Product procurement is a game-changer for companies. In a highly competitive business environment, minimizing procurement costs is a deciding factor in profitability. Operating at thin margins, companies are looking for the best procurement destinations. Asian countries are emerging as the best sourcing destination for corporations in the U.S and Europe. Meanwhile, there are many risks associated with overseas sourcing. Partnering with an Asia sourcing company can help you overcome these challenges. In this blog, let us explore the risks associated with overseas sourcing and the services of a sourcing partner.
Global sourcing is an attractive option for companies to expand their business. With an increase in competition, this becomes a viable alternative for cost-effective procurement. The lack of manufacturing capabilities in the domestic market is a major reason for companies to switch to overseas sourcing. However, this involves dealing with a foreign country that is culturally different. As a result, you need to deal with multiple risks of working in unknown territory. Let us understand the major risks related to overseas sourcing.
Overseas sourcing is all about dealing with a company outside your domestic territory. For most global corporations, Asian countries are the most preferred sourcing destination. The low cost of production and ready availability make sourcing from these countries much cheaper. However, these destinations are geographically distant from the U.S and Europe. This creates a huge barrier for sourcing activity. First, it makes direct due diligence activities at the sourcing destination very difficult.
Before finalizing the sourcing contract, it is always advisable to visit the manufacturing facility at the sourcing destination. The factory visit is a crucial step in ensuring quality standards. But geographical distance can be a limiting factor for your factory visit. It is both time-consuming and costly. The distance becomes a constraint for shipping the final products also. Long-distance transportation can increase your lead time. This makes the logistics very complex with multiple modes of transportation. Considering the multiple advantages of overseas sourcing never let the geographical distance become a hurdle to your ambitions. You can use the services of an Asia sourcing company for dealing with these uncertainties. They will help you with factory visits and due diligence activities.
Effective communication is at the heart of every business deal. Proper communication with your manufacturing partner can fetch you a favorable deal. But this is easier said than done. Especially when dealing with companies in China, the language barrier can limit your options. In China, most people speak Mandarin or Cantonese Chinese language. But when you move to rural manufacturing hubs, people speak multiple dialects of Chinese. The language barrier can become a challenge for different activities such as,
Discussions on product requirements
Discussions on quality control
Entire documentation activity.
With the support of a local sourcing agent, you can overcome these language barriers very easily. So always select the best Asia sourcing company for your overseas procurement. The sourcing company will help you in dealing with all activities at the sourcing destination. With a local presence and bilingual staff, they can negotiate better deals for your company. A sourcing agent also works as an intermediary in discussion regarding product design and requirements. They work on end-to-end documentation in English and local languages.
Local cultural factors influence a company’s working style. This has long-lasting impacts on all their activities across multiple functions. While dealing with an overseas company, you should be well aware of these aspects. In countries like China, people are very sensitive about their culture. As the manufacturing units in Asia mostly depend on manual labor, this can impact your production. From working hours to labor standards, you need to be very vigilant about the ground situations. All these factors are very crucial for cost and lead time. It can also influence the quality standards drastically. Many labor standards applicable in the Europe and U.S may not be applicable in most Asian countries. Make sure that this doesn’t affect your product certification for sales in multiple countries.
When it comes to overseas sourcing, your in-house staff might find these cultural differences a constraint while negotiating a deal. It is advisable to use the services of an Asia sourcing company to carry out these activities. They have local manpower that is familiar with the respective culture. This can help in better negotiations.
Global sourcing helps in expanding your business. Low cost and bulk availability of products can be a real game-changer. But, above all, there should be no compromise on quality. A batch of rejected goods is the last thing you want from an overseas sourcing experience. This can have a huge impact on your planning. The product quality standards in the U.S and Europe are quite stringent. In many Asian countries, the level of quality is not strictly monitored. This can pose a great risk to your final product. If you find the product quality unacceptable only in the final inspection stage, the only option is to reject the entire batch. Such bulk rejection can cost you a lot of money and precious time.
To avoid quality mismatches, you need to involve at every stage of the production process from the beginning. It is very crucial to effectively communicate the quality expectations to the manufacturing partner. All these quality parameters should go into the written contact also. A direct factory visit is the best way to ensure adherence to quality standards. Many a time, a factory visit can be tedious and time-consuming for your firm. An Asia sourcing company with a local presence will help you deal with all these quality-related issues.
In Asia, multiple manufacturing hubs produce a gamut of products. Especially in China, every province has specialized clusters. They also offer products at a much cheaper rate compared to domestic markets in the West. But conducting due diligence is very necessary before finalizing a suitable manufacturing partner. Verifying the credentials of an overseas company poses multiple challenges. Much of the information about a company may not be available online. Additionally, quality rating standards for companies vary from country to country.
The two possible avenues of verifying a company are through feedbacks on online forums and direct factory visits. But these options also fall short on multiple parameters. In the age of paid reviews, online forums are not trustworthy. On the other hand, physical verification through factory visits is not a cost-effective solution. The support of an Asia sourcing company comes in very handy during this situation. A sourcing corporation in Asia can verify the credentials of numerous companies at a time. From this, you can select the best sourcing partner for your product.
The most challenging aspect in global sourcing is the expenses in transportation. Being an international trade, this becomes much more complex. From the initial planning to the final product delivery, there are countless transportation activities. This involves the movement of both materials and manpower. There are transportation costs related to internal and external material movement. Such transportation involves various modes including roadway, rail network, container ships, and airlines. This may vary based on location and product.
Apart from the known costs, at every point, there are a lot of hidden costs. If you fail to account for such expenses in advance, it can affect your final product pricing. A lack of proper knowledge about the terrain is a limiting factor while determining these expenses. A person/company with a local presence can help in optimizing these costs. So always select the best companies for sourcing products in Asia. They will provide complete support for minimizing these transportation costs with proper planning.
