# Best cost country sourcing
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-09-28
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Navigating the New Norm: Supply Chain Resilience in Global
Meta Description: Learn about the impact of global events on the supply chain, and how evaluating best cost countries can help in ensuring continuity and cost-effectiveness in
URL: https://financedigest.com/best-cost-country-sourcinghtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/map-pin-flat-above-blue-tone-city-scape-and-network-connection-concept-sbi-301984967-1736837744301-compressed.jpg)

_By_ **_Jamie Loder,_** _Director (4C Associates)_

The last year and a half has shown us that change is the only constant in global affairs. This is true of geo-politics, tariffs, trade fluctuations, shifting costs and capacity and of course … the global pandemic. These factors have brought supply chain resilience sharply back into [focus as a priority for businesses placing as much emphasis on continuity of supply as on the cost](https://www.financedigest.com/gms-cruise-to-focus-on-cost-cuts-as-it-ramps-up-robotaxis.html "GM’s Cruise to focus on cost cuts as it ramps up robotaxis") of it.

Organizations that had taken advantage of low cost country sourcing and in particular heavy dependence on China, often purchasing raw materials, products or components from single sources, learned the hard [way about the significant risk this introduces to their business](https://www.financedigest.com/5-simple-ways-in-which-your-business-can-save-water.html "5 simple ways in which your business can save water"). The proximity of supply to the [end user also came sharply into focus with huge disruption to global freight transport and spiralling prices](https://www.financedigest.com/uk-house-prices-end-2022-on-a-weaker-note-after-pandemic-boom.html "UK house prices end 2022 on a weaker note after pandemic boom").

Foxconn, the $178BN Taiwanese company which makes the [iPhone and just about every other tech gadget and which has a workforce of close to 1M in China](https://www.financedigest.com/exclusive-foxconn-woes-could-hit-at-least-30-of-iphone-nov-shipments-from-china-plant-source.html "Exclusive: Foxconn woes could hit at least 30% of iPhone Nov shipments from China plant – source"), says it expects manufacturing to fragment into a China supply chain and several others for the rest of the world. The [cost of a container from China to Northern Europe](https://www.financedigest.com/factbox-strikes-protests-in-europe-over-cost-of-living-and-pay-2.html "Factbox-Strikes, protests in Europe over cost of living and pay") has increased from $2.5K in June 2020 to $11K in June 2021. This has led to fundamental erosion of margins on [imported goods as for the most part these rates cannot be passed](https://www.financedigest.com/6-important-tips-for-passing-the-cfa-exam.html "6 Important Tips for Passing the CFA Exam") on to the consumer. Lack of availability of containers and shipping is driving this [price increase and forcing companies to seriously consider often long established trade](https://www.financedigest.com/belgium-supports-energy-price-caps-suspending-trading-in-eu-power-crunch.html "Belgium supports energy price caps, suspending trading in EU power crunch") relationships.

The assessment that companies [need to make is more challenging and complex than in the past with a lack of predictability in costs representing a major uncertainty but this is just one of a number of factors that need to be considered when assessing best cost countries](https://www.financedigest.com/5-countries-you-need-to-have-an-offshore-account-in.html "5 Countries You Need To Have An Offshore Account In") for sourcing.

**What are Best** [Cost Countries?](https://www.financedigest.com/sdl-helps-lifeplus-engage-with-customers-across-50-countries-and-gain-control-of-translation-costs-and-processes.html "SDL Helps Lifeplus Engage with Customers across 50 Countries and Gain Control of Translation Costs and Processes")

Best cost countries are often erroneously equated with low cost countries, but while the latter may offer the [lower price](https://www.financedigest.com/ks-cuts-2023-profit-outlook-on-slow-recovery-lower-potash-prices.html "K+S cuts 2023 profit outlook on slow recovery, lower potash prices"), underlying factors associated with doing business in and with these countries can collectively produce an unfavourable total cost to the company.

Evaluating [low cost](https://www.financedigest.com/how-analytics-can-keep-your-cost-base-low-plus-deliver-improved-cx.html "How Analytics Can Keep Your Cost Base Low Plus Deliver Improved CX") countries based on labour, materials, logistics, inventory, payment terms, trade considerations and others, helps companies determine the location or locations where their total cost of ownership is optimized – their best cost countries.

There are four [key drivers that companies can use to execute best cost](https://www.financedigest.com/as-the-cost-of-living-bites-tackling-insurance-quote-manipulation-is-key.html "As the cost of living bites, tackling insurance quote manipulation is key") country sourcing:

1.Factor Cost Advantages

This not only describes the [process of optimizing costs for labour](https://www.financedigest.com/can-digital-labour-displace-cfos-in-the-close-process.html "CAN ‘DIGITAL LABOUR’ DISPLACE CFOS IN THE CLOSE PROCESS?"), energy and raw materials but also assessing the controllability or predictability of those costs over time. Subsidies may be a significant factor in the overall assessment of factor [cost advantage and this is certainly the case in the world of fashion retail](https://www.financedigest.com/amazon-other-retailers-revamp-free-shipping-as-costs-soar.html "Amazon, other retailers revamp ‘free’ shipping as costs soar") where GSP+ certification (to import tariff free with the EU) is a significant factor when assessing overall cost of production in countries such as Pakistan or Sri Lanka.

