What is the strategy of sourcing materials from countries with lower labour and production costs called?

The strategy of sourcing materials from countries with lower labor and production costs is known as Low-cost Country Sourcing (LCCS). This approach is particularly appealing to organizations aiming to reduce costs while maintaining or enhancing competitive advantage. By procuring from countries where labor and production are less expensive, businesses can achieve significant cost savings on materials, which can ultimately contribute to improved profit margins.

LCCS is strategic in nature as it often involves careful consideration of various factors beyond just cost, including quality, supplier reliability, and logistical considerations. Organizations leverage this strategy to optimize their supply chains and find the most economically viable sources for their products.

Other strategies, such as global sourcing, encompass a broader view that may not specifically focus on low-cost countries—it includes sourcing from a global market for all possible advantages. Outsourcing, while related, typically refers to the practice of contracting specific tasks or business functions to third parties, rather than simply focusing on material procurement. Supplier diversification promotes a strategy of having multiple suppliers to reduce risk and ensure supply continuity but does not necessarily relate directly to sourcing from lower-cost countries.