Answer to Question 1
FALSE
Answer to Question 2
In addition to potential benefits, global sourcing also brings unexpected complications:
1. Lower-than-expected cost savings. International transactions are often more complex and costly than expected. Conflicts and misunderstandings may arise from differences in the national and organizational cultures between the focal firm and foreign supplier. Initial or ongoing costs can be substantial.
2. Environmental factors. Environmental challenges include currency fluctuations, tariffs and other trade barriers, high energy and transportation costs, adverse macroeconomic events, labor strikes, and natural disasters. Firms that source from countries whose currencies are strengthening experience higher costs. Many countries suffer from poor public infrastructure, as exemplified by power outages and poor road and rail networks.
3. Weak legal environment. Many popular locations for global sourcing (for example, China, India, and Russia) have weak intellectual property laws and poor enforcement, which can erode key strategic assets. Inadequate legal systems, red tape, convoluted tax systems, and complex business regulations complicate local operations in many countries.
4. Inadequate or low-skilled workers. Some foreign suppliers may be staffed by employees who lack appropriate knowledge about the tasks with which they are charged. Other suppliers suffer rapid turnover of skilled employees.
5. Overreliance on suppliers. Unreliable suppliers may put earlier work aside when they gain a more important client. Suppliers occasionally encounter financial difficulties or are acquired by other firms with different priorities and procedures.
6. Risk of creating competitors. As the focal firm shares its intellectual property and business-process knowledge with foreign suppliers, it also runs the risk of creating future rivals.
7. Erosion of morale and commitment among home-country employees. Global sourcing can leave employees caught in the middle between their employer and their employer's clients.
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