International sourcing is beyond finding an outside supplier to fulfill company's needs. We prefer to view it as a process of gaining access to and further developing suppliers' capabilities, while expanding one's network and product base. At the same time, international sourcing initiatives remind executives of company's core competencies and capabilities. Being a small company no longer implies serving a small customer base with a few products. International sourcing allows a company to expand its client base, offering a variety of goods and services, while at the same time, being highly effective and profitable.
International sourcing necessitates strategic cooperation and partnerships with suppliers. The relationship should be that of high coordination, trust and information sharing. JIT (Just-in-Time) can be only achieved with close coordination between all parties. Close coordination may assist in order processing, having fewer errors, lower investment requirements and generating economies of scale.
At the same time, a true partnership implies a relationship between more or less equal parties. International suppliers often cannot match the same level of professionalism and would need to be further developed before any meaningful form of partnership and cooperation can take place.
In fact, we often enter international sourcing contracts with purposefully low expectations and are prepared to face numerous difficulties, lack of Western-style professionalism, and likely errors. It is best to initially view international suppliers as entry-level employees that need to be further educated, grown and developed. With time, stoic patience and consistent effort on the clients' side, the international supplier can be developed into a full-scale partner. Consequently, this partnership will result in real operational benefits, cost optimization and quality improvements.
In the beginning of the relationship, there is a common mismatch between the product envisioned by a customer and the end result provided by the yet to be developed supplier. This mismatch is aggravated in the international setting by lack of face-to-face communication, time differences, inability to inspect the goods during production, language barriers, etc. One should never assume that suppliers will deliver the exact product requested. Quite the contrary, most of the time, the end product will be different from the one required, often completed with errors. In fact, errors will occur at the beginning of the sourcing relationship and one needs to be extremely cautious not to pass the defected product to the end consumer. Product requirements would need to be repeatedly communicated to the supplier and additional steps would need to be undertaken to inspect the goods while in production, making sure the order is on track.
In the short run, one solution to the risks associated with international souring would be to address the products themselves. Instead of complicated product requirements with numerous modifications, it is best to first concentrate on standardized items. With a close coordination between R&D, engineering and marketing, a company can design a modular product that could be customized on the final stages of the production process. International suppliers can manufacture standardized components that could be delivered onshore and combined into sophisticated final products. Think IKEA for the best example of a company able to leverage modular designs in their merchandise.
With time, more complicated products could be assigned to the international suppliers. Having mastered the standardized components, an international supplier can start to experiment and offer more sophisticated solutions. One should also take steps to prevent or at least, to minimize the damage to one's business in case a supplier becomes a competitor. This could be achieved by safeguarding the key knowledge and keeping technologies in-house.
International sourcing is more than simply offshoring production into low cost jurisdictions. It is a process of gaining access to and further developing suppliers' capabilities, while expanding one's own resources, capabilities and product base. Furthermore, it is about relationship building and close coordination. With time, international sourcing should result in higher profitability and strengthening of one's business.