Domestic sourcing is the activity of contracting for goods or services that are delivered or manufactured within the buyer’s home country borders. This debate is becoming particularly acute with the unemployment rate rising.
Advantages of Domestic Sourcing
Domestic sources are usually closer to the hotel than ‘imported sources’. Sources like raw materials, services or products can be delivered in shorter periods of time compared to foreign sources. After sales, exchange or refunds of faulty products will benefit as well; as it is always easier to communicate with local business rather than international cooperations. Further, there is also quicker reaction to emergency situations or faster decision making to uncertainties in the market.
Shorter time for transportation could ensure that products such as food and drinks stay fresh. It is statistically proven that domestic sourcing increases consumer confidence; according to a report by IGD, 57% of consumer who consider buying local food because it is fresher. It may also influence a consumer’s decision when it comes to multiple options; with a domestic sourcing strategy, selling local products can help to gain support from consumers who are concerned about the origin of the product that they are buying for political, ethical, or environmental reasons. It is also persuasive to tell consumers that local products are quality assured; buying with confidence is a very important aspect for retailers to gain trust from consumers, subsequently increasing brand awareness and loyalty.
Business or retailers who have strong relationships with local suppliers do not have to go through a long supply chain which will help to reduce the cost of sales, resulting in attracting more consumers with a lower selling price. Less transportation between the supplier and retailer may also reduce the selling price as transportation costs are cut.
Increases in domestic sourcing rather than international sourcing will increase the job opportunities for locals. If all local business supports domestic sourcing, and the demand for domestic sourcing will increase, more job opportunities is then created to meet the new demands.
Benefits to the local economy
According to IGD report, over 54% of consumers buy local food as they feel obliged to support local producers and farmers in 2006. An increase in domestic sourcing for the labour force would benefit the economy of the state or country by increasing the circular flow of income; it is estimated that every £10 spent on local product is worth a £25 increase in the circular flow of income of the local economy. When there is an increase in demand for domestic sourcing, local suppliers have to hire more people to meet the boost in the demand, these new workforces will spend more money in the local economy which will thereafter produce a positive multiplier effect. Further, local business tend to give more wages than most corporate chains, which means that employees will receive more disposable income.
Protecting local culture
There are many local business selling unique products or services such as handcrafting or tailored products that nowhere else can offer; supporting domestic sourcing could prevent large corporate chains taking over the high street, preventing small business from being eliminated. Domestic sourcing also encourages more entrepreneurs to start small businesses in local markets.
Time Zone advantage
Firms that support domestic sourcing or manufacturing could enjoy the benefit of having the same time zone with the supplier, which means quicker respond from supplier for any enquiry or questions, sometimes a couple of minutes of delay in solving problems could cost millions for the business, it is always good to be easy to communicate supply.
Disadvantage of Domestic sourcing
Trade war / Price war
Domestic sourcing campaign may trigger trade war globally. When one country starts to encourage their citizens to buy domestic goods, there are usually resistances from other countries. As result of that, poorer countries with significant disadvantage may be forced to add levy against a certain country. The most recent example of trade war happened in 2013 when EU claimed that China is selling solar panels below the average cost which resulted in lesser demand for solar panels made in Europe, which then led to trade war between China and EU.
Certain domestic goods can be very expensive compared to other countries, so business that attempt to sell locally can find sales hurting if demand for such products are low.
Export firms who chose to use more expensive domestic resources may lose their competitiveness in the global market due to higher cost of production, oversea demand will shrink eventually and with a consequence of a negative balance of trade and affect national GDP (Consumption + Investment + Government spending + (Export – Import))