The question of whether companies should align their procurement strategies on a global or local level is a key challenge in the modern economy. Global sourcing, i.e. the procurement of raw materials and goods from all over the world, has gained in importance in recent decades. But what are the reasons for this, what are the advantages and disadvantages, and how have the global events of recent years affected this trend?
The decision between global sourcing and local sourcing has not only economic, but also ecological consequences. The carbon footprint of a product is a decisive factor in the debate about the sustainability of procurement strategies. Transport in particular plays a central role in this, as it causes considerable amounts of greenhouse gases.
History and Reasons of Global Sourcing
Global sourcing began to gain traction in the 1980s, when companies worldwide began to outsource their production for cost reasons. Asia in particular, especially China and India, developed into the workbenches of the world. The reasons for this were manifold: lower labour costs, more favourable production conditions and increasing globalisation of trade led companies to take advantage of international procurement to increase their competitiveness.
Another reason for global sourcing was the liberalization of world trade. Global trade has been greatly facilitated by the reduction of tariffs and trade barriers, as well as international agreements such as the WTO (World Trade Organization). Technological advances, especially in the field of logistics and communication, also enabled companies to optimize their supply chains globally.
Data-Source: unctad.org
Benefits of Global Sourcing
Global sourcing offers numerous advantages. With access to a global network of suppliers, companies can benefit from lower production costs. This leads to a reduction in overall costs and allows companies to offer more competitive prices. In addition, global procurement allows companies to access a wider range of resources and thus increase their ability to innovate.
Another advantage is risk diversification. By purchasing from different regions, companies can minimize the risk of supply bottlenecks and price fluctuations in individual markets. This is especially important in times of economic or political instability.
Where there's light, there's shadow: Disadvantages of Global Sourcing
Despite the many advantages, there are also significant disadvantages of global sourcing. A key point is the dependence on international supply chains. This dependence carries the risk of delivery delays and failures, which have often occurred in recent years. The blockade of the Suez Canal, the impact of the COVID-19 pandemic, as well as political tensions, such as the trade war between the US and China or the war in Ukraine, have shown how vulnerable global supply chains can be.
Ecological aspects also play a role. Global procurement is leading to a significant increase in CO₂ emissions, as goods have to be transported over long distances. This contradicts the goals of a sustainable and environmentally friendly economy.
The sustainability of procurement strategies is playing an increasingly central role in times of climate change. While global sourcing offers economic benefits, the environmental impact is often significant. A comparison with local sourcing shows that the carbon footprint of global supply chains increases significantly, which raises the question of how sustainable global sourcing really is.
Sustainability in Global Sourcing and the CO₂ Footprint
In global sourcing, raw materials and products are transported over long distances. This leads to significant CO₂ emissions caused by the use of cargo ships, planes and trucks. Maritime transport is responsible for about 80% of global goods traffic and causes around 940 million tons of CO₂ emissions annually. This corresponds to about 2.5% of global greenhouse gas emissions and is comparable to the CO₂ emissions of an industrialized country like Germany.
A container cargo ship with a capacity of about 10,000 TEU (Twenty-Foot Equivalent Unit) emits about 7,500 tons of CO₂ over a distance of 20,000 kilometers. This corresponds to the annual CO₂ emissions of around 1,600 passenger cars. Transport by plane, which is much faster but also more energy-intensive, produces around 500 grams of CO₂ per ton of freight and kilometer. By comparison, a ship causes about 10 to 15 grams of CO₂ per ton of freight and kilometer on the same route.
An example: The transport of a container (about 20 tons) from China to Germany by ship (about 20,000 km) causes around 1.16 tons of CO₂. If the same container were transported by plane, it would be around 10,000 tons of CO₂, which makes global sourcing via air freight an extreme environmental risk.
Comparison: Global Sourcing vs. Local Sourcing
CO₂ emissions differ significantly depending on whether a product is procured locally or globally. A concrete example: If a kilogram of tomatoes is transported from Spain to Germany, this causes about 150 grams of CO₂, while the same tomatoes from local cultivation in Germany only generate about 50 grams of CO₂. The transport distance and the type of means of transport play a decisive role in this. Land transport produces significantly fewer emissions than air freight, while sea transport is the most efficient.
Industrial products manufactured in Asia and shipped to the US or Europe can have a carbon footprint up to 60% higher than comparable products produced locally. Studies have shown that transporting a Chinese-made laptop to Europe alone generates about 4 kg of CO₂, accounting for about 15% of the product's total CO₂ emissions.
Local sourcing can significantly reduce CO₂ emissions. A study by the Institute for Supply Management shows that switching from global to local sourcing can reduce CO₂ emissions by up to 80%, especially for products that require a lot of transportation.
Here's another example: If a company moves its production of electronic components from China to a nearby European country, the CO₂ emissions for transport are reduced from 5,000 kg to just 1,000 kg of CO₂ per container. This is an 80% reduction achieved by the shorter transport routes.
Impact of transport emissions on the environment
Increased CO₂ emissions from global supply chains are a major contributor to climate change. In addition to CO₂ emissions, cargo ships also emit sulfur oxides (SOx) and nitrogen oxides (NOx), which contribute to ocean acidification and air pollution. These pollutants not only have a negative impact on the environment, but also on the health of people in coastal regions.
