Nowadays, in the developed countries, most business owners are trying to seek various ways to reduce their financial burden as much as possible. For emerging organizations of the world, various expenses related to infrastructure, labour, raw materials, and overheads are the big challenges.
As a result, most of them are now turning towards ordering products from low-cost countries like China. Such practice of sourcing is something most businesses have been doing earlier too for several decades. However, still, many business owners from western countries are hesitant to source their key production activities to China as there are some challenges along with the benefits. In this post, let’s understand global sourcing strategies, benefits, challenges, and how to order products from China in the right way.
In today's scenario, no business can be profitable unless it can find a stable, reliable quality product source at a reasonable price. Therefore, the priority should always remain focused on finding proven sourcing solutions either within the country or go out of the boundary of the country to find the source.
China is proving to be offering reliant sourcing solutions and many companies of the western countries could create a success story by collaborating with them. Although, the product quality was a matter of concern earlier, however, most of these sources have now evolved themselves and improved their products and services.
In the present scenario of the business environment, global sourcing is the key to increase your profitability and achieve success in any kind of business. Fortunately, now there is massive industrialization in China and that has created many new sources to develop different products.
China has become a massive global sourcing destination for sourcing manufacturers, suppliers, and wholesalers of different products. You can buy products from China ranging from electronics, home products, clothing, furniture to household appliances. It is one of the largest Asian countries and the primary trading partner of the US and Europe. Its strength is in producing an array of products at low costs and buyers are spoilt for choosing suppliers. Nevertheless, the country’s economic policy has developed to encourage exports, which is a win-win scenario for every stakeholder involved in trading. China’s human resources are vast and paired with the government’s drive to welcome international importers.
China is proven to be a successful global sourcing destination, western businesses can buy in bulk from China because of the following benefits.
1. Low-cost production
Your aim is growth and expansion, so it becomes essential to partner with foreign manufacturers from developing countries, especially China. A successful organization can outsource its labor-intensive processes to developing nations offering cheap human labor. This allows lower production costs and ultimately the savings can be shared with potential customers. Your company can witness a drastic saving in its labour, production, energy, and raw material expenses by following the right sourcing strategy.
2. Increased production output
Often business organizations may tend to struggle when any customer suddenly demands them to increase their production volumes. Especially for any emerging business having limited financial resources, and such a situation can always be very difficult to handle.
Therefore, the obvious way out will be to seek sourcing solutions from China because their sufficient labour resource and low production costs will enable you to increase outputs quickly. Businesses with insufficient infrastructure find it hard to the manufacturer as expected. If they approach China, then they can use the vast infrastructure in China to produce goods in large volumes at a speedy rate. It increases production capacity but lessens overall cost.
3. Better production control
After heavy investment in manufacturing factor, China has become “factory of the world” for most of consumer products. The whole manufacturing industry has been renovated. The factories are well experienced with production control. Moreover, plenty of new technologies are implemented in production process, so the manufacturing is better monitored, and production schedule is better controlled. The importer's interest is comprehensively endorsed in a controlled manner when they partner with a reliable Chinese supplier, the buyer will have better production, delivery, as well as post-sale control. They are ensured that all follow-up details are accurate.
With the benefits of low production costs, global sourcing accompanies certain challenges. Mitigating these challenges must be included in an efficient global sourcing strategy.
1. Barriers in language and communication
One of the biggest problems that people of western countries may face is the cultural and language barrier. In China, only a handful of people can understand English, so confusion can often break your business deal, there can be delays and misunderstandings.
When you are ordering products from China, there can be many unknown factors that you will encounter. There are lots of differences in their way of doing business. Therefore, unless you have enough experience in doing business with these countries, you may face many surprises that can often disturb your sourcing plan.
2. Time differences
The supplier is on foreign turf and precious time is lost in waiting for their response to queries. Therefore, it is necessary to have a representative or in-country staff being present there, who can communicate quickly with the supplier, whenever needed.
3. Quality expectations
It is not sensible to depend on international suppliers to approve that quality standards are fulfilled. It is essential to have quality inspections before ordered products leave the country it was produced. Suppliers may not clearly know the expectations and standards for compliance.
4. Risk of scam
Often you can become a victim of a certain scam, while sourcing products from countries like China without visiting the country. As an example, the suppliers that you have selected to work with, possibly may not have any factory, but they may portray themselves as very credible manufacturers.
Solutions for tackling global sourcing challenges
The following are a few solutions to tackle the above challenges.
1. Background research
Before you deal with any foreign company, it is important to do background research about the company. You may also take the help of the foreign embassy of that country to collect a few important information about the company.
