Low Cost Country Sourcing In Sports Shoe Manufacturing Essay.

The Benefits of LCCS to Sports Shoes Manufacture

Low cost country sourcing (LCCS) is a business strategy where procurement of materials is outsourced from foreign countries where costs of production and labor costs are relatively cheaper. Many international sports company engage in sourcing from low cost countries in order to cut their operating expenses. It is important to note that the concept of LCCS is part of the wider global sourcing (Ruamsook, Russell and Thomchick, 2009). 

The process of low cost sourcing has two major players; the High Cost Countries (HCC) which include countries like the USA, Canada, UK, Australia and other western European  nations, and the low cost countries such as China, India, Vietnam, Brazil, Thailand, Mexico and other East European nations. The idea behind LCCS is to minimize costs of production and increase efficiencies in service delivery. Nevertheless, another major reasons why companies source is to improve manufacturing capacity, time factor, improved quality of services to customers and logistics benefits (Naveen Kumar, 2007).

It should be noted that not all low cost countries could be destinations for LCCS. Countries that have political stability and sound environment for business are the ones considered ideal for LCCS (Phalguni Soni, 2014). For instance, the Sportswear Companies prefer a country like Vietnam for LCCS. Vietnam is the leading supplier of sports footwear for companies such as NIKE, Puma, Adidas and Reebok. It is the 5th exporter of sport shoes and sandals in the world (Phalguni Soni, 2014). On the contrary, LCCS can be marred with challenges such as inflation in the respective countries, poor infrastructure such as banking systems, transport and communications and sometimes-bureaucratic legal requirements (Min and Kim, 2011).

Sportswear Manufacturing Business has come competitive in the modern world. Due to this, many have delegated their manufacturing processes to overseas companies in the LCC as a way of realizing the benefits of low cost labor, better quality of sportswear and improved creativity. Among the Sportswear Companies, NIKE is the leading with overseas factories that produce its brand of sport shoes. It has over 700 factories in 42 countries in the world, with China having a larger share of the NIKE Manufacturing plants, while Adidas has more than 1200 factories in 65 countries with Vietnam and China leading into the production of its footwear (Katy Barnato, 2013). Some of the major benefits why Sportswear firms adopt the strategy of sourcing from low cost countries include:

The cost of producing footwear in the LCC is relatively lower compared to the cost in the HCCs such as USA, Germany, Canada and Australia. For instance, many factories of NIKE are based in the Far East countries such as China, Vietnam and Thailand. For a long period of time China was regarded as the lowest labor cost country; her huge population was a source of cheap labor to many sportswear firms. However, currently this has changed due to the rising demands of the labor force and the increase in the cost of goods. However, China still accounts for a huge proportion of sport shoes in the world. For instance, in 2012 she exported footwear for different sports company that amounted to about $10.1 billion, this was a two-third of the sport shoes manufactured globally (Phalguni Soni, 2014). As result of the increasing cost of labor in China, many sportswear companies have shifted to other LCC such as Vietnam and Thailand.

Low Cost of Labor

Vietnam sourcing is perceived to be attractive than China. It is the 5^th global sportswear supplier. She has a talented workforce that is relatively cheaper than those offering their labor forces in the NIKE and Adidas factories in the US and Germany respectively (Jin and Farr, 2010).

Sourcing from low cost countries is one way of consolidating a company’s raw materials for manufacturing process. For instance, NIKE sources materials in the overseas factories because it helps in reducing the cost incurred looking for vendors or suppliers when manufacturing in the domestic market (Ruamsook, Russell and Thomchick, 2007).

The motive of any business company is to make profits. Doing LCCS is a necessity to many international companies of capturing a wider market by incurring a minimal cost of production. For example, NIKE has over 140000 retail outlets worldwide, and its footwear make up 88% of its sports products. Many of this footwear are manufactured outside the US by independent manufacturing firms that have multiple factories (Theo E. Notteboom, 2010). NIKE sport shoes cover major Far East markets, for example, China has market coverage of NIKE shoes at 43%, Vietnam at 28% and Indonesia at 25% (International Journal on Sportswear Research and Logistics, 2014). Wide market of control makes it easy for the company to employ a huge number of workers that would manage the branches in other countries. The profit leve is also increased.

