lower costs without compromising on quality, time lines and other laid down criteria for delivery of the products and services. The Client has long run business relations with the supplier who manufactures the products or provides the services as per clients specifications unlike regular imports where ready-made products are purchased. When Global Sourcing is done with recognition of the Companys and Suppliers Corporate Social Responsibility to preserve, protect and promote ethical values in the society and the environment, without causing any damage to them, then it is called Responsible Sourcing.

Many Multi National Companies adopt, support and implement Responsible Sourcing as conscious corporate policy .The standards for responsible sourcing are prescribed by the companies (clients) in the forms of Standards or Codes Of Conduct and are expected to be followed in letter and spirit by the clients and suppliers, business partners etc. Business Partners are expected to work with integrity and continually improve their ethical, social and environmental performance and to fully comply with the standards/codes throughout the supply chain. The standards consist of 6 main categories

1. Suppliers must follow the law of the countries in which they operate and with which they have business relations. 2. Suppliers must treat all people with dignity and respect 3.Suppliers must do business fairly and honestly and avoid conflict of Interests. 4. Suppliers must protect the environment 5. Suppliers must provide a safe working environment to their workers. 6. Suppliers must protect the technology, information and intellectual property rights of their clients.

Supplier Code of Conduct

1. Suppliers must follow the law Suppliers must comply with all the applicable laws, rules and regulations of their country and of the clients country. They should not involve in any action, which violates the rules and regulations. Suppliers must follow all anti-bribery laws throughout the world and educate their employees about compliance with these laws.

2.Suppliers must treat all people with dignity and respect.

Suppliers must be committed to providing equal employment opportunities and bring together people of different races, gender, education, language, viewpoint and experience.cIients expect their suppliers to ensure that its employees and other stakeholders are always treated with dignity and respect and avoid discrimination based on race, colour, gender, nationality, religion, age, disability, union membership, maternity, sexual orientation, gender identity and/or expression or marital status. No employee of client or supplier should indulge in harassing behaviour such as sexual or racial harassment or any behaviour that creates a hostile or offensive work environment for others and no forced or child labour.

A. supplier must not use involuntary labor of any kind, including prison labor, debt bondage or forced labor by governments. Only workers who meet the applicable minimum legal age requirement in the country where they

are working or are at least 14 years old, whichever is greater, may be hired by a supplier. Additional standards include the following: B. A supplier must comply with all applicable child labour laws, including those related to hiring, wages, hours, worked, overtime and working conditions. Vocational or developmental programs for young people may require an exception to the age requirements. C. The supplier must maintain official documentation that verifies a workers date of birth, employment history and training history. The client reserves the right to review this information if necessary. Supplier Code of Conduct

D.Wages and Hours Suppliers must follow all applicable laws regarding working hours, wages and overtime pay. Workers must be paid at least the minimum legal wage or a wage that meets local industry standards. Suppliers should conduct operations in ways that limit overtime to a level that ensures humane and productive working conditions. The supplier must pay overtime and any incentive rates that meet all legal requirements or the local industry standard. Hourly wage rates for overtime should be higher than the rates for the regular work shift. Workers should receive necessary time off, paid annual leave and holidays as required by local laws.

E.Commitment to Freedom of Association Suppliers must respect employees freedom of association, right to bargain collectively and all other workplace rights. Employees should be able to choose whether or not to join a union and should not be subject to discrimination based on that choice.

