Final answer:
The correct option is c. The profits that the company could earn by producing the goods and services in-house now go to the suppliers.
Step-by-step explanation:
The correct option in this case is c. The profits that the company could earn by producing the goods and services in-house now go to the suppliers.
Global procurement, or sourcing products and services from suppliers located in different countries, offers several advantages for firms. These include access to a wider range of suppliers, potential cost savings, and the ability to tap into specialized expertise. However, there are also some disadvantages to global procurement. These include:
- The firm has to invest the money that is associated with making products: When a company procures products from global suppliers, it has to invest funds to pay for the products, transport them, and manage the associated logistics. This can tie up significant capital.
- The firm relies upon suppliers on important dimensions such as quality, delivery, and cost: When a firm procures products globally, it becomes reliant on suppliers to meet its requirements in terms of quality, delivery timelines, and cost. If suppliers do not meet these requirements, it can negatively impact the firm's operations and reputation.
- Buying from suppliers could unintentionally lead suppliers becoming competitors: In some cases, when a firm relies heavily on global suppliers, there is a risk that these suppliers may gain knowledge and expertise about the firm's products and processes. This knowledge can potentially be used by the suppliers to become direct competitors to the firm.
- The firm may need to compete for the attention of suppliers: Global procurement often involves competing with other firms for the attention and resources of suppliers. This can lead to increased pricing pressure and the need to establish strong relationships with suppliers.
Considering these disadvantages, option c stands out as the correct answer. When a firm procures products from global suppliers, the profits that it could have earned by producing the goods and services in-house now go to the suppliers. This means that the firm may not benefit from the full revenue potential of manufacturing the products internally.