The Pros and Cons of Sourcing Products Overseas

Karen Axelton
Tue, 12 May 2009 00:00:00 +0000

Thanks to the internet and globalization, buying your products from international sources is easier than ever. However, sourcing products overseas for your business comes with risks as well as rewards.

Some of the downsides can include increased legal issues and import restrictions, language and cultural barriers, lengthy lead times, and complex payment and shipping terms. The upside, of course, is that your costs can be lower, and you can find unique products not available anywhere else.

How to locate overseas suppliers

Where do you find overseas suppliers? Trade associations are a good source of referrals; some even host international trade missions where you can visit suppliers in other countries. The Federation of International Trade Associations (FITA) has a useful site with global, industry-specific, and country-specific company directories.

Talk to industry contacts or professionals you know who have overseas experience or contacts. Trade shows, both domestic and international, are also a good way to meet potential suppliers from abroad. Your state’s commerce department can also offer assistance in making overseas contacts. In addition, Export.gov’s Gold Key Matching Service can match your company with overseas suppliers.

Other options include online marketplaces, such as Alibaba.com and Globalsources.com. These sites let you search overseas suppliers and negotiate with them directly. (As with any online transaction, be sure to investigate a company carefully before any money changes hands.)

Choosing the best supplier when sourcing products overseas

As you do your research, make a list of possible suppliers. For most products, you’ll find that one region is typically the best source of that particular type of product.

Consider the tradeoffs when selecting a country with which you’d want to work. Typically, suppliers in developed countries charge more, but their products are better regulated, so you’ll have more protection if something goes wrong. Companies in less developed nations offer lower prices, but you have less protection and problems may be more difficult to resolve. Once you consider all the factors, what seemed like a great deal may not be so great after all.

Try to find more than one company in a single region so you can make a realistic comparison. For example, by comparing three Chinese goods suppliers, you’re comparing apples to apples, as opposed to comparing one Chinese supplier, one Mexican supplier, and one Indian supplier—that’s like comparing apples to oranges and won’t offer you an accurate picture of your options.

More articles from AllBusiness.com:

Choosing the Best Suppliers for Your Business

How to Build Good Relationships with Your Suppliers

The Risks and Rewards of Expanding Your Business Overseas

3 Biggest International E-Commerce Challenges and How to Overcome Them

5 Success Tips for Doing Business With Overseas Manufacturers

Get written quotes from all the suppliers you’re considering. Make sure these estimates include all hidden costs, such as shipping, duties, and taxes—these can add substantially to the actual cost of the item. Find out about order minimums, payment terms, lead time, and delivery terms.

In addition to costs, compare the suppliers in terms of reliability, logistics, reputation, and creditworthiness. Talk to past and present clients, other business owners in your industry, and members of your trade association to find out what a company’s reputation is. Your bank’s international trade department may also be able to help you look into the company’s financial stability.

Once you’ve narrowed down your list to a few options, try to visit the companies in person if possible. Just as with any business relationship, you want to get a sense of who you’ll be dealing with, and whether you trust and can work with this company.

Working with customs brokers and freight forwarders

Does all of this sound overwhelming? Dealing with foreign suppliers directly is complex. As a startup business, you may want to hire a customs broker or freight forwarder. This will add between 10 and 20% to your cost, but can be well worth it.

Brokers and freight forwarders can help you with the legal and regulatory issues involved in importing products, figure out the cheapest ways to ship products, and handle delivery of the goods, including paying duties and getting products through customs checkpoints without delay. Many customs brokers and freight forwarders will even help you find suppliers in the first place. The industry association related to your products is a good place to start looking for customs brokers or freight forwarders.