International Sourcing
(Originally published as “Exploring uncharted territory” in Purchasing b2b magazine, May 2013.)
Exploring uncharted territory
Like any trip abroad, it requires knowledge and planning to succeed
Imagine contemplating a trip abroad to a country you haven’t visited before. A fair amount of planning and preparation would be needed as well as information about your destination such as language, currency and any cultural, political and economical considerations. Though considerably more complicated, international sourcing requires a similar approach. Equipping yourself with knowledge and planning your strategy well ahead of actual execution is key. Global sourcing can be a demanding process but having the necessary energy and patience to put into the preparatory stages can increase the chances of success.
You first must determine which market has the best fit for your needs. While certain knowledge transfers across markets, entry into each market is unique so learn about potential barriers like quotas, equity shares and taxes. Ensure your aware of existing government regulations both in the country where the product being explored from and the receiving country.
The good new is you don’t have to go it alone. You can establish agreements with distributors or trading house to hep assist in entering a particular market. They possess knowledge about the market and can bring insight to the legal, economic an political environment as well as help navigate any cultural or language nuances. by determining which market to enter, they’d done much of the legwork already so you don’t have to waste time and money.
Consider e-commerce as another way to interact internationally. You don’t necessarily need to participate directly with a company in a foreign county, but rather transact using operations such as e-auctions. Ensure your chosen provider is secure and offers transparency so you can determine whether goods or services meet you specifications.
Based on the nature, complexity or specificity of the transactions you may want to consider developing strategic alliances. A strategic alliance can be transfer or invest ment based. A transfer-based alliance means you outsource services like research and development, local purchasing, marketing or distribution. Joint ventures or mergers provide investment -based opportunities. Either option lightens your organization’s burden and allows the process to flow more effectively.
Research to ensure you’re aligned with the right partners. Look into your industry and learn form other businesses’ “go-to-market” strategy. Also, investigate similar sized companies outside your industry to discover how they approach international sourcing. What common denominators are at play and how can you apply them to your own situation? Reach out to colleagues within your network as they may have international experience or knowledge in your target market.
After finding a suitable partner, formal negotiation can begin. Each party should have a clear vision of what they’re looking for regarding duration, partnership and contribution expectations, control balance and risk tolerance. Like any relationship, you hope that it will last for a long time but you would be remiss if you didn’t plan for an exit or termination of the contract. By doing so, you reduce potential risk.
Once you’re operational, regular reporting is key. By monitoring progress and keeping the liens of communication open you build the relationship. This in turn facilitates easier identification of improvements to further refine the process and explanations.
There is no silver bullet solution to international sourcing. How you execute your plan depends on many factors including market conditions, appetite for risk and the political, economic and social environment of the the source and host markets. Not all factors hold the same level of importance. Keep focus on the times that mitigate risk while supporting the organizational strategic objectives. The planning and preparation stage remains important. While you may not be able to control all the variables, putting effort into formulating your strategy can bolster success.