V. IDENTIFYING SUPPLY
COUNTRIES
Having assessed your company’s global purchasing readiness, defined the global
purchasing objectives and products or service to be sourced and set performance targets. |
|
V.1. Develop Short List of Potential Supply Countries
The first step in identifying supply markets is to target countries suitable for
your business. |
Outside the United States, a range of business factors could help or hinder your
success. On a regional as well as individual country basis, consider - at least - the
following factors in defining your potential supplier countries:
| - Social and cultural factors. Address how to
conduct business in that market, especially ways to establish and maintain
relationships. |
| - General economic and business conditions. Look
for large currency exchange fluctuations or local inflation levels. Also, look at whether the
economy is expanding or contracting. Identify if the economy is dependent upon specific
trading partners and, in turn, their economic or political stability. |
| - Politics. Based on recent history, rate the
stability of current government or leadership. Assess the potential for nationalization versus
privatization activity. Judge which way the "political wind" is blowing, and if it
impacts your business |
| - Laws and regulations. Understand the regulatory
requirements that must be fulfilled to operate in that country. Find out if any existing or
new regulations make it easier or harder to buy your products or services. |
|
|
How to obtain such information?
Because of the expense of primary market research, at this stage, most firms rely
on secondary data sources. Secondary market research is conducted in three basic ways:
| 1. By keeping abreast of world events that
influence the international manufacturing and service industries. |
| 2. By analyzing trade and economic statistics.
These statistics provide the U.S. firm with information concerning production levels by
industry which can be important indicators of the market potential for a company's
sourcing. |
3. By obtaining the advice of experts such as
The Mauduit Group Network of Consultants in Global Purchasing.
Gathering and evaluating secondary market research can be complex and tedious. But it is a
necessary step. |
|
| V.1.a. Screen Potential Countries |
| V.1.b. Assess Targeted Countries |
| V.1.c. Decisions Process |
The evaluation and analysis of secondary market research completed, the following
step-by-step approach might help you to short-list some prospective supply countries.
| 1. Obtain statistics that indicate product
imports from various countries. |
2. Identify 5 to 10 countries which meet your
purchasing objectives. Look at them over the past three to five years:
Has their export growth been consistent year to year?
Did their export growth occur even during periods of economic recession?
If not, did growth resume with economic recovery? |
| 3. Identify some smaller but fast-emerging
countries that may provide ground-floor opportunities. |
4. Target three to five of the most
statistically promising countries for further assessment.
Depending on the nature of the product or service being sought, a useful approach is to
initially focus on specific regions, such as the EU, Latin America, or the Pacific Rim. |
|
V.2. Conduct Detailed Research on the Short Listed Target Countries |
| V.2.a. Overall Country Economic Profile: |
Now, apply a more intensive evaluation of the most promising supplier countries.
This evaluation should, at a minimum, address the following major issues:
1. What is the overall economic outlook for the economy in each target country?
| - What is the inflationary outlook? |
| - Are there political or social problems which
could affect the domestic economy or the country's foreign economic relations? |
| - What is the outlook for the currency's exchange
rate? |
|
2. What is the general environment for importers?
| - Are there tariff or non-tariff barriers which may
prevent the import of the product or significantly raise the cost? |
|
3. What are the legal considerations involved in purchasing the product/service in
a given country?
| - Is the enforcement regime for the protection of
copyrights, technology and other intellectual property adequate? |
|
|
V.2.b. Business Environment:
1. What are the major manufacture or service providers for your product in each
target country? |
2. What is the nature of the purchasing competition in each target country?
| - Are other firms importing from that country? |
| - Which firms? |
|
3. How are potential suppliers positioning their products?
| - What is the pricing structure in each target
country? |
| - Is the product subject to any government-mandated
export price controls? |
| - Does the government provide subsidies or other
forms of support to domestic manufacturers or service providers? |
|
|
V.2.c. Risk Analysis:
As we have seen, some risks are associated with global purchasing, such as foreign
exchange risks, the physical and performance risks associated with shipping and delivering
the product from abroad to your company, as well as the cost, price, and interest rate
risks which the firm normally deals with in its domestic business. |
Since "risk" is the likelihood that something bad will happen, then some
form of "risk list" should be defined on what are the acceptable risks to your
company. The targeted regions and countries should be screened accordingly. |
While preparing your "risk list" for screening your targeted region and
countries, you might want to also prepare a Risk Management Program for the acceptable
risks that your company is willing to accept.By doing so, you will be able to identify
those risks as early as possible, adjust the development strategy to minimize those risks,
and develop and implement a risk management process as an integral part of your global
purchasing process. |
You must be prepared - on an ongoing basis - in the event your company does
encounter anyone of those risks. |
|
V.2.d. Legal Implications, International Laws
Since global purchasing involves import, your organization will have to deal mostly
with the U.S. legal system and especially its Customs and International Law. |
Customs and International Law include the interpretation of over 400 federal laws
which are administrated by more than 40 federal agencies, as well as some state laws! |
Depending on the nature of the product or service you will be importing, some or
most of these agencies’ regulations might affect your business. |
But regardless of the product or service, you should be familiar with the United
States Customs Service. |
You should also be familiar with the agencies and the regulations related to your
products or service to be globally purchased if only for the following five major reasons:
| 1. The Classification of products or service
controls a number of critical areas, including the rates of duty. |
| 2. The Valuation is the process whereby a value is
assigned to an imported product or service. Ensure that the product or service is assigned the
lowest legal value. |
| 3. The Marking: Articles imported into the United
States must be properly marked with the country of origin. Determine whether the origin
marking is correct and also determine which country is the proper country of origin. |
| 4. Import Restrictions: Comply with numerous
complex federal regulations, imposed by a variety of federal agencies. Lack of compliance with
these regulations may delay the products or even will see them seized. |
| 5. Trade Policy: Monitor constantly the ongoing
developments and changes to U.S. trade policy. |
|
In gobal purchasing, as in any other form of trade, the two major legal regulations
to watch very closely are the Corruption Act and antitrust violations. |
They are the most encountered cases in international business and might victimize
experienced and inexperienced buyers and purchasing professionals alike. Therefore, all
those involved in procurement are obliged to have a working knowledge of antitrust laws
and understand how to identify potential violations. |
There is no doubt that culture impacts every aspect of international trade,
emphasized in the previous presentations on the subject. |
|
V.2.e. Cultural Considerations:
Most of us think of a foreign country's culture in terms of protocol and tips:
using both hands when presenting a business card to Japanese counterparts, or never
revealing the soles of one's shoes in an Arab country. |
These social and business tips are very important to help us avoid faux pas that
can destroy business relationships. But even more important is how culture impacts the
strategic decisions a U.S. company must make when doing business internationally. |
An awareness of local negotiation and motivation tactics, which vary from country
to country, is essential.
Remy M. Mauduit |
|
Comprehensive business literature at the Business Bookstore (in association with amazon.com). |
The Mauduit group delivers effective,
measurable results. |
