The global market is ever-expanding. More businesses are sourcing overseas for a variety of reasons, competitive pricing, lower manufacturing costs, and proximity to market specific customers. However, with great opportunity comes great risk. Whether you’re a budding startup founder or established CEO, both looking to penetrate a new market, it’s best to know where some of the most devastating stumbling blocks are located before you run into them yourself.
In this post, we share five mistakes business owners make sourcing overseas that they need to avoid. A successful business relies heavily on its ability to establish and continuously optimize its supply chain, resulting in customer satisfaction. If this is not a priority, the business will suffer. Part of this optimization is understanding customers, governments, countries, and more when sourcing globally.
Five Global Sourcing Mistakes to Avoid
Mistake #1 – Ill-Defined Strategy
No matter where you’re sourcing from, you need a well-defined strategy. Without one, it can cause chaos for your business. For example, if you expand into an overseas market without a strategy, the cost of the product could be too high or the wrong product altogether, which leads to little to no sales. This leads quickly to a sinking business before it even leaves the harbor.
When sourcing globally, consider the following tactics to create a well-rounded strategy:
- Identify suppliers
- Vet and validate suppliers
- Insure payment capabilities
- Review quality control processes and metrics
- Determine sourcing method
Mistake #2 – Ill-Defined Standards
What’re your businesses standards when it comes to products or materials? Know the answer to this question prior to inquiring sourcing companies. This will give you a metric to measure the sourcing company’s product against before you purchase inventory.
Here’s a brief checklist to go through when choosing suppliers:
- Location – Does it matter where the supplier is located in the given region/country/territory? Does their location have a dramatic effect on price, delivery time, or otherwise?
- Capacity – What can chosen supplier handle weekly, monthly, quarterly, annually in production capacity? Will you need to switch to or add new suppliers to the supply chain to fulfill potential growth? What will it cost to use more than one supplier or find a larger supplier in the same area/region?
- Quality – What are your expectations of quality from the supplier? What is the supplier’s standard of quality? Will you need to compromise quality to use chosen supplier? How consistent is supplier’s production quality?
- Price – What is your selling price for product? Does chosen supplier fall within a profitable range? Can you find a better supplier price elsewhere?
- Technology – What is the supplier’s level of technology? Will you need to compromise data to use supplier? Will supplier upgrade technology to meet your needs?
- Communication – How well does supplier communicate? How transparent is supplier with their process and systems? Can you candidly communicate with supplier?
Mistake #3 – Inadequate Research
It’s imperative that when you source overseas that you do your due diligence in determining if the supplier is worth the investment. A portion of your business will lean on this supplier to be a link in the supply chain. You don’t want scammers or ill-equipped systems to cost you.
Here are some general tips on researching potential suppliers:
- Check reviews online
- Search for supplier website
- Call supplier by phone
- Verify registration, certification, and licensing
- Request a copy of business license
- Verify supplier’s local registration
- Confirm information with local AIC office
- Visit supplier (more than once preferably)
- Hire a sourcing service provider
Mistake #4 – Lack of Payment Security and Protection
Before you begin paying suppliers overseas, you need to make sure that if you have any issues with the quality of the product, you’re protected and can get your money back. Too many times, businesses will rush into a relationship with a supplier and start purchasing product to later find out the quality is subpar. When the business goes to get their money back, the lack of payment protection puts them at a loss.
Here are some ways to protect your payments and secure ways to manage quality control:
- Choose safe payment method
- Set and confirm a clear quality definition before purchasing products
- Purchase a sample order first
- Source from multiple suppliers
Mistake #5 – Skip Written Contracts
It’s great to believe that a business’ word is their promise, but that’s not the case most of the time. A business deal without contractual obligations is a huge risk. Although a contract cannot stop a supplier from acting outside of the agreement, but it does give the business owner legal leverage if something were to go wrong. Without a contract, a supplier could stop delivering, and there would be little to no consequences.
Here is some basic information that needs to be in a sourcing supplier contract:
- Involved parties
- Terms for samples, price, quality, logistics, and management
- Product definitions for quality, type, and delivery
- Payment agreement
- Breach of contract liabilities
- Choice of law
- Dispute resolution terms
- Arbitration clause
- Attorney fees
Remember to consult a professional when drawing up contracts to best protect yourself, your company, and your customers.
Don’t Want to Source On Your Own?
United Global Sourcing is a top-tier global sourcing company with three locations around the world. Our headquarters is in the united states. We vet and validate all of our manufacturers, shippers, suppliers, and more. Contact us today to get started!