International Sourcing: What You Need To Know
This week Cynthia Dearin, our Managing Director, interviewed Mr. William Pegg, who is the Director of Synthesis Group, a consulting firm that helps large privately run companies improve their supply chains. They discussed how companies can explore international sourcing and buying and how they can take advantage of opportunities to buy goods and services from abroad. Many organizations don’t know how things work in foreign countries, and so they don’t consider international sourcing. Businesses should be aware of the continually growing opportunities on offer, especially since Australia has signed free trade agreements with China, Japan and Korea.
Is international sourcing the same as outsourcing?
No they are different. International sourcing is when you are buying goods and services from an off-shore supplier. Outsourcing is when an already managed activity in-house is moved to a third party. The third party doesn’t have to be international. It can be domestically based. For example: manufacturing, engineering services, etc.
There are a few approaches that businesses could take depending on the size of the company. Large multinational companies usually take a regional or global approach. Therefore they launch a primary function based in Europe or Singapore for example to develop a global strategy for a particular brand or product and can do the buying of it. Another approach is when a global function develops a strategy but lets the local division do the buying. Small or medium-sized organizations often develop their own strategies and buy direct. They could use an agent for that or not. That agent could be locally based in Australia or could be based overseas where you are sourcing these goods from directly.
Some companies don’t consider international sourcing due to the risk associated with it, the quality of what they’re sourcing, and uncertainty of whom they should source from. Some don’t know what a suitable opportunity looks like and are uncertain of how to develop the right strategy.
In order to get goods and services out there, how can a company find a good supplier?
Social media and internet is making it easier and harder at the same time. Mr. William Pegg suggests using any industry association related to a particular company because they are well-connected. Online directories are useful as well for developing leads, and also, the company could use its own networks. There are sites that provide reports to help businesses find international supply partners and understand company management of the products it exports.
What are the tips that can be used for sourcing products and services efficiently?
- Develop a strategy
- Businesses need to understand why they are doing this because it is a much more complex process than buying domestically. They need to consider price, quality, innovation and speed.
- Businesses need to categorize all the potential items or services from within. They can do so by viewing both risk and reward.
- Businesses need to identify what is suitable to be acquired from an off-shore source because not everything should be bought from abroad. Some goods are very sensitive for example.
- Businesses need to choose the right country and region. For instance, Europe has technical precision, particularly Germany, whereas Asia stresses on price and speed.
- Make sure you are asking a potential supply partner some questions such as, have they supplied internationally before, specifically into Australia? Make some due diligence. Who are the banks they use? Can they provide a letter of recommendation from those banks to make sure they are legitimate organizations? Have them send copies of licensing qualifications and get a sample from them. Understand whether they have any capacity constraints and find out how important your business is to them, depending on what you propose to spend annually. Where are you in the hierarchy of the clients they have?
- Be prepared to visit them, otherwise it could be dangerous particularly if you’re doing business with Asia. You should start small and stay simple. Test the water with one product first. Do not be over ambitious and make sure you have a back-up plan if things went poorly or not as planned, by knowing different local suppliers.
If things went well, how can international sourcing make a positive difference to your business?
It helps recognize what your consumers are looking for. Companies who are buying goods and services from off-shore locations need to also understand how their sources of labour are used and what their sustainability levels would be. For example, Nike was hurt in 1991 due to the exploitation of child labour in some of their factories in Asia. Victoria’s Secret in 2000 also faced a similar issue while getting their cotton supplied. Businesses need to know what the process that is being employed is.
What should Australian businesses be aware of when they’re buying internationally?
- Be aware of where your labour is located and what type of labour is being used to source those goods and services.
- To know whether the goods and services are being sourced responsibly. They need a sustainable certified source. Also, consumers need to know that the goods they’re purchasing or the services they’re acquiring come from reputable sources who aren’t exploiting individuals or the environment.
All this could be complex for medium-sized businesses, therefore, they need to ask for the source’s policy and procedure. Some however, claim they are sustainable when they are actually not. In this case, businesses need to look for legitimate agencies that endorse these sources. For example, Fair Trade or ISO who’ve got 163 member countries.
For more on international sourcing, listen to our podcast with William Pegg, Director and Founder of Synthesis Group:
Director and Founder of Synthesis Group - Brisbane, Australia
William Pegg is the Director and founder of Synthesis Group. With more than 12 years experience in corporate Australia, William draws upon his time spent in global and local, publicly listed and privately owned business to deliver company aligned procurement solutions. William has diverse industry experience spanning FMCG, agribusiness, heavy industry, health care, oil and gas, government agencies and consulting. This exposure has equipped him with the knowledge and pragmatism required to deliver well-planned procurement solutions. William founded Synthesis Group to be a professional consulting firm with a difference. He believes in the importance of hands-on, straight forward and flexible procurement solutions that are priced by the job, not billed by the hour. He believes procurement should be an enabling function that empowers business for growth, utilising the full potential of the supply base through constructive collaborative rapport.
As a professional in his field, William believes in the responsibility to educate and encourage others. He contributes to this area through:
- Publication of articles through industry journals
- Interviews with European media agencies
- Invitational speaking engagements
William is writing a book to equip mid-market companies with the means of implementing practical strategic procurement solutions. He is part of the QLD Reference Group for the Agribusiness Association of Australia