While sourcing from China, most companies think only about the ready availability of ports for logistics. But this is true for only a selected set of manufacturing hubs. China is a country with huge diversity in resource allocation. The logistic capabilities are also not uniform throughout the country. Roadways, warehouses, and cold storage facilities are not developed in all the provinces. The huge disparity in the distribution of these facilities is a big hurdle for smooth logistics. As a result, you can expect delays and cost escalations.
In the case of perishable goods, storage facility becomes very crucial. The same goes for the handling of fragile materials. For mitigating all these issues, you should select a sourcing partner from the best location. With numerous manufacturing hubs, selecting the right location can be a challenging task. This requires a thorough knowledge of the landscape and its logistics options. The services of an Asia sourcing corporation help in offsetting these issues.
The sourcing activity is complete only when you receive the products at your doorstep without any damage. Due to cost concerns, Shipping is the most efficient mode of transportation. Transit time is the riskiest aspect of global sourcing. There are chances of damage, theft, and loss of products. Similarly, during material handling and packing, there are chances of damage. Even though there are security instruments such as insurance, loss of products is ultimately a loss of business. This can negatively impact your business growth.
If you want to source from an Asian country, make sure to partner with a reputed transportation agent. This helps in securing your material and avoids any damage during transit. These activities require time and expertise. Your in-house team would require local language proficiency for coordinating this. It is always better to engage an Asia sourcing company to carry out these works. They help in finding out a suitable transport partner. Such companies also support documentation activities for insurance registration.
Global trade is guided by internationally approved trade agreements. This includes import-export tariffs, movement of restricted materials, legal provisions, etc. International trade is a strategic decision for each country. For the sourcing country, it is a source of foreign currency.
But this also poses considerable risks. There are chances of illegal trade that can even become a security threat. Due to this, the customs department of each country closely monitors the import-export activity. In addition to this, there are country-specific laws that govern the material movement. This requires multiple documents for facilitating hassle-free trade.
Countries also put restrictions on the import-export of certain products for certain periods. This is in response to the domestic supply and demand. In short, this can create uncertainty in the availability of a particular product. A thorough understanding of the local legislation is very essential while dealing with these situations. In most Asian countries, international trade happens under the strict watch of the respective governments. At this juncture, always select from the best companies for sourcing products in Asia. They act on your behalf to handle all the uncertainties of import-export formalities.
A global sourcing activity goes through a lot of scrutinies. There are checks and balances at every stage of the operation. Numerous documents and licenses make sure that the activity is legally valid. It protects the buyer and seller from any fraud. With the advent of technology, many documents are now available online. However, you need to fill in multiple documents to complete the activity. On average, you require around 11 documents for a risk-free sourcing experience. Some examples of the documents are,
Bill of lading
Certificate of origin
Among these documents, the forms for customs clearance are the most important. Any discrepancy in these documents can cause unnecessary delays. Always hire an Asia sourcing corporation to take care of your sourcing documentation. Expert sourcing companies have dedicated teams for handling documentation. It helps in saving time and avoiding delays.
For most global companies, Asia countries are the favorite sourcing destination. Availability of cheap labor and bulk production capabilities are the two reasons for this. The political and economic situation of a country has a large influence on its manufacturing sector. Even within the country, domestic preferences are a key factor in determining labor rates. This influences the cost of production. Similarly, currency fluctuation is a risk factor while dealing with overseas companies. It has a large impact on your profitability.
Political instability in a country can lead to several issues in the domestic economy. Rise in electricity tariffs, rents and taxes are all huge challenges for production. Conducting background research on the political and economic aspects of that country is helpful. You can work with an Asia sourcing company for this assessment. Their expertise will surely be an asset to your due diligence activity.
Trade is an activity that is built on trust. Trust is the guiding factor that governs every monetary transaction during sourcing. But you need to be very careful while selecting the payment method. It needs to be safe. Verifying the account details and credibility of the money transfer mechanism is crucial for avoiding fraud. In recent times, online money transfer is popular in business transactions. Selecting a secure payment gateway can avoid issues in a transaction. Currency exchange rates are another factor to consider during the payment.
Ensure that the payment terms are written in the contract document. Usually, a milestone-based payment is followed in overseas sourcing. By selecting the best Asia sourcing company, you can ensure that all these details are proper. They can verify documents in the local language also.
Time zone differences can be a limiting factor in overseas sourcing. Asian countries have considerable time differences with the U.S and European time zones. This is a big hurdle for effective communication between your team members and the manufacturing partner. Due to this, frequent online meetings at odd hours for negotiations can become tiring. Having an intermediary in the sourcing destination can solve this issue. An Asia sourcing company can act as your representative in the respective country. This helps in effective discussions and easy closure to the deal. It also avoids time zone conflicts and promotes better communication with the manufacturing partner.
Global sourcing is a complex process with numerous risks. But considering the advantages, you should always move forward with an overseas sourcing strategy. Most of the risks associated with overseas sourcing are due to unfamiliarity with the particular region. Companies in the U.S and Europe find it difficult to deal with Asian countries due to these risks. But the services of an Asia sourcing partner are crucial in navigating through these risks.
Maple Sourcing is an expert sourcing company that provides end-to-end sourcing solutions. It works with high-quality manufacturers in China. The company has more than 9 years of experience in sourcing activities. With a group of dedicated staff in China, they can work on your behalf till the product is delivered. The local presence helps in easy negotiations in the Chinese language. Maple sourcing also provides due diligence activities along with direct factory visits. They also take care of the entire aspect of documentation and customs clearance. So if you are planning to source your products from China, do contact us day.