Low-cost region sourcing is a strategy in which a company sources materials, services, and technology from countries with lower cost structure to high-cost states to cut operating expenses. This activity 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 the USA, UK, Canada, Australia, and West European nations are considered high-cost countries (HCR) like Asia, Brazil, Russia, Mexico, and Eastern European nations are regarded as low-cost countries (LCR). In low-cost country sourcing, the material flows from LCR to HCR while the technology flows from HCR to LCR. The primary principle behind this strategy is to obtain sourcing efficiencies through identifying and exploiting cost arbitrage between geographies.
At APAC, we have divided our area of work into two parts: the Low-Cost Regions [LCR] where our suppliers are located and the High-Cost Regions [HCR] viz where our customers are based.
We urge our customers in high-cost regions not to shut their manufacturing facility but to collaborate with low-cost region suppliers and outsource their non-core activities and continue manufacturing. The high-cost areas have financial strength and superior technological know-how to support R&D activities. We consult them to focus on developing innovation and manufacturing products that are more sustainable in the longer time frame.
Not necessarily all "low-cost countries" are destinations for Low-cost sourcing. Only those countries with a relatively stable political and economic environment, modern infrastructure, and acceptably compatible legal system are considered ideal for supply. Examples and most popular regions are India, China, Indonesia, Thailand, Vietnam, Malaysia, Saudi Arabia, Kuwait, UAE, Oman, Ukraine, Romania, Czech Republic, Mexico, etc.
This entire strategy of low-cost sourcing fosters economic growth and plays a significant role in maintaining a social equilibrium in this world and a better place to live.