CHAPTER ONE
INTRODUCTION
1.0    INTRODUCTION
    An increased number of manufacturing companies that are purchasing labour-intensive items turn their attention towards reducing their costs by sourcing from various geographical places. The price of goods and services purchased from the emerging or low cost countries represents an excellent reason for considering international purchasing as an efficient solution. A low price for materials purchased from a foreign supplier can be counterbalance by company’s loose in quality standards or even financial instability. On the other hand, more technologically advanced products, which are sourced from international suppliers, can carry high purchasing costs and excessive tariffs. In these given conditions, besides the actual cost of an acquired item, it is a question regarding the complexity of the purchasing process in the international trade context since factors like availability of suppliers, substitute source of supply, market uncertainty or other major changes in the international environment are able to influence the involvedness in international purchasing activities. As a consequence, it is a matter to examine these problems in order to understand what the key factors for a successful international sourcing process are.
1.1     BACKGROUND OF THE STUDY
During the last decades, purchasing has received special attention in many companies. The multitude of actions, like mergers and acquisitions, outsourcing and off shoring to low-cost countries have been considered by organizations in order to search for new ways of achieving competitive advantage. All these measures have changed the role and objective of purchasing function inside companies and increased its importance in firms’ overall strategy. As a result, the complexity of the purchasing function evolved from an operational function to a strategic source of cost reduction and increased competitiveness.
Traditionally, the supply chain of the firm incorporates a network of functions such as product development, marketing, operations, distribution, finance, customer service, all involved directly or indirectly in fulfilling the customers’ requests (Bozarth & Handfield 2007). But in order to fulfiLkl these requests, firms must create value by tailoring their value propositions to clients’ expectations. The activities developed inside the companies range from the procurement of raw material to the distribution of the final product to the customer and after sales service.
Lysons and Gillingham (2005), define purchasing from the standpoint of its objectives: “to obtain materials of the right quality in the right quantity from the right source, delivered to the right place at the right price”. In order to achieve these objectives, companies must focus on activities associated with purchasing like: selecting qualified suppliers, rating suppliers performance, negotiating contracts, comparing price, quality, lead times, services and terms of sales, evaluating the value received, predicting prices and demand modifications, etc.
As an integrant part of a company’s value creation system, purchasing commands a significant position in the overall organization. De Boer, Labro and Morlacchi (2001), referring to the study of Telgen (1994), who has found out that in industrial companies, purchasing share of the total turnover typically ranges between 50-90%, stated that making decisions about purchasing and operations are the primary determinants of profitability.