Global sourcing occurs when companies go beyond their home borders for sources of goods and services. It might be a shoe company having its product manufactured in Asia, or a telemarketer whose salespeople make their calls from New Delhi, India. Reduced costs of labor and materials represent the obvious benefit for companies who use the practice.
Here’s a five-point strategy for making your first global sourcing foray a successful venture.
Find Low Labor Costs and Good Quality Control
Companies typically enjoy a 10-35% cost savings by sourcing.
In the past, China was considered the go-to country for the lowest pricing and acceptable quality. (Be careful here because the transportation cost alone from China to your factory door can jack up the price considerably on your landed price per unit; make sure the price your supplier offers sans transportation costs beats all other competing supplier bids a hundred times over to ensure you end up with the lowest possible price). But now, companies are turning to such destinations as Korea, India, and Vietnam for alternative low-cost country suppliers, especially since China is slowly raising their pricing.
The key to global sourcing success lies in doing your homework in advance. Know what pricing you need and the quality, product specifications, and timeline that will fit with your overall strategy.
Go Where You Can Take a Plane Ride With Comfort and Ease
Once you enter into a relationship with a supplier thousands of miles away, you will want to visit as often as warranted. These visits are to spot-check the supplier’s facility to ensure they are complying with local laws and regulations, monitor its workforce (no sweatshops!), access the market on the ground to learn about any competitive threats or supplier knock-offs that might be in the works and, lastly, see that your product is being made to your specifications.
Having said all this, you have plenty on your plate, so why pick a market that is hard to get to or expensive to visit often and is not visitor friendly? Think this through. Since you will be traveling to this market often, love it and get comfortable over the long run. This is a strategic decision you are making, not a flash in the pan or tactical move that offers a quick short-term solution!
Have Dealings Where You Can Understand the Language
Let’s say you’ve traveled to Vietnam and were lucky enough to find a good interpreter for your business meetings. He or she does an excellent job handling negotiations, and after hours of working on the deal, your interpreter leaves the room for a short break at a critical moment. Your key Vietnamese contact says: “I want to buy 20,000 of your widgets.” And your response is a blank stare. Why? Because you don’t speak the language and have no idea what he said. Sure, this sounds like a far-fetched example, but it can happen and will happen if you don’t have an employee who watches out for your best interests and speaks the language of the country where you are about to conduct business.
Don’t take chances. Either do business in a country where you understand the language, don’t do business there or hire a person who is proficient in the language that is being spoken. Communication is crucial when dealing with global supply sources. Details matter. That’s what quality is all about.
Go Where You Can Respect and Abide by the Laws
China sound complicated? Then don’t go there. If you are reading too much lately about how China does not offer appropriate intellectual property protection to companies, then take your sourcing business elsewhere. It may or may not be true, but the uncertainty alone will never allow you to feel completely confident about a supplier.
Go to a country where legal protection is available and the laws are clear, easy to comply with and enforced if broken. For example, Vietnam is a member of the World Intellectual Property Organization (WIPO), which offers a legal framework and measures for intellectual property protection.
Make Sure You Can Trust the People You Do Business With
You must become a true insider wherever you decide to do business, and the only way to accomplish that is to get to know the person with whom you wish to have a relationship, no matter how much time it takes.
If you don't trust and respect your supplier contact, there’s no point in continuing the relationship. If it doesn’t work out, you’ll survive. And, who knows, you might even meet someone else with whom you can do your best and most inspired global sourcing business.
Once you’ve found a good global source of supply, ask yourself this: Are we buying from the best supplier in the world, at the best price and best quality, and from the best part of the world? If you can answer unequivocally “yes,” then you are on the right track.