Overseas sourcing refers to the process of buying materials, services or products from Overseas sourcing (that is, that are located outside of the country an organization operates from). While sourcing locally has several advantages (such as cheaper logistics, shorter production cycles and better control of source material production) there are many benefits to sourcing material from overseas.
The main benefit is the lower cost of sourcing materials from overseas. Foreign suppliers, particularly China, are much more competitive on price because they operate in a low-cost labour market. Manufacturing costs are thus lower and this provides a significant profit incentive for organizations. This is often true even after accounting for additional costs that are incurred including the need for international administration, having to pay duty fees and the costs of transport.
Other advantages of sourcing materials or input products from overseas include the following:
• The availability of a highly trained workforce and cutting-edge production methods
• Access to design, research and specialized knowledge
• Supplier’s proximity to raw materials that may not be available in the organization’s home country
• Manufacturing capabilities that offer advantages of scale
• Higher quality production methods
• A wider range of suppliers are available
There are, however, some disadvantages to sourcing products from overseas. Generally these involve difficulties with language and cultural differences, managing logistics, different regulatory requirements, issues with different time zones and currency fluctuations.
The regulatory requirements that apply for overseas suppliers may be significantly different that those in the home country and could involve the following:
• Technical and industrial production standards may not meet home country requirements
• Import and export restrictions can pose difficulties both in the international and home country for certain types of goods or materials
• There may be complicated documentation requirements for importing and exporting
• Currency fluctuations can make the cost of the materials or goods significantly different from those that were expected
• Economic and political turmoil (or major weather events) can impact production and delivery schedules
If the organization is dissatisfied with the goods delivered or has some other contract dispute it may be difficult to have it resolved in a foreign jurisdiction where the legal process is not the same, or as robust, as in the home country. It is important to verify the relevant legal options for recourse, therefore, before entering into supplier agreements in the case of disagreements or issues of recompense for failing to meet contract conditions.
