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 or 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.