Global Sourcing: Challenges and Solutions

2021-05-25

64905195 2 copy.jpgAcross the globe, the business environment is becoming highly competitive. The emergence of e-commerce and internet penetration revolutionized the way we do business. But this intense competition prompts companies to adopt new strategies for survival. In a way, this is pushing them beyond their comfort zones. Innovation is the buzzword for business survival and growth.

Is innovation only limited to developing new products and services? Definitely, No! It encompasses almost every aspect of business practices. In fact, product sourcing and procurement is a key focus area for companies now. Domestic sourcing practices are making way for global sourcing due to multiple reasons. In this blog, we will explore various advantages of global sourcing for business prosperity. 

The Truth about Business Growth

Beyond the glitz and glamour, business growth is a true story of hard work and smart thinking. It depends upon timely decisions followed by quick actions. The creation of value for customers is at the core of any business activity. But achieving this without compromising profitability is a tough balancing game. To reach this goal, quality control, and cost optimization becomes the key steps.

Business entities are increasingly focusing on minimizing various costs associated with their production and operation. Most businesses operate on thin profit margins and are highly dependent on volumes. Beyond their routine operational expenses, product/raw material sourcing is a major cost incurred by companies. Minimizing these costs helps them in increasing profitability. Companies are using analytics, automation and global sourcing, etc. for minimizing procurement costs. But this is not an easy task. Moving forward, every company should have a solid sourcing strategy in place to achieve this cost advantage.

Trends in Sourcing and Procurement

Companies are adapting to a new operational model that is truly global. It is a true mix of global, local and hyper-local activities. With the advent of the internet, you can operate a business from anywhere in the world. A company with headquarters in California (US), a manufacturing facility in Shenzhen (China), and the end customers in New Delhi (India) is no more a dream now. It is a reality!

Globalization makes sure that there is always seamless movement of goods and services between counties with minimal government interference. The major trends in sourcing and procurement are: 

  • Global sourcing: Nowadays, companies are looking beyond their domestic markets for product procurement. This is mainly due to cost considerations. The improved logistics are making it easy for sourcing from other countries. Apart from this, there are multiple advantages of global sourcing that make it a preferred option.

  • Sourcing partners: The popularity of global sourcing is responsible for the growth of professional agencies in souring activities. Companies are partnering with sourcing agents for maximizing the advantages of global sourcing. This is helping them in dealing with procurement in unknown territories.

  • Green logistics: Sustainability is taking the center stage in business growth. Companies are taking serious measures to reduce their carbon footprint. The same trend is visible in logistics during sourcing.

  • Global quality standards: Quality assurance is a major step in sourcing. Be it domestic or global level sourcing, quality parameters are getting stricter. Now, there is much more emphasis on quality standards and certifications that are applicable worldwide. This helps in standardization, facilitating faster procurement without compromising quality.          

The Strategy of Global Sourcing

The major change in the procurement vertical across various industries is the emergence of global sourcing. Improved logistics, trade-friendly legislation, and inter-country agreements are creating a favorable environment for this. For companies, this is a golden opportunity for optimizing their procurement costs. Especially in the US and Europe, labor-intensive industries are on a decline. The high cost of labor is a primary reason for this. Also, complete automation doesn’t suit all industries. This has led to a lack of OEM suppliers in many countries.

Global sourcing is proving to be the best procurement option for most companies. It provides companies with multiple options for procurement. In the case of high-end manufacturing industries, this helps in offsetting many of the costs. This clearly points towards the advantages of global sourcing strategy for your company. But global sourcing requires expertise as the company might be dealing in completely unfamiliar territory with different legislation. The major steps in global sourcing are: 

  • Identification of product category for sourcing

  • Finalizing product specifications and quality parameters

  • Identification of sourcing partner organization (manufacturer/supplier) in a suitable country

  • Review of general quality standards available in the country

  • Due diligence and license/registration verification of sourcing partner

  • Factory visit

  • Preparation of draft contract agreement and sample production

  • Product sample verification

  • Final contract agreement

In short, it is a complex process that includes various business functions. From technology to regulatory policy, it requires good experience and expertise. Due to this, your company should formulate a global sourcing strategy.

