International Product Sourcing: A Beginner’s Guide
Because the world is a global village, businesses of all sizes are looking outside their own borders to identify and source high-quality goods at competitive prices. As businesses become more globalized they are using international product sourcing, or the identification, evaluation and purchase of products from foreign manufacturers, as a tool for achieving cost efficiency, risk diversification and greater competitiveness.
In addition to creating new business opportunities, globalization also places additional complexity on the international sourcing process. Therefore, it is important to understand the process of international product sourcing as well as what challenges that international sources may present and the strategies to mitigate associated risks. Knowing how your business can benefit from successful international product sourcing and avoid costly mistakes will be key for future growth.
Understanding International Product Sourcing
Simply put, international product sourcing is obtaining or purchasing goods and raw materials from foreign suppliers. These goods could be finished products, semi-finished products, or components which can later be assembled in a different geographic location. Companies may purchase imported goods from multiple countries in order to take advantage of lower production costs and the ability to access products or services that are not available in the domestic market.
Today’s global supply chains are composed of complex interdependent systems. For example, the components of a single product may be designed in Europe, assembled in Asia, and then sold in North America. By mastering this global supply chain network, companies can gain additional competitive advantages beyond cost through having higher quality, greater flexibility and increased ability to innovate.
Why Businesses Opt for Global Sourcing
There are many reasons for an organization to engage in international procurement:
- Cost Efficiency – The lower cost of production and labor offered by companies in emerging markets is a primary reason for organizations to use international sourcing
- Access to Innovation and Expertise – Certain areas of the world have unique products they specialize in. For example, China is known for its electronics, India for its textiles, and Germany for its precision-engineered products. Organizations can take advantage of this expertise and experience by sourcing their product(s) from these various locations.
- Scalability and Flexibility – International suppliers are typically able to quickly ramp-up production when the demand for their products increases.
- Market Expansion Opportunities – By utilizing international sourcing, organizations can access new markets now or in the future, allowing organizations to establish a global presence.
Steps to Begin International Product Sourcing
- Identify the Product Requirements
You will need to begin developing product requirements to be able to properly screen and identify target suppliers. The best way to create these product requirements is to determine your specifications, desired target price ranges, and desired quality levels of your products prior to reaching out to suppliers.
- Find Potential Suppliers
You can start to research and find potential suppliers for your products using websites such as Alibaba or Global Sources, and industry exhibitions. You can also work with a professional product sourcing company that can assist with the entire product development process from finding the right overseas manufacturers and suppliers to providing a level of assurance for compliance and quality.
- Establish Supplier Credibility
One of the most critical parts of your due diligence is determining the credibility and reliability of the suppliers you are considering. During this process, you will want to review and evaluate the following criteria: Certifications; ability to meet production capacity; financials; and previous customers’ references. You should request samples before placing large orders as this is a common practice within the industry.
- Review Legal and Compliance Requirements
It is important for you to have an understanding of export regulations, taxes, and quality standards within the exporting country and also in the importing country prior to making any agreements with suppliers. This allows you to anticipate possibly additional charges for import duties; ship your products and have all associated documentation readily available.
- Discuss Terms and Contracts
The agreements you reach with your potential suppliers should be specific to the following: Prices; shipment times; quality requirements; and dispute resolution procedures. Using a professional Product Sourcing Agent may be an option for you to use in the negotiation process and to ensure that the contracts you develop with suppliers contain all necessary details.
Key Considerations for New Entrants
Barriers in Business Communication and Culture
When doing business internationally, it is common for there to be language differences, different etiquette in business, and different forms of communication. Therefore, misunderstanding between two parties may cause delays or even disputes. Businesses engaged in international transactions will benefit from having patience, being considerate of other cultures, and providing well-documented communication links.
Maintaining Quality Control and Assurance
To ensure consistent quality of products produced overseas, insist on independent, third-party inspections/audits, when available. By working with companies in the USA with established sourcing networks in other countries, companies can be assured that their suppliers are adhering to rigorous quality control procedures and comply with the safety and labeling regulations of the United States.
Effects of Fluctuating Currencies and Payment Risk
Due to the volatility of currency exchange rates, a company’s ultimate cost of goods may be impacted greatly by the currency rate at which they purchase their goods. Businesses can protect themselves from these risks by using forward exchange contracts, employing payment methods that are less susceptible to fluctuation, and clearly stating payment terms on invoices, such as which currency it should be paid, who is to pay it and when.
Coordination between Logistics and Supply Chain
The timeline for receiving products can be affected by a number of factors, including delays in shipping, difficulties with customs clearance, and other unanticipated global disruptions (such as pandemics or trade disputes). Therefore, having an experienced freight forwarder and a well-developed supply Chain Plan is essential.
Common Challenges and How to Overcome Them
Unpredictable Product Quality
Consistently inspect products and utilize only certified manufacturers.
Surprise Costs
When calculating your actual landed cost, make sure to consider any potential shipping, customs, insurance, or rework expenses.
Legality
Consult with an attorney for compliance to the laws concerning imports and exports, as well as for protection of your intellectual property rights.
Supplier Trustworthiness
Create a long-term relationship with your suppliers and routinely monitor their performance.
Businesses new to international sourcing may wish to work with reputable sourcing firms in the UK or global sourcing agents to alleviate some of the initial challenges associated with international procurement. These companies typically provide a full suite of services, from sourcing suitable suppliers to managing logistics and quality control.
Technological Transformation in Global Sourcing
The digital revolution is changing how companies conduct global commerce. Including artificial intelligence (AI), blockchain technology, and data analytics to boost visibility and accountability within supply chain operations.
For instance, blockchain technology can be used by buyers to trace products back to their source and verify that their source was managed ethically and produced responsibly. Using data analytics can provide manufacturers with insights into their suppliers, including how well they perform and price their products.
Ethical and Sustainable Sourcing
A focus on sustainability is a key component of an organization’s sourcing strategy today. Organizations must take into account the environmental and social aspects of their procurement processes.
By sourcing ethically, organizations can not only lessen their impact on the environment but also increase their brand equity. More companies are seeking to collaborate with suppliers that engage in fair labor practices and that are committed to reducing their carbon footprint and complying with environmental regulations.
The Role of Professional Agents and Intermediaries
The process of finding and sourcing products internationally, especially for someone just starting out, can be quite complex. This is where hiring an experienced Product Sourcing Agent can significantly benefit your business, as this type of agent will provide you with a number of advantages, including:
- A source of expertise on local markets, including cultural customs and language. They can help you find suppliers and assess their reliability.
- Validation of suppliers to ensure they are legitimate businesses.
- Assistance with quality control throughout the entire shipping process.
- Assistance in negotiation for better prices and payment terms.
The agent can act as an extension of the buyer’s procurement department, ensuring that all activities associated with sourcing are handled efficiently and reliably.
Conclusion
Sourcing products internationally is no longer a privilege only for large multinational companies, but rather has become a necessity for small and medium-sized businesses alike. Success in international product sourcing requires a combination of hard work, cultural knowledge, and the ability to plan strategically.
If a company takes time to do their homework, build relationships, and utilize digital technology, global product sourcing can become a competitive advantage for them. For those new to international sourcing, starting small, continuously learning, and partnering with credible, professional partners are all good ways to build the foundation for a successful long-term future in international trade.
