Suppose you’re planning to open a business in the commerce sector, whether online or brick-and-mortar style. Then you’ll need to source your products – or materials, if the final products are produced in-house – from one or several reliable suppliers.
But where should you look for these suppliers? Should you find someone nearby or look internationally? What’s the difference, anyway?
We’re going to talk about the importance of choosing a good supplier, the pros and cons of global or local sourcing, and how you determine what is right for your business.
The Importance of Choosing the Right Supplier
If you’re excited about starting a new business, you might be working on a business strategy, putting together a marketing team, looking for investors, and crafting a business plan. Finding a good supplier might look like a task of less importance, but stop right there.
Choosing the right supplier could be what makes or breaks your business. The wrong supplier can leave you with delays that make new customers impatient, bad product quality that ruins your startup’s reputation, and frustrated requests for refunds that stop the new and much-needed cash flow of your new and vulnerable enterprise.
That’s why this is a crucial step that you need to really pay attention to long before you launch your business. It shouldn’t be an afterthought, but a key piece of your plan and something you need to sort out in good time.
Strengths and Weaknesses of Global Sourcing
Let’s first of all take a look at global sourcing.
Global sourcing is becoming more and more common, and for good reason. In fact, some level of global sourcing is pretty much unavoidable in today’s age if you want to stay competitive.
You could be forgiven for thinking that users often prefer local options, but that often isn’t the case. Globalization has led to the blurring of lines, and nowadays, many consumers, users, and visitors no longer consider local options and instead opt directly for international ones.
There are tons of examples of this phenomenon, including the growing popularity of chains like McDonald’s, Starbucks, and IKEA overtaking local businesses all over the world.
The casino industry is a prime example of this happening digitally. Many players now prefer international casinos over local ones in their city or even online ones based in their own country. Lists like this PokerStrategy offshore casino review prove that players are not just accepting offshore options, but deliberately looking for them.
The key benefits of choosing to source products locally are the following:
- Lower costs. In most cases, sourcing globally means lower costs as countries like China, Vietnam, and India have lower costs of labor than other, especially Western, countries. The valuable freed-up cash can be spent on market research, advertising, and other important investments, giving you a competitive edge.
- Wider range of products and specializations. You have a set of much more diverse options in front of you if you choose global sourcing. You can get your hands on resources, materials, and skills that you can’t find domestically or that would come at a very high price.
- Availability for higher volumes. Local sourcing will often have lower limits, while global sourcing often enables you to work with large factories or teams that can provide you with everything you need as you scale your commerce business.
- Favorable currency exchange rates. The purchasing power of the USD, GDP, and EUR are a lot higher than in many other countries, meaning you can get more for your money internationally while still paying what is, for the supplier, a very fair price.
- Insights into new markets. Working with companies abroad can give you important insights into new markets as well as create valuable contacts, should you want to expand into other parts of the world someday.
As you can see, global sourcing can give you significant advantages that will often be crucial to the survival of a new business. But there are drawbacks as well.
The negatives to be aware of when it comes to global sourcing are the following:
- Cultural and language barriers. When working with global suppliers, things can get lost in translation, which could cause problems later along the line.
- Quality control and trust issues. It’s much harder to check up on your partners when they’re far away, and people also tend to feel less liable to people they don’t meet (or don’t meet often) face-to-face.
- Differences in regulations. Different regulations in different countries can lead to problems with compliance for the market you’re selling to.
- Shipping times and delays. Not only can shipping times be long and delays be unavoidable, but minor delays can easily snowball or become big problems in the midst of a natural disaster, political tension, or other global issues.
- Different time zones and holidays. Different time zones, as well as other countries’ holidays, can both make communication more difficult and lead to unexpected delays during holidays you didn’t anticipate.
- Import tariffs and taxes. Getting products across the border can quickly add up in costs due to fees, tariffs, and taxes.
Pros and Cons of Opting for Local Alternatives
Local sourcing also has its own virtues and vices. The obvious benefits would be supporting the local economy and rescuing transportation energy waste, but beyond the moral good, there are also lots of practical reasons why local sourcing may be the best option for your business:
- Personal contact creates trust and clarity. Being able to talk directly with your suppliers can give you an understanding of the business and build steady contacts that make working together easier.
- Reducing transportation costs and times. Shipping what you need is likely faster, cheaper, and without import taxes and tariffs.
- More customization and flexibility. Local suppliers are often willing to work with you to customize and even deliver products faster during unexpected purchase surges.
- Easier quality control. Since you’re closer to the source, you can spot issues before they’ve been shipped across the world and hence correct problems at a much earlier stage.
- Less vulnerable to global tension. Political issues, disruptive policies, and natural disasters that could derail shipments are less likely to affect the particular region or the national borders you’re crossing.
If you can find a good local supplier with prices you can work with, it’s often going to be a great option for your business and a chance to grow deeper roots in the community.
On the other hand, there are also cons to this option. Among the biggest downsides are the following:
- Limited resource and product variety. Your local options may lack the specialization you need and be less versatile.
- Often higher production costs. Labor costs might be higher where you are, and smaller, local producers usually have to charge higher per product prices.
- Challenges with scalability. A smaller supplier might have issues keeping up with you if you need to scale your business, leaving you to look for a new supplier mid-expansion.
- No or few replacements if things go wrong. If you’ve set up a business with a local supplier, you could be met with difficulties if something goes wrong and there are no good options to replace them.
- Vulnerability to local reputation. Being more closely involved in the community also means mistakes or fallouts can have a bigger consequence on your business.
What’s the Right Option for Your Startup?
While there is no definite answer to whether global or sourcing is the best option for startups, there’s likely a correct answer for your particular business, depending on priorities, where the business is based, and what type of products are being sold.
And that right answer is likely to be a combination of both. After all, there are different levels – from not sourcing anything globally to only sourcing occasionally or when needed, only sourcing packaging or other resources, sourcing materials abroad but not production, and so on.
The important thing is to carefully consider and balance the risks and benefits of each option, and then purposefully deciding on the strategy that works for your business.
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