What is one potential risk of global sourcing?

One potential risk of global sourcing is currency fluctuations. When a company sources materials or products from foreign suppliers, it often has to deal with currencies other than its home currency. Fluctuations in exchange rates can significantly impact the cost of goods. For instance, if a company's domestic currency weakens against the foreign currency used to purchase its supplies, the cost of those supplies can increase when converted back to the domestic currency. This can lead to unexpected expenses and affect the overall profitability of the business.

In contrast, increased local market competition is typically a consequence of globalization and sourcing strategies rather than a direct risk associated with global sourcing. Improved supplier compliance suggests a consistency in quality and adherence to standards, which is generally a positive outcome rather than a risk. Likewise, simplified supply chain processes might not accurately reflect the complexities introduced by managing global suppliers, as logistical and regulatory considerations can become more complicated rather than simpler. Thus, while global sourcing has its advantages, exposure to currency fluctuations presents a significant risk that organizations must evaluate and manage carefully.