This article was updated in March 2023 to reflect current definitions, trends, and pricing.
As industries increase in globalisation, establishing trading relationships with suppliers further and further afield, there is a concurrent and rather ironic push for consumers to support local entities and ‘shop small’.
However, the decision between sourcing locally or internationally is not clear cut. Let us take a look at some considerations when choosing your supplier.
Supplier location decision criteria
It is important to identify the decision criteria when choosing a supplier. That is which points you are willing to be flexible on and which points are non-negotiable.
It is imperative to consider quality when sourcing your suppliers.
At first glance, the optimal quality available seems to be a no-brainer however, for some things you may be able to sacrifice a bit of quality or a quality-name for a cheaper buying price. Timing, which incorporates both production and shipping times, needs to be considered.
It may well be worth paying slightly more for a shorter production time because you would save in economical versus expedited shipping.
Furthermore, another driver might be economic stability such as exchange rates