Over the last several years, many small and medium-sized enterprises, as well as some of the world's most well-known brands, have realized the necessity of wholesale purchasing in Asia. Importing items from Asian, if done correctly, may help you boost your profit margin, cut labour expenses, and secure year-round supply. Unfortunately, there are still many myths and falsehoods circulating. For example, some argue that high-quality items are hard to be sourced in Asia. However, the fact is that sourcing from Asia may be your best try.
Direct sourcing necessitates the establishment of an office from which a foreign company may control procurement directly. This requires the company's headquarters to have authority over various stages of the sourcing operation and the ability to accept payment in the country's native currency.
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, western companies are looking for the best procurement destinations. Asian countries are emerging as the best sourcing destination for corporations in the US and Europe. Meanwhile, there are many challenges associated with overseas sourcing.
What are the challenges about overseas sourcing?
Overseas sourcing is an attractive option for companies to expand their business. With 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. As a result, you need to deal with multiple risks and challenges of working in unknown territory.
1. Geographical distance and time zone difference
Overseas sourcing is all about dealing with a company outside your country. For most western 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 US and Europe. This creates a huge barrier for sourcing activity.
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.
Time zone difference can also be a limiting factor in overseas sourcing. Asian countries have considerable time differences with the US 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. A sourcing company in Asia 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.
2. Language barriers
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. When you move to different manufacturing hubs in Asia, people speak different languages. The language barrier can become a challenge for activities such as:
- Price negotiations.
- Discussions on product requirements.
- Discussions on quality control.
- Entire documentation activity.
With the support of a local sourcing company, you can overcome these language barriers very easily. 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 company also works as an intermediary in discussion regarding product design and requirements. They work on end-to-end documentation in English and local languages.
3. Cultural mismatch
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 manufacturer, you should be aware of these aspects. In countries like China and India, 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 crucial for cost and lead time. It can also influence the quality standards drastically. Many labor standards applicable in the US and Europe 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 a sourcing company in Asia to carry out these activities. They have local manpower that is familiar with the respective culture. This can help in better negotiations.
4. Quality problems
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 US 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. A sourcing company in Asia with a local presence will help you deal with all these quality-related issues.
5. Expenses in transportation
One of the most challenging aspects in global sourcing is the expenses in transportation. Being an international trade, this becomes 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 sourcing company with local presence can help in optimizing these costs. So always select a reliable partner for sourcing products in Asia. They will provide complete support for minimizing these transportation costs with proper planning.
6. Complex documentation
A global sourcing activity goes through a lot of scrutinizes. There are checks 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 typical documents are:
- Commercial invoice
- Bill of lading
- Certificate of origin
- Import/export declaration.
Among these documents, the forms for customs clearance are the most important. Any discrepancy in these documents can cause unnecessary delays. So, it’s recommended hiring an Asia sourcing company to take care of your sourcing documentation. Expert sourcing companies have dedicated teams for handling documentation. It helps in saving time and avoiding delays.
7. Payment method & security
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 rate is another factor to consider during the payment.
Ensure that the payment terms are written in the contract. Usually, a milestone-based payment is followed in overseas sourcing. By selecting an experienced sourcing company in Asia, you can ensure that all these details are properly taken care of. They can verify the documents in the local language also.
Key benefits of choosing a sourcing company in Asia
You may either do it yourself or have one of your staff do it for you when you do procurement in China. On the other hand, working with a sourcing specialist will offer a lot of value to your firm.
1. Personalization
Customization has enchanted all businesses, and current customers are particularly touched by it. There is no exception in the sourcing industry. Most companies prefer to buy products tailored to their needs. Finding such a vendor is a complicated process. However, an expert sourcing company may make this process smoother. They have an extensive network of suppliers of all types of products, after discussing your criteria, they will locate a suitable supplier that can fulfil your needs.
2. Increase efficiency while saving time and money
You can count on one thing when it comes to importing products from Asia: competitive pricing. Asia has a competitive supply of materials and goods.
An Asian sourcing company does not work for free. However, you may save time and money by relying on their knowledge. You may benefit from their immense network of partners and understanding of the Asian sourcing sector. They can visit possible manufacturers for your needs quickly and conveniently because they are based on the ground and frequently travel between the key commercial centers. The duty of a sourcing company is to obtain you the greatest deal possible, which is usually in their best interests because it is typically a portion of their commission.
3. Find high-quality items at a reasonable cost
As a corporation, you must be usually searching for decent to excellent quality at competitive pricing. Asian sourcing companies have worked with multinational firms before and are familiar with their typical requirements. They understand what sort of data and structure you need to sign a sourcing contract and be happy with the final product.
Having on-the-ground help for quality inspections is one of the primary advantages of engaging an Asian sourcing company. Foreign enterprises are unable to send their own quality assurance team to various locations. On behalf of their clients, the QC inspectors from the sourcing companies manage the quality assurance. It guarantees that the businesses receive the materials they require.
4. Avoid scammers by conducting on-site audits and verifications
Most Asian vendors are trustworthy and eager to work with multinational corporations. However, there are some bad apples in every sector. Due diligence is crucial in any business, but it is especially critical if you are doing business with an overseas supplier for the first time on a distant continent. A professional from the hired Asian sourcing company may simply visit the factory, conduct on-site audits, and verify their documentation. By this way, you can surely avoid scammers.
Conclusion
These are the main advantages of employing an expert Asian sourcing company. It can not only make the sourcing process go more quickly and smoothly, but also, you can save money and time on operations. You may put the time and money saved in other areas of your firm.
A reliable sourcing company in Asia connects international customers with trustworthy suppliers. They will connect you to the best manufacturers in Asia, whether your company is new to importing items from there or requires specialized products.
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