Low-cost country sourcing

Low-cost country sourcing (LCCS) is procurement strategy in which a company sources materials from countries with lower labour and production costs in order to cut operating expenses. LCCS falls under a broad category of procurement efforts called global sourcing. The process of low-cost sourcing consists of two parties. The customer and the supplier countries like US, UK, Canada, Japan, Australia, and West European nations are considered as high-cost countries (HCC) whereas resource rich and regulated wage labor locations like China, India, Indonesia, Bolivia, Brazil, Russia, Mexico, and East European nations are considered low-cost countries (LCC). In low-cost-country sourcing the material (products) flows from LCC to HCC while the technology flows from HCC to LCC. The primary principle behind LCCS is to obtain sourcing efficiencies through identifying and exploiting cost arbitrage between geographies. Aside from price other reasons for engaging in global sourcing can include improved manufacturing capacity/ time frames, quality of goods, improved customer services and logistics benefits. Not necessarily all "low cost countries" are destinations for LCCS. Only those countries with relatively stable political and economic environment, modern infrastructure and acceptably compatible legal system are considered to be ideal for sourcing. Examples and most popular regions are China, Indonesia, Thailand, Vietnam, Malaysia, Ethiopia, India, Ukraine, Romania, Bulgaria, Albania, Mexico, Bolivia, Cambodia, Hungary and Czech Republic. Labour costs have been rising across Asia as Asians now are more willing to pay a premium for the products and services they receive and thus causing production cost to increase. Many countries in Asia have seen a rapid rise in wages since the late 2000s. One factor contributing to the wage rises is due to the shift of labour from agricultural work into more productive jobs in industry, labour productivity has increased quickly thus leading to wage growth.