Low-Cost Country Sourcing

Stockholm School of Economics

Department of Marketing and Strategy

LOW-COST COUNTRY SOURCING

- An introduction for companies on the verge

of starting their LCC sourcing initiatives -

Author: Shirin Javaheri

Supervisor: Professor Björn Axelsson

Examiner: Henrik Agndal

Assigner: ASSA ABLOY AB, Supply Management Group

Thesis Presentation Date: 2007-09-03

- I -

ABSTRACT

This thesis was originally written on behalf of ASSA ABLOY AB, a company on the verge of

increasing its low-cost country sourcing. The main purpose of this thesis was to investigate which

type of products are most suitable to source in low-cost countries and which type of contractual

business form that is most suitable for sourcing in low-cost countries. The thesis also examines

how the structure of the organization is affected by the company’s low-cost sourcing strategy.

Three propositions were made based on previous research findings within this subject.

In order to test the three propositions, four international companies; IKEA, Ericsson, Electrolux

and Powerwave, have been studied. The results of this thesis are therefore based on several cases

and different types of companies with a lot of experience from low-cost country sourcing. In

order to obtain more general results I have let the interview objects go outside their specific

companies and give their expert view on the area of low-cost country sourcing and comment

more general about what and how companies should source in low-cost countries.

The results show that products with high labor content are best suited to source in low-cost

countries. Heavy and bulky products are not as suitable to source from low-cost countries due to

high transportation costs, especially if the geographical distance is far from the sales market.

However, the results do not confirm the assumption that companies tend to source more noncritical

products in low-cost countries than highly strategic products. The findings in this thesis

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