2. In-person visit
The best option will be to make a direct visit to that country and inspect the production facilities of the company. A personal visit will enable you to know about the country much better than reading the books or internet.
3. Sourcing agent
A reliable sourcing agent can help you in many ways to deal with challenges of sourcing from China. You can save the cost of your visit as these sourcing professionals are quite experienced in handling the quality of products and maintaining better communications.
Investigation & research - Identify operational activities, market needs and assess your competitors. It helps to understand business goals and the target market to position your brand in the global market. A solid procurement plan helps to detect sourcing scope.
Evaluate market & supplier - Create parameters for hiring reliable suppliers. The sourcing agent will help in determining the suppliers’ choosing parameters and prepare a list. Requests for information are sent to the listed suppliers.
Choose a suitable supplier - Based on the response from suppliers, the sourcing expert will prepare a final supplier list as many will not respond to the request for information. The chosen suppliers will offer an estimate or quote. After thorough research and comparison, the suitable supplier is informed about the deadline of product delivery.
Implement sourcing process - The sourcing agency will create a strategy and work schedule. It is a stage where resources, as well as shared supply & logistic arrangements, are made. The sourcing agency even monitors regular performance and sends reports to your company.
Monitor performance - Suppliers' performance is evaluated based on resources and procedures employed. The report helps to understand communication extent with suppliers. In case of collaboration issues, efforts can be taken to reduce it. Performance monitoring helps to maintain an effective global sourcing process.
China is a port for budding new worldwide businesses. Below are some steps on how to order product from China if you desire to assess your entrepreneurial wisdom.
1. Do your homework
Do you wish to buy a product suitable to sell in your market then do extensive research in your niche to identify if the chosen product will penetrate the market? Check the demand and supply aspect or must you consider product variations. Check local suppliers to gain solid knowledge sufficient to deal with the Chinese dealers. Know your product prices locally to gain an idea of profit margins before moving to the next step.
2. Search for suitable product suppliers
If you have offices of Chinese suppliers within your country then pay a visit, check their catalogues, communicate with their home office in China and review their products. Take your time to research before choosing a reliable supplier.
3. Establish relationship with Chinese suppliers
Chinese entrepreneurs are shrewd and follow strong business ethics. Perform a comprehensive product price analysis of different suppliers to gain an idea of the local Chinese market rates before you choose a supplier and finalize a deal. Mutual trust is essential for business growth and long-term relationship with the supplier. International trade is based on trust, which can last for generations.
4. Get familiar with the policies, tariffs, and laws of target markets
The quotations and prices from the Chinese supplier will seem appealing. Consider tariffs on some products imported to your country, which can add up. Government imposes high tariffs to discourage imports of certain goods. The government even earns from these payments and the funds are used in country development projects. Research the tariffs in advance to perform a cost-benefit analysis and gain an idea of possible profit margin. You must consider the bans on some products like Alcohol. It is put rightly banned in several Muslim countries, while the same product will be sold at double the price in Malaysia. International trade reveals situations that appear to be mysteries but are opportunities in disguise.
5. Shipping
Shipping back to your homeland will need a trustworthy and reliable freight quote. There are many fees to pay and some bottlenecks that can increase your expenses. It is wise to hire experienced freight forwarding services with good reviews. The product nature will determine the option like air or sea freight. Your shipments can be tracked with ease and if there are delays you can inquire.
6. Custom clearance
Local custom clearance is the last step you will need to do. Hire a customs broker because the customs officers in several countries are ill-famed for bribery and delay tactics because of declared goods value discrepancies. You will need to pay import duty as required by law. After shipment is cleared, move it out and transport the merchandise to a local warehouse.
These days almost every company in the supply chain happens to be a certain Chinese company. China has tremendously increased its production capacity. A few years back the quality of Chinese products was always questionable, however, with experience a lot of improvements have been noticed recently.
The presence of any sourcing agent can always ensure the quality of products and services and help in developing a better professional relationship with Chinese companies to have long-term business relationships. Sourcing companies offer the gateway to their foreign clients to buy products in China with consistent quality, on-time deliveries, and relatively low production costs. It is hard to find reliable new suppliers, so you will need to do some research to find the right sourcing agency.
By outsourcing your procurement needs to the best sourcing partner, you can enjoy consistent quality and supply at a low cost. Simultaneously, you can avoid unreliable supply, quality problems, cultural differences, language barriers, and currency handling. With their QC inspectors on the ground, your orders are mass-produced as per standards.
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