Assessing consequences of low‐cost sourcing in China

Abstract

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