With the overseas factories working around the clock in various parts of the globe, a company is always assured of constant supply of its products to the customers to meet the ever-increasing demand. The LCCS strategy of delivering goods to the customers within a short period. It ensures there are no shortages of their products in the market. Many sports bodies or individual people consume sport shoes frequently. Companies like NIKE and Adidas have manufacturing branches in many low cost countries because they offer cheaper cost of production that eventually increases the economic growth of these firms.

As much as the strategy of sport shoes manufacturers sourcing from low cost countries has insurmountable benefits, it cannot be understood that the challenges experienced in overseas sourcing are also remarkable. Some of these challenges include:

Inflation is one of the major factors that Sportswear Manufacturers need to consider when entering into contracts with overseas low cost countries. For instance, in 2012 Vietnam that is one of the LCC for sport shoes companies saw a dwindling economy when a large number of her enterprises went bankrupt and the inflation rate rose. This was because of the bad debts in the banks, which stood at 15%, and the forecast growth was at 5.2% (Pricewaterscooper Report, 2013). This affected the production capacity of many sportswear factories that were operating at a very high cost of production. That year the NIKE shoes registered low sales in Vietnam. The fall was estimated at 1.3% of total sales (Phalguni Soni, 2014). This was majorly due to the inflation rate that lowered the purchasing power of its consumers. Inflation is rampant in many developing countries and to catch up with the rates of developed countries has proved to be quite hard.

Material Consolidation

Industrial strikes and boycotts are common experiences in many manufacturing industries. Many of this unrest are always calls of increment in payment. For a long period, China was the source of the cheapest labor, but as at now it is one of the most expensive in the world. Workers staged several industrial boycotts to demand for better pay. This affected many factories not only those of sportswear but all other foreign industries that invested in China.

Moreover, Adidas was a victim of accusation on mistreatment of its workers in the overseas factories. This affected its operation due to the frequent industrial strikes. According to Fair Games Report (2012), Adidas was accused of mistreating its workers especially in Philippines, Sri-lanka and Indonesia. This negatively affected its operations. The term industrial unrests is a common occurrence in developing countries. In many countries, workers involve in industrial action to see to it that their demands are made. But, even with the kind of unrests that have been observed, still very weak agreements have been made among the workers and their government. It is therefore the order of the day in many low-cost countries with no substantial strategies in place to prevent future occurences.

One obvious challenge to sourcing from low cost countries is the relatively poor infrastructure compared to the High Cost Countries (HCC). This has been a ‘thorn in the foot’ for many sports shoe manufacturers in terms of transporting materials for manufacture to the industries. In addition, the economic turmoil and corruption are factors that affect manufacturing industries. The erratic interest rates in these nations are a factor that affects foreign investment especially the sportswear companies (Min and Kim, 2011). Certainly, developed countries have well-versed infrastructure that eases their operations thereby putting them on top of the underdeveloped countries. They have spent a lot on technological advances and this makes their communication, transportation, and banking processes be more efficient compared to developing countries.  

Conclusion

Sourcing from low cost countries for many sportswear manufacturers is not only a strategy of reducing cost of production but also it is a necessity that many international firms have adopted to increase sales. The benefits of sourcing from LCC are massive and cannot be under estimated. It gives a company a competitive advantage by delegating business process to foreign agencies thus realizes the gains of low labor, better quality goods and low cost production (Chao et al., 2015). As much, this strategy of LCCS is marred with some demerits but those are circumstances that can occur even in the HCC. Industrial unrests and inflation are unprecedented scenarios that can affect a business firm in any environment (Maltz, Carter and Maltz, 2011). This paper concludes by stating that the process of sourcing from low cost countries is now a necessity that any multi-national firm should adopt in order to realize economies of scale. The fact that countries have economic ties with each other, it is important that developed countries should have constant sourcing from low-cost countries in order to uplift even the developing countries. Many developing countries are in dire need of expertise and therefore they rely on developed countries to enable them get the required knowledge to compete with the ever dynamic and developing technology.

References

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Min, H. and Kim, I. (2011). Measuring the risk of sourcing from low cost countries: a macro perspective. International Journal of Services and Operations Management, 9(3), p.308.

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Maltz, A., Carter, J. and Maltz, E. (2011). How managers make sourcing decisions about low cost regions: Insights from perceptual mapping. Industrial Marketing Management, 40(5), pp.796-80