F.Reporting of Concerns The supplier should have a policy that prohibits inappropriate conduct and a policy giving employees a way to raise concerns without fear of retaliation and a process for investigation and resolution of incidents. Where allowed by law, the supplier should have a system that allows for anonymous reporting of concerns. Supplier Code of Conduct 3.Suppliers must do business fairly and honestly and avoid conflicts of interest

Suppliers must do business in a way that is open, transparent and with the highest integrity. There is the potential for a conflict of interest if a suppliers employee or his or her family member has a close relationship with the clientss employee who can make decisions that will unfairly benefit the suppliers business. For that reason, the supplier must disclose these types of relationships to client before entering into negotiations. The supplier should notify the client if any of its employees or its employees family members work for the client or have any kind of past or present business relationship with it. Supplier Code of Conduct

4. Suppliers must protect the environment Suppliers must comply with all applicable environmental laws and regulations. If these requirements are less stringent than clients requirements, the supplier will be encouraged to meet the standards outlined below:

A. The supplier should work to minimize environmental impact through a program similar to ISO 14001. B. The supplier should have procedures for notifying local community authorities in case of an accidental discharge or release of hazardous materials into the environment, or in the case of any other environmental emergency. C.The supplier must store hazardous and combustible materials in secure and ventilated areas and dispose of them in a safe and legal manner. D.The supplier should monitor, measure and reduce greenhouse gas Emissions . E.The supplier should establish programs to minimize industrial waste and promote recycling. Code of Conduct

5. Suppliers must provide a safe working environment

A safe working environment is a critical component of an effective partnership between client and a supplier for which the following guidelines apply: A. The supplier must comply with all applicable laws regarding working conditions, including worker health, and safety, sanitation, fire safety, risk protection and electrical, mechanical and structural safety by implementing an employee safety management system such as OHSAS 18001.

B. The work environment should be well lighted, ventilated and free from temperature extremes.

C. There must be sufficient, clearly marked exits that allow workers to evacuate in an orderly fashion in the event of a fire or other emergencies. Emergency exit routes should be posted and clearly marked in all sections of the suppliers factory. Fire alarms and extinguishers should be placed on each floor, along with emergency lights above exits and on stairwells.

D.Production machinery must be equipped with operational safety devices, and must be inspected and serviced on a regular basis.

E.The supplier should have strict procedures that prevent the use of illegal drugs or alcohol in the factory and that prevent impaired employees from working.

F.Appropriate personal protective equipment, such as gloves, rubber boots, safety glasses, goggles, earplugs and ear muffs should be used where applicable and made available to all workers at no cost.

G. A supplier must provide safe and accessible drinking water for all workers and allow reasonable access to clean and sanitary toilet facilities throughout the working day.

H. The supplier must have procedures for dealing with injuries that require medical treatment inside of the facility, as well as procedures to manage serious injuries or emergency cases that require support from

outside organizations. Supplier Code of Conduct

6. Suppliers must protect clients technology, information and intellectual property. The secure use and distribution of information and data in the workplace is critical to clients and a suppliers success in a competitive marketplace. Both parties must maintain physical and electronic security for all confidential information. Each partys employees should use extreme care in protecting confidential or proprietary information of any kind. Face-to-face confidential discussions should be conducted in a secure location.If confidential information is to be discussed or exchanged between client and the Supplier, or the Supplier and a Third Party, the parties must first ensure that a Confidentiality or Non-Disclosure Agreement has been signed and is being complied with. Supplier Code of Conduct

Suppliers must assist client in enforcing this Code

Any code of conduct is only as effective as the efforts to enforce it. In that spirit .The client expects its suppliers to comply with the conditions of the Supplier Code and maintain a system to monitor compliance. Suppliers also must make an effort to communicate the principles of the Supplier Code to their employees and take the necessary steps to ensure understanding and compliance including communicating the details of the code to employees annually in the local language of the business. If client determines that a supplier has violated this Code, the supplier must provide information relating to the incident(s) and show within 30 days the actions taken to correct the condition. The client will follow up to make sure the condition has been corrected. The client reserves the right to conduct a full audit if necessary to ensure compliance. At the same time, The client recognizes that many of its suppliers have codes of conduct that cover most or all of the principles above. In those cases suppliers can provide evidence of their own Code of Conduct to meet the intent of this requirement. The client Law Department will decide if the Suppliers Code meets the requirements of this document.