Introducing an Intermediary Supplier to Mitigate the Risks of Low-Cost Country Sourcing

Abstract

As global chains continue to evolve, many small and medium-sized enterprises (SMEs) are adapting the low-cost country sourcing (LCCS) as a competitive strategy. However, this approach comes with its own risks, including quality control challenges, logistical complexities, geopolitical instability, and communication barriers. In order to mitigate these risks, this thesis proposes the introduction of an intermediary supplier model as a strategic solution who acts as a bridge between the original company and the low-cost supplier. By leveraging the intermediary’s local expertise and established relationships, SMEs can ensure greater control over product quality, more reliable communication, and better compliance with regulatory standards.

This thesis uses a combination of open-source interviews and questionnaire surveys as a source of primary data, alongside an extensive review of existing literature review as secondary data, to explore the challenges faced by SMEs involved in low-cost country sourcing. Additionally, it aims to examine the crucial role of intermediary suppliers in the mitigating the associated risks, providing valuable insights into their effectiveness in enhancing supply chain resilience and minimizing potential disruptions.

The key findings of the study highlight that while LCCS offers significant cost-saving opportunities, challenges such as operational issues, regulatory compliances, and supplier relationship management can be effectively addressed by utilizing the local knowledge and established networks of intermediary suppliers. In addition to risk mitigation, intermediaries are value-adding entities who enhance supply chain resilience, foster innovation, and support long-term strategic goals. Consequently, this thesis underscores the importance of incorporating intermediary suppliers as a risk management tool in global sourcing strategies.