Local sourcing, on the other hand, leads to a significant reduction in CO₂ emissions. Shorter transport routes and a reduced dependence on energy-intensive means of transport can reduce CO₂ emissions by up to 80%. For example, the production and local distribution of textiles in Germany cause only about 20% of emissions compared to the same production and supply chain, which starts in Asia and extends to Europe.
Transport accounts for a significant part of a product's total carbon footprint. Research by the Carbon Trust found that in some cases, transport can account for up to 50% of a product's total CO₂ emissions, especially for products with a low weight and high volume.
An example of this is the fashion industry: a simple cotton T-shirt produced in Asia can emit up to 10 kg of CO₂ per piece, taking into account the entire transport route to sale in Europe or the USA. The majority of this is accounted for by transport.
Influence of Corona and geopolitical tensions
The COVID-19 pandemic and geopolitical tensions such as the trade war between the US and China or the war in Ukraine have massively disrupted global supply chains. This has led many companies to rethink their sourcing strategies and rely more on local or regional suppliers. Local supply chains are not only more resilient to such disruptions, but also more sustainable.
According to a 2020 study by McKinsey, 40% of the companies surveyed plan to make their procurement more local in the future to minimize risks and reduce CO₂ emissions. In Europe, about 60% of companies say they want to diversify their supply chains to be less dependent on global disruptions and operate more sustainably.
Cost-benefit analysis with regard to sustainability
From an economic point of view, global sourcing is often cheaper, as production costs are significantly lower in low-wage countries. But these savings are increasingly offset by the rising cost of transportation and environmental compliance. The EU plans to introduce a CO₂ border adjustment from 2026, which will impose an additional levy on imports from countries without strict climate protection measures. This could significantly increase the cost of globally sourced products.
While local sourcing can incur higher production costs, it provides better control over the supply chain and significantly reduces the carbon footprint. For companies that value sustainability, local sourcing is therefore often the preferred option, even if it comes at a higher cost.
Local sourcing not only reduces CO₂ emissions, but also promotes more sustainable production methods. Local producers are often more committed to eco-friendly practices as they are more strictly regulated and proximity to consumer markets increases social and environmental responsibility.
Development of the trend in recent years
The last few years have brought a turning point in the field of global sourcing. The COVID-19 pandemic has exposed the vulnerability of global supply chains. Many companies have been forced to rethink their production strategies and consider local alternatives. The shutdown of the Suez Canal in 2021, caused by the accident of a cargo ship, and the resulting disruptions in world trade have also shown how susceptible to disruption globally networked supply chains are.
In addition, political developments such as Brexit, the trade war between the USA and China and sanctions against Russia have led companies to increasingly rely on local or regional suppliers. The introduction of tariffs and the shortage of certain raw materials have also reinforced the trend towards so-called "reshoring" – the relocation of production to domestic climes.
Influence of external factors: Rising transport costs and customs duties
In recent years, rising transportation costs and the introduction of new tariffs have made global trade even more expensive. The World Container Index shows that the cost of sea transport from Asia to Europe more than quadrupled in 2020 and 2021. This has led companies to think more about the possibility of shortening their supply chains in order to save costs while reducing their carbon footprint.
Impact on the global economy and regional impact
Global sourcing has a significant impact on the global economy and the respective regions. Countries such as China and India have benefited enormously from the outsourcing of production and have become major economic powers. Manufacturing in these countries has led to strong economic growth and created millions of jobs. However, this is often at the expense of working conditions and the environment.
In Europe and the US, on the other hand, global sourcing has led to a decline in industrial production and the loss of jobs in certain industries. This has led to an intensified discussion about the need for reindustrialization and the protection of domestic jobs. In Russia, on the other hand, which is heavily dependent on commodity exports, global trade has made an important contribution to economic stability. However, sanctions and political tensions have made access to important international markets more difficult.
Cost comparison and impact on the labour market
The costs of global sourcing are usually lower than those of local sourcing because production costs are lower in low-wage countries. However, the additional transport costs and potential tariffs must be taken into account. While local sourcing can be more expensive, it offers benefits such as shorter delivery times, better supply chain control, and less reliance on external factors.
The impact on the labour market is considerable. Global sourcing has led to job losses in many industrialized nations, while new jobs have been created in the production countries. Local sourcing, on the other hand, can help secure and create jobs in the affected regions, but it can be associated with higher costs.
Result
Global sourcing and local sourcing each have their advantages and disadvantages. Global sourcing offers cost benefits and access to a wide range of resources, but is vulnerable to external interference and has a negative impact on the environment. Local sourcing offers more stability and sustainability, but it is more expensive and can limit competitiveness.
In view of the growing uncertainties in global trade and the increasing importance of sustainability and resilience in the supply chain, a hybrid strategy is recommended. Companies should diversify their sourcing strategies and consider both global and local suppliers to be flexible in responding to change. Ultimately, choosing the right strategy depends on each company's unique needs and priorities. Global sourcing offers economic benefits, but it leads to a significant increase in CO₂ emissions and is vulnerable to external disruptions. Local procurement strategies, on the other hand, help reduce CO₂ emissions, are more resilient to global crises, and support the domestic economy. In view of the global climate crisis and the increasing importance of sustainability, companies should rethink their procurement strategies
Local sourcing can significantly reduce CO₂ emissions and helps to support local economic cycles. Companies should therefore increasingly consider hybrid models, integrating both local and global suppliers, in order to reap the benefits of both strategies while minimizing their environmental footprint. Ultimately, it is not only a question of costs, but also of responsibility towards future generations.
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