2.Supplier Market Proximity.

This is where options are evaluated based on [market proximity to materials](https://www.financedigest.com/automated-intralogistics-material-handling-solutions-market-estimates-the-market-to-expand-at-14-cagr-through-2031.html "Automated Intralogistics Material Handling Solutions Market Estimates The Market to Expand at 14% CAGR through 2031"), capabilities, technology and capacity. We may also evaluate the propensity for [future innovation based on the ecosystem](https://www.financedigest.com/the-future-of-payments-biometrics-within-the-financial-ecosystem.html "The Future of Payments: Biometrics Within the Financial Ecosystem") of materials and production processes. There are [risk factors associated](https://www.financedigest.com/mcafee-highlights-emerging-cybersecurity-risks-associated-with-blockchain.html "McAfee Highlights Emerging Cybersecurity Risks Associated with Blockchain") with supplier proximity. For example the University of Michigan in a recent study observed that “at first, suppliers are naturally attracted to geographic clusters because there’s demand. But after a while, the proximity enables suppliers to induce demand that’s unrelated to [customer needs](https://www.financedigest.com/why-empathy-needs-to-sit-at-the-heart-of-bbls-and-cbils-customer-service.html "Why empathy needs to sit at the heart of BBLS and CBILS customer service"). It produces no noticeable gain for the customer firms and, in fact, limits the [growth possibilities of a region because it increases](https://www.financedigest.com/bicycle-market-growth-to-surge-owing-to-increasing-adoption-by-end-use-applications.html "Bicycle Market Growth to Surge Owing to Increasing Adoption by End-use Applications") economic and transaction costs”.

3. [Customer & Market](https://www.financedigest.com/the-cervical-total-disc-replacement-market-to-grow-based-on-customized-digitization.html "The Cervical Total Disc Replacement Market to grow based on customized digitization") Proximity.

Here we consider customer [demand and preferences including “made in X” requirements and premiums for understanding and utilizing local talent markets](https://www.financedigest.com/automotive-catalytic-converter-market-trends-growth-future-demand-analysis-and-forecast-by-2028.html "Automotive Catalytic Converter Market Trends, Growth, Future Demand, Analysis and Forecast by 2028"). There are obvious advantages of being close to one’s customers, for example in the case of Tier 2 or Tier 3 suppliers to the aerospace or [automotive industries](https://www.financedigest.com/automotive-fuel-filter-market-opportunity-analysis-and-industry-forecast-up-to-2031.html "Automotive Fuel Filter Market: Opportunity Analysis and Industry Forecast up to 2031") but these can also be disadvantages by increasing dependence on one customer or geography at the expense of all others.

4. [Supply Chain](https://www.financedigest.com/ge-shares-slump-as-supply-chain-inflationary-woes-threaten-profit-outlook.html "GE shares slump as supply chain, inflationary woes threaten profit outlook") Flexibility & Resilience.

By evaluating countries [according to supply chain flexibility and resilience criteria we mitigate the risk of disruption through global](https://www.financedigest.com/september-tropical-cyclones-cost-global-economy-more-than-4bn-according-to-aon-catastrophe-report.html "September tropical cyclones cost global economy more than bn, according to Aon catastrophe report") network diversification and robust contingency planning. This factor has been significantly underemphasised in the past and it is only really with the advent of the global [pandemic that this has been brought back](https://www.financedigest.com/as-who-pandemic-pact-talks-begin-poor-countries-on-back-foot.html "As WHO pandemic pact talks begin, poor countries on back foot") into sharp relief. Creating a comprehensive view of the supply chain through detailed tier-by-tier mapping is a critical step to identifying [hidden relationships](https://www.financedigest.com/the-clues-to-detecting-fraud-are-hidden-in-relationships.html "THE CLUES TO DETECTING FRAUD ARE HIDDEN IN RELATIONSHIPS") that invite vulnerability. Today most large firms have only a murky [view beyond their tier-one and perhaps some large tier-two suppliers](https://www.financedigest.com/a-missed-opportunity-research-reveals-that-while-small-finance-accounting-businesses-view-themselves-as-cost-savvy-most-arent-switching-water-suppliers-or-other-services.html "A missed opportunity: research reveals that while small finance & accounting businesses view themselves as cost-savvy, most aren’t switching water suppliers, or other services").

Whichever approach is taken – and by far the best approach is to utilise all four – the conclusion as to the Best Cost Country may not be the obvious one and the safest rout in many cases is likely to be the [adoption of a range of options to properly address risk](https://www.financedigest.com/adopting-ai-balancing-automation-with-risk-management.html "Adopting AI: balancing automation with risk management") considerations.

If the global pandemic has taught us anything it is that the traditional [lower cost](https://www.financedigest.com/bmw-bets-on-design-and-recycling-not-mining-to-lower-battery-costs.html "BMW bets on design and recycling, not mining, to lower battery costs") alternatives conceal far higher risks than many companies ever anticipated and which have exacted a very high price indeed in terms of disruption, shortage and delay.

**This is a Sponsored Feature.**


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---