International Sourcing - Exploring uncharted territory
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 likelihood of success as you tackle this important milestone.
Assuming that the organizational vision in participating internationally is to satisfy business objectives, you first need to determine which market provides the best fit for your sourcing needs. Although certain knowledge is transferable from market to another, entry into each market will not be the same so educate yourself on any potential barriers such as quotas, equity shares and taxes. Make sure you’re aware of existing government regulations both in the country where the product is being exported from and the receiving country.
You are not alone on your journey
While it might seem overwhelming to have to consider all these factors, the good news is you don’t have to go it alone. You can establish agreements with distributors or trading houses to help assist in entering a particular market. They possess helpful knowledge about the market and can bring critical insight into the economical and political environment as well as help navigate any cultural or language nuances specific to the country you wish to transact with. They’ve done much of the legwork already so you don’t have to waste time and money reinventing the wheel.
In today’s Internet environment, one can also consider eCommerce as another way to transact internationally. You do not necessarily need to participate directly with a company in a foreign country, but rather transact using an ecommerce option such as eAuctions, while sitting in the comfort of your own country. Make sure however that your chosen provider is secure and offers the necessary transparency so you can easily determine whether goods or services meet your specifications.
Based on the nature, complexity or specificity of the transactions that are anticipated you may want to consider developing a strategic alliance. A strategic alliance can be transfer or investment based. A transfer-based alliance is when you outsource the services needed such as research and development, local purchasing, marketing and/or distribution. Joint ventures or mergers provide investment-based opportunities.
Research to ensure that you are aligning with the right partners. Look within your industry and learn what other businesses are doing. 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 own network as they may have prior international sourcing experience or possess knowledge of your target market.
After finding a suitable partner, formal negotiation can begin. Each party should have a clear vision of what they are looking for with respect to duration, partnership and contribution expectations, control balance and risk tolerance. Ultimately each side is seeking a win-win situation that is right for them. Like any relationship, you hope that it will last for a long time but you would be remiss if during negotiations you neglect to plan for an exit or termination of the contract should the situation arise. By doing so, you reduce potential risk for your organization.
Measure how far you have come and how far you need to go
Once you’re operational, implementation of regular reporting is key. By monitoring progress and keeping the lines of communication open you build the relationship. This in turn facilitates easier identification of improvements that will further refine the process and expectations.
Unfortunately, there is no silver bullet solution to international sourcing. How you choose to execute your plan depends on many different factors including market conditions, appetite for risk and the political, economic and social environment of the source market as well as the host market. Not all factors hold the same level of importance. Be prepared and keep focus on the items that mitigate risk while supporting the organizational strategic objectives. We can’t stress enough the importance of the planning and preparation stage. While you may not be able to control all the variables, putting the necessary energy and effort towards formulating your strategy can greatly influence the odds of a successful outcome.
RSVP for Change: Spend time getting to know the barriers and risks associated with the target market and industry that can help determine potential alliance partners. As you research, identify the areas where more due-diligence is required specific to your company’s global sourcing needs and goals.
Management Insight: Focus on the Strategic Objectives of your organization. At a Senior level, develop a relationship with your outsourced provider and depending on the scope and breadth of this, consider forging a connection with the sourced country’s government authorities. Relationships and lobbying may be critical to support the organization’s international sourcing objectives.
Linda Craig (@LindaCraigRSVP)
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