Advantages of a Global Sourcing Strategy

It is always a smart decision to source products globally. Global sourcing aids your business growth removing all production hurdles. Achieving this at competitive rates can make your company a leader in your segment. Various advantages of global sourcing are: 

  • Low cost: All the major global sourcing destinations offer products at a low cost. In countries like China, the cost of labor is very cheap. The respective governments also provide tax incentives to promote manufacturing. The total cost of production drastically reduces due to these factors.

  • Faster availability: Domestic product suppliers are often short of critical raw materials. Most firms rely on other countries for imports. Then it makes sense for your company to source the final product from a global facility. This helps in reducing your lead time.

  • Multiple choices: Usually, global manufacturing hubs are designed as clusters. You are likely to get multiple vendors and suppliers across products. This widens your choice and helps in procuring the best quality products at competitive rates.

  • Product diversification: Business growth is highly dependent on your product offerings. Sometimes, the in-house manufacturing capabilities of your firm are not enough for product diversification. Global sourcing can facilitate diversification and lead to business expansion.

Apart from your sourcing strategy, selecting the appropriate destination (country/region) is a significant aspect. The sourcing destination has a lot of impact on your final product quality and lead time. So, you should dedicate ample time to this. It is advisable to take support from a professional sourcing agency for reaping the benefit of global sourcing.

Major Sourcing Destinations across the Globe

Countries are increasingly showcasing their territories as the perfect place for sourcing. For developing nations, this is a strategy for economic expansion. This creates a lot of domestic employment opportunities. In such countries, the prospects of sourcing have created industrial hubs specialized in manufacturing. China is often lauded as the best global sourcing destination. In China, there are multiple manufacturing clusters that produce world-class quality products in electronics, electrical goods, and heavy equipment. There is a surplus labor supply, and it is comparatively cheap. Multiple tax incentives are also available for these units. Now, China heavily focuses on quality as different country standards have strict norms on product quality. Apart from China, Brazil, India, Vietnam, Malaysia, etc are also becoming popular sourcing destinations.

You have to be very careful while selecting your sourcing destination. This can have a long-lasting impact on your business. Some tips for country selection are given below.

  • Political stability: In many countries, there are issues of civil unrest and political instability. This can have a negative impact on industries in the long term. You should be careful while choosing your destination as political stability is important.

  • Geographical advantage: The location  plays a major role in logistics. Most logistics across the world are through maritime transport. It is always better to select a location that has easy access to major seaports. This will reduce your lead time.

  • Adherence to global quality standards: Customers are more conscious about quality than ever. Domestic production quality requirements vary from place to place. The International Organization for Standardization (ISO) has quality standards for various products and processes. The ISO 9001 series of standards are a major direction ensuring quality. They are applicable all across the globe. You should ensure that the sourcing partner has strict adherence to these qualities.

62058173 copy.jpgChallenges in Global Sourcing

Global sourcing provides numerous advantages to companies. In today’s world, almost all major companies source products from other countries. Even though there are multiple advantages of global sourcing, it is equally a challenging task. The major challenges

Dealing with unknown territories: Global sourcing entails dealing with areas that are not in your domestic territory. Different countries follow different legislation regarding industrial production. Environmental, social and labor laws also vary from place to place. This can have a significant impact on your product sourcing activity. There are chances of delays and product rejections if you are not aware of various legislation of that country.

  • Barriers in language and communication: Effective communication is a key aspect of success in any business. You should be able to convey your product requirements to the sourcing company effectively. This is important during price negotiations also. In countries like China, communication in English would be difficult. You need to have a good command of Chinese (Mandarin) for smooth interaction with key personnel at the manufacturing facilities.

  • Limitations for quality control: In an in-house manufacturing  facility, you have much more control over the entire production cycle. Especially for quality control, this is helpful. But there are limitations to this when you source from a partner in another country. Direct monitoring of quality parameters is a big challenge in global sourcing. You might end up spending a lot of money on third-party monitoring services.

  • Transportation and logistics: A key advantage of global sourcing is the considerable reduction in lead time. Lead times also depend on logistics and custom clearances. There can be multiple challenges on this front. In a foreign country, you have little control over these aspects.

  • Time and manpower requirements: We have seen that global sourcing includes numerous official procedures. It takes considerable time till the signing of the final contract. Monitoring of all activities requires personnel with technical knowledge and local language proficiency.

Solutions for Tackling Global Sourcing Barriers

Even though there are many challenges, it is always better to opt for global sourcing. With technological advancement, it is much easier to handle sourcing activities now. Some solutions for tackling these challenges are,

Background research: The internet offers a huge opportunity for carrying out primary research about everything related to global sourcing. You can obtain preliminary information about different manufactures in various countries. Online catalogs and customer testimonials are also helpful in getting an idea about companies. Now there are numerous public forums for company reviews and feedback. You can use these options extensively for shortlisting companies based on your sector of operation.

In-person visit: It is always a good idea for key decision-makers of your company to pay a visit to some facilities abroad. This would provide you firsthand experience of manufacturing standards and product quality in the particular region. If you plan this in advance, you can do it within a low budget.

Sourcing company/partner: Companies are increasingly using the services of a professional sourcing agency. A sourcing agency is an ultimate solution for tackling all the challenges in global sourcing. They can help you in the execution of end-to-end activities in sourcing. Such companies have expertise in price negotiations, documentation and technical aspects. They operate on your company’s behalf for coordination and monitoring. These companies have local presence and personnel with bilingual (English/local) proficiency.

The clarity in communication: At every step of sourcing, clear communication can help in avoiding many of the challenges beforehand. Be it technical or legal aspects make sure to communicate things clearly to your partner agency. Ensure that all contracts go through a scrutiny process. Take the help of a legal advisor for clarifying all clauses in the contract. You can rely on a sourcing agent for communication with the manufacturing partner.

If you carefully plan every step, you will get the best experience of global sourcing. The most efficient way of sourcing from other countries is through a sourcing agent. Let us explore the benefits of having a sourcing agent for your business.

63896801.jpgBenefits of a Having a Sourcing Agent

Are you looking for a hassle-free global sourcing experience? Do you need a reliable business partner while working with a foreign company? A sourcing agent is an ultimate solution for this. The sourcing agent works on behalf of your company for carrying out the entire set of activities in sourcing. Usually, they operate from the sourcing destination with adequate personnel. They work as the interface between your company and the manufacturing partner.

The sourcing agent will help you in a gamut of activities including negotiations, verification and compliance. The major activities undertaken by a sourcing agent are: 

  • Identification of quality suppliers

  • Faster execution of due diligence activities

  • Facilitate price negotiations

  • Factory visits

  • Contract drafting and finalization

  • Sourcing of sample orders

  • Production management

  • Quality assurance

  • Customs clearances and related paperwork

  • Coordination for logistics.

Before selecting a sourcing agent, do check out the following aspects. This can help you in finding out the best sourcing agent. The aspects to watch out for in a sourcing agent are: 

  • Experience in the sourcing industry

  • Sector-specific expertise (electronics, electrical, etc)

  • Necessary registration and licenses

  • Excellent supplier contacts

  • Bilingual Staff (English & local language)

  • Solid presence in the local area

  • Capabilities in logistics.

China - The Perfect Sourcing Destination

For global sourcing, all the major companies prefer Asian and Latin American countries. Most of these countries are investing heavily in infrastructure creation. This is facilitating the emergence of numerous manufacturing hubs focused on specific sectors. Due to this, they are becoming the hot spots of global sourcing.

Among these countries, China is an early mover and still a leader in global procurement. Many global companies have either direct manufacturing facilities or sourcing partners in China. There are numerous reasons for China’s leading position in global sourcing. First, labor is cheap bringing the total operational cost below the global average. The government provides tax incentives for promoting manufacturing. It also has vast maritime logistics capabilities with multiple shipping ports. Due to all these factors, there are numerous advantages of sourcing from China.

The country has different provinces specializing in a particular industry segment. Shenzhen, Shanghai, Guangzhou, etc are some examples of these clusters. From electronics to automobiles these clusters cater to different sectors at low costs.

Maple Sourcing - The Perfect Sourcing Partner

For taking all the advantages of global sourcing, you require the help of a trustworthy sourcing agent. Maple sourcing is a pioneer in global sourcing. We deal in multiple product lines including consumer electronics, kitchen utensils, healthcare, etc. Since 2012, we are helping several companies in sourcing products from China. Maple sourcing has a team of excerpts with experience in dealing with manufacturing companies across China. We have our office in Shenzhen to deal directly with the partners. A team of in-house QC inspectors ensures that your products are of world-class quality. We help you navigate through all the complex steps in global sourcing. The company coordinates every activity including planning, vendor selection, quality control, and final delivery. We assure you that with Maple sourcing, you will have a hassle-free sourcing experience.


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