International sourcing: 5 things to consider when buying abroad.
They say the world is getting smaller, if that’s the case, why is Australia still to find its feet with international trade?
There are many mid-size companies yet to launch out into the world of buying and selling abroad. Yet with Australia signing Free Trade Agreements (FTA) in 2014 with South Korea, Japan and China, the opportunities are growing rapidly.
I want to focus on the international buying side of this equation. Now while this is a huge topic that could never have justice done to it in a brief article, a few pointers will help grease the wheels for those businesses looking abroad for goods and services.
How and Why
Business adopts a number of approaches when sourcing internationally and a lot has to do with company size.
Many of the global organisations generate their buying strategies at a regional or global level and cascade this to individual countries. Smaller business however don’t normally have this level of resource so need to develop the strategy and then implement as well. It’s not uncommon for these organisations to consequently use an agent. A middle-man if you will who manages the purchasing component on your behalf through either a contact based locally or in the country of origin.
Despite the resources available, there are many organisations out there yet to purchase goods / services from abroad. Now why is this so? By far the largest anecdotal response is not knowing where to start. Yes there are many moving parts but with the right guidance, these hurdles can be cleared.
Finding the right supplier is one such early hurdle. This can be tackled from a few angles. Your most relevant industry associations is a great place to start, as are online directories like Alibaba and US based Global Sources. Trade shows are a common avenue and be sure to completely leverage your personal network.
So why bother you may ask. It’s considerably more effort than sourcing locally and there is certainly greater risk – there has to be a reward. And reward there is. Not only can it be considerably more affordable, greater talent and experience can be located, new and different technologies uncovered and by the very act of engaging an offshore market, it’s not uncommon to find buyers for your own goods and services.
Tips and Advice
I’ve included a few tips to making this business of international sourcing easier. This is by no means exhaustive, it will however help you begin to think about how to prepare.
1 Develop a strategy
Understand ‘Why’ you are sourcing internationally. Is it for price, quality, innovation, maybe speed? This strategy needs to measure spend categories by risk and reward. From here it will be easier to identify suitable goods and services. Just remember, not everything can be or should be bought abroad. For instance, items that are highly technical, sensitive, have limited shelf life or are core to your operations should be considered with great care. Then it’ll be easier to narrow down the suitable regions and countries of choice.
2 Question the Supplier
Never take a supplier at face value. A few critical questions to ask a supplier should include:
Have they supplied internationally before, specifically Australia?
What bank(s) do they use? Seek letters of recommendation from these banks.
Have them provide copies of any relevant licencing, qualifications and capability.
Ask for samples and get an independent inspection.
Do they have any capacity constraints should your volumes increase?
How important is your business to them? You can get a gauge of this by asking where your forecast annual spend sits in their hierarchy of clients.
3 Be prepared to visit them
Arm chair purchasing is a risky business. Sitting face-to-face with your supplier and inspecting their facility is not only sensible practice, its common business etiquette in some cultures.
4 Start small, stay simple
Start with a small initial project to test the water – don’t over commit early. Develop straight forward contracts that address what’s being performed. Have a position on currency exposure and risk and push for regular open terms of trade.
5 Have a back-up plan
This is no different from sourcing locally. It’s just common sense to have a contingency plan to cover you if business dealings go south.
Responsibly Sourced
There’s been a growing awareness and demand from consumers for goods and services to be sourced responsibly. There are a few considerations Australian businesses should be aware of when buying internationally so not to awake one morning with badly damaged reputation and brands.
Three of the biggest issues include labour sources, emission intensity and sustainability.
Sources of Labour
Are you sourcing products produced with the use of child or slave labour? In recent years there have been many publicised examples of well-known Western brands being caught out.
It was brought to the public eye in 1991 when Nike was implicated in the use of child labour. It’s sad to say that other examples have cropped up since then, Victoria’s Secret and Hershey’s chocolates are two such instances.
There is no reprieve for ignorance. Brands can be badly damaged by the court of public opinion and huge efforts need to be taken to rebuild consumer confidence by openly improving supply chains.
Emission Intensity
Ask the question, are the goods being produced through environmental damaging means?
Kellogg was named in an Oxfam report a year or two back as one of the food industries largest contributors of greenhouse gases. Since then, it has pledged that suppliers will disclose and reduce their emissions. Easy to say, a lot harder to do. Time will be the judge of that success.
Sustainable and Responsible Sourcing:
A good news story comes from Unilever. It understood that consumers want to know where their products are coming from and how they’re made.
In recognizing this, the business reportedly achieved its goal of sourcing 100% of their palm oil demand from plantations with sustainable certification. That’s a huge effort given the size of Unilever’s global volumes and that only 15% of the world’s palm oil is derived from sustainable sources.
Avoiding the Minefields
Mid-size business can have better visibility of their supply chains than the larger companies. Use this to your advantage. Ask a potential supplier for policies and procedures for your own peace of mind. If these can’t be provided then think twice about engaging them.
There’s a lot of ‘Greenwash’ out there too so know what to look for. See if the business is endorsed by recognised global standards including Fairtrade, Forestry Stewardship Council (FSCA), Rainforest Alliance and ISO.
There are many moving parts in international sourcing. A well planned approach will however position your business for success. Start small, develop a clear strategy, be rigorous in supplier selection and understand responsible sourcing – tackling these areas will pay dividends both now and the years to come.