Emendata

Describe what Iceberg theory is about It is a theory that contradicts the general idea of global sourcing which is mainly aimed to reduce production costs of a company by employing offshore goods and services especially labor forces.

However, according to the Iceberg theory, global sourcing is not only as much cheap as we think but even includes tremendous hidden or non perceived costs just like a substantive figure of an Iceberg under the waterline, which will eventually lead to cause more production costs.

More specifically, in the UK, domestic sourcing demands high levels of cost because the labor force is not as cheap as in other countries such as India, China or Bangladesh.

So logically the companies in the UK are more likely to globally source to cut off the cost of the labor force in order to make more margins.

However, as we source at distance, there will occur some extra costs that are not perceived and it includes procurement cost, management time,correction costs, lost sales and so on.

Therefore, as a result , the theory says that domestic sourcing is turned out cheaper than global sourcing, since it does not requires such costs mentioned above but only the cost of labor force ,which is an absolute competitive advantage of the domestic sourcing in the UK.