Wolverine Case Study

Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service.

Wolverine at the initial stage most of its footwear's are produced in company-owned factories in United States. However, over time Wolverine shifted the focus of its in-house activities from manufacturing to designing, marketing and distributing its footwear brands. Today, Wolverine outsources more than 90 percent of its products to independent suppliers. And most of them are in China. The reason why Wolverine outsource most of its products is to lower the intermediate cost as much as they can.

However, global sourcing exposes Wolverine to various risks, such as possible shortages of qualified workers and production capacity, and over reliance  on independent suppliers. Wolverine frequently experience inventory shortage in key markets, which results in losing loyalty.

In order to increase the efficiency and save the manufacturing cost, Wolverine can outsources its primary activities to other supplies. However, designing, marketing and developing its footwear's as such support activities should be internalised. Internalization theory focuses on imperfections in intermediate product markets. Two main kinds of intermediate product are distinguished: knowledge flows linking research and development (R&D) to production, and flows of components and raw materials from an upstream production facility to a downstream one. Most applications of the theory focus on knowledge flow. According to theory, proprietary knowledge is easier to appropriate when intellectual property rights such as patents and trademarks are weak. Even with strong protections firms protect their knowledge through secrecy.

 So instead of licensing their knowledge to independent local producers or ask outsources these activities to other firms, Wolverine needs to exploit it themselves in their own production facilities. In effect, they internalise the market in knowledge within the firm.