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What is the primary focus of outsourcing?
Which term describes offshoring to a nearby country?
What is reshoring?
Which factor suggests a preference for offshoring rather than reshoring?
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Which of the following is likely NOT a reason for reshoring?
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What is the best explanation for friendshoring?
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When would a company likely choose to nearshore?
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Which scenario best represents offshoring?
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What is a significant barrier that affects worldwide sourcing?
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Which factor is associated with resistance to change in sourcing practices?
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What issue is often encountered due to a lack of knowledge in global sourcing?
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What is one factor that contributes to customs challenges in worldwide sourcing?
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What type of nationalism can affect sourcing decisions?
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Which of the following is NOT typically a barrier in global sourcing?
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Which of the following best represents the challenge of documentation issues in sourcing?
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What is one consequence of shifting from long-standing suppliers?
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What overarching theme is prevalent across barriers to worldwide sourcing?
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Which type of sourcing challenges are influenced by cultural differences?
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What is a primary advantage of a Foreign Trade Zone (FTZ) regarding duties on re-exported goods?
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How does duty deferral help importers in a Foreign Trade Zone?
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What characterizes an inverted tariff in the context of FTZs?
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What does Level IV of global sourcing philosophy focus on?
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Which of the following best describes Level III in global sourcing?
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What is a key characteristic of switch trading?
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What does counter purchase require from the selling firm?
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What is a potential downside of counter purchase agreements?
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Which option best describes offset agreements?
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How does switch trading specifically function?
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What typically happens in a counter purchase?
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Which statement is true about switch trading?
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What is a common challenge associated with counter purchase agreements?
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Offset agreements often include requirements for exporters to do which of the following?
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Which type of countertrade involves a sequence where goods flow through three distinct parties?
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What characterizes a direct offset in trade agreements?
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Which of the following best describes an indirect offset?
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In buy-back compensation trading, what does the builder agree to receive?
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What is the primary purpose of a Foreign Trade Zone (FTZ) in Canada?
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What administrative bodies oversee Canada's Foreign Trade Zone program?
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How can a company benefit from using FTZs in Canada?
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Which statement about buy-back agreements is true?
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What type of goods can enter a Foreign Trade Zone (FTZ)?
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Which feature distinguishes a general-purpose zone from a subzone within an FTZ?
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What is one of the primary functions of direct offset agreements in international trade?
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What is the main characteristic of a forward exchange contract?
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Which of the following best defines 'culture' in the context of human interaction?
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Which barrier complicates negotiations in offshore business practices?
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What is a crucial step before gathering information about potential suppliers?
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How do offshore business practices generally influence supply chain management?
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Which of the following resources is useful for identifying potential global suppliers?
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What role does language play in international business transactions?
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Which factor is not typically addressed when evaluating worldwide sourcing directories?
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What percentage increase in exports was recorded for transition economies?
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In which region did imports increase faster than exports?
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What factor is most closely associated with accelerating globalization?
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What was the percentage increase in imports for African exports?
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What was the comparative growth rate of exports and imports in developed economies?
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Which issue is NOT highlighted in the context of globalization impact?
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What is the impact of globalization observed in developing economies of Africa and America primarily focused on?
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What does the globalization trend signify in terms of trade imbalance?
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Which area saw a significant increase in exports according to the data provided?
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Which statement best describes the relationship between technology and globalization?
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What advantage does an inverted tariff provide in a Foreign Trade Zone (FTZ)?
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Which level of global sourcing philosophy involves no foreign purchases?
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What is a benefit of streamlined customs procedures in a Foreign Trade Zone?
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Which factor contributes to a lack of knowledge and skills in global sourcing?
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What characteristic defines Level V of global sourcing?
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What is a significant source of resistance to change in sourcing practices?
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Which outcome results from duty deferral in a Foreign Trade Zone?
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Which barrier can specifically complicate documentation in global sourcing?
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What challenge does cultural difference present in global sourcing?
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What aspect of customs regulations represents a challenge in worldwide sourcing?
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Which of the following would likely NOT be a barrier to worldwide sourcing?
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How can domestic market nationalism impact sourcing decisions?
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Which of the following is a barrier related to customs challenges in sourcing?
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What condition can hinder effective identification of potential sources of supply?
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Which issue is associated with ignorance in global sourcing practices?
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How does a direct offset agreement primarily function in international trade?
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Which of the following best describes the concept of buy-back in compensation trading?
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What advantage does a Foreign Trade Zone (FTZ) offer to companies importing goods?
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Which situation distinguishes indirect offset agreements from direct offset agreements?
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What is the role of the Canada Revenue Agency (CRA) in relation to Foreign Trade Zones (FTZ)?
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In the context of FTZ operations, what differentiates a general-purpose zone from a subzone?
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What is the fundamental nature of compensation in a buy-back agreement?
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What is one of the primary benefits associated with utilizing Foreign Trade Zones (FTZs)?
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Which of the following statements accurately reflects the obligations involved in direct offset agreements?
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What triggers the obligation to engage in indirect offsets for exporters?
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Study Notes
Outsourcing
- Contracting with independent suppliers outside the organization to provide products or services that were performed inside the organization.
- Common sourcing strategies include offshoring, reshoring, nearshoring and friendshoring.
Offshoring
- Contracting with independent suppliers located outside geographic boundaries.
Reshoring
- The practice of bringing back functions previously outsourced overseas (offshored).
Nearshoring
- Offshoring to a nearby country, for example, US offshoring to Mexico.
Friendshoring
- Offshoring or outsourcing that prioritizes countries with which a company's home nation shares positive diplomatic, economic, or trade relations.
Sourcing Location Criteria
- High shipping costs relative to value, high product variety, forecast instability, safety concerns, and premium price items all support reshoring or nearshoring strategies.
- Low shipping costs relative to value, standard product, stable forecast, labor-intensive products, and price competition all support offshoring strategies.
Reasons for Emergence in Reshoring
- Reduction in the wage gap between developed and developing economies.
Barriers to Worldwide Sourcing
- Lack of skills, resistance to change, currency fluctuations, customs, language, and cultural differences all pose barriers to worldwide sourcing.
Lack of Knowledge and Skills
- Ignorance of the mechanism of global sourcing, identifying potential sources of supply, and documentation issues all present challenges.
Resistance to Change
- Established sourcing patterns, shifting from longstanding suppliers, and domestic market nationalism can all create resistance to change.
Types of Countertrade
- Countertrade involves using goods or services rather than currency in international trade.
- Types of countertrade include barter, counterpurchase, offset, switch trading, and buyback.
Switch Trading
- Involves a minimum of three parties. One party sells its obligation to another party to a third party.
Counter Purchase
- The selling firm agrees to purchase a specified amount of goods from the country that purchased its products. This typically involves products unrelated to the company’s primary business.
Offset
- The exporter agrees to the importer's terms such as marketing their products, final assembly of exported items, and buying other goods and services from the importer's country. Direct offsets are related to the product or service involved in the trade, while indirect offsets are not.
Buy-Back (Compensation Trading)
- One party provides inputs like technology and equipment to another party and receives a certain amount of finished goods made using those facilities as compensation.
Foreign Trade Zones (FTZ)
- A designated area where the purchase or import of raw materials, components, or finished products is eligible for exemption from tariffs and taxes.
- The FTZ program in Canada is administered by the Canada Revenue Agency (CRA) and the Canada Border Services Agency (CBSA).
- Allows importing companies to delay, eliminate, or decrease duty payments on foreign-produced goods.
Advantages of FTZs
- Duty exemption - No duties or quota charges on re-exported goods.
- Duty deferral - Allows for improved cash flow by postponing duty payments.
- Inverted tariff - Lower duty rate on goods produced in an FTZ compared to imported components.
- Streamlined customs procedures.
- Reduced state/local inventory taxes and fees, special grants, tax reliefs, and reduced costs.
Moving to a Global Sourcing Philosophy
- Level I - No foreign purchases.
- Level II - Foreign purchases as needed.
- Level III - Foreign purchases as part of strategic sourcing.
- Level IV - Integration and coordination of global sourcing strategies across worldwide business units.
- Level V - Integration and coordination of global sourcing strategies with other functional groups.
Global Supply Management
- Globalization has led to a significant increase in global trade, particularly in transition economies and developing economies.
- Technological advancements have accelerated globalization, creating opportunities for cost savings and new markets.
- Issues such as trade balances and currency fluctuations need to be addressed within a globalized supply chain landscape.
Barriers to Worldwide Sourcing
- Cultural differences can hinder effective communication and negotiations, especially in the areas of language, customs, and values.
- Lack of knowledge and skills related to global sourcing practices, potential suppliers, and documentation requirements can be a major hurdle.
- Resistance to change can arise from established sourcing patterns, reluctance to switch suppliers, and nationalistic sentiments within domestic markets.
Types of International Purchasing Agreements
- Forward exchange contract is a type of risk insurance that protects both parties involved by allowing them to agree on a future exchange rate for currency, seeking risk aversion rather than monetary gain.
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Offset agreements either directly or indirectly compensate the importing country for the purchase of goods or services.
- Direct offsets involve coproduction or subcontracts related to the product or service being traded.
- Indirect offsets entail purchasing goods or services not related to the main product but still sourced from the importing country.
- Buy-back agreements (Compensation Trading) involve one party providing inputs like technology and equipment in exchange for finished goods produced using those facilities. This can involve building a plant in a developing country or providing support to a plant in exchange for receiving its output.
Foreign Trade Zones (FTZ)
- A Foreign Trade Zone (FTZ) is a designated area where goods can be imported or purchased without incurring tariffs or taxes until they are withdrawn for domestic use.
- FTZs are administered by relevant authorities in each country, such as Canada Revenue Agency (CRA) and Canada Border Services Agency (CBSA) in Canada.
- Use of FTZs: Companies can delay, eliminate, or reduce duty payments on imported goods, improve cash flow, and benefit from inverted tariffs (lower duty rates on finished goods compared to imported components).
Advantages of FTZs
- Duty exemption: Goods re-exported from the FTZ are exempt from duties and quota charges.
- Duty deferral: Improves cash flow by postponing duty payments until goods are withdrawn from the FTZ.
- Inverted tariff: Offers lower duty rates on goods manufactured in the FTZ compared to individual imported components.
- Streamlined customs procedures: Weekly reporting and ease of trade facilitate efficient customs processes.
- Reduced state and local taxes and fees: Special grants, tax reliefs, and reduced costs can enhance cost effectiveness.
Moving to a Global Sourcing Philosophy
- Level I - Domestic Purchasing Only: No foreign purchases are made.
- Level II - International Purchasing as Needed: Foreign purchases are made reactively and without coordination.
- Level III - International Purchasing as part of Strategic Sourcing: Foreign purchases are strategically planned and integrated into overall sourcing strategies.
- Level IV - Global Sourcing Integration and Coordination: Global sourcing strategies are integrated and coordinated across worldwide business units.
- Level V - Global Sourcing Integration and Coordination with other Functions: Global sourcing strategies are fully integrated with other functional groups within the organization.
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Description
This quiz covers various sourcing strategies including offshoring, reshoring, nearshoring, and friendshoring. Learn about when to choose each strategy based on criteria such as shipping costs and product variety. Test your knowledge on how these strategies can influence organizational decision-making.