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Risks of Sourcing in China
Sourcing is a fast-growing phenomenon in the world, due to developments in communications and transportation technologies, enabling companies from all over the world to work together. In this scenario, China is the leading destination for sourcing activities, mainly because of its low cost labor, high-technology manufacturing capacities, installed logistic infra-structure and government incentives. However, companies that source from China face many risks. Past studies about sourcing in China focus mainly on listing its risks and unfavorable outcomes, debating best strategies to minimize risk or successful outsourcing methods, and mostly rely on case studies. This research focused on measuring the frequency of sourcing risks by the use of an online survey, and its importance to the foreign sourcing companies in China, and how they mitigate its impacts, providing a more complete analysis of the risks – which are not addressed in past studies. The results show that the most frequent risks are related to the Chinese partners’ internal capabilities: quality issues, delays on agreed delivery and receding quality; and cultural differences. The most impactful risks were also related to the internal capacities of the Chinese partners. Therefore it can be argued that the most important management tool for companies to reduce sourcing risk is to pre-evaluate thoroughly all its potential partners and enhance its selection method. The study contributed to the literature as one of the few researches that are survey-based and indicated practical applications for real industries. The survey was limited by the low sample of respondents, which affects the generalization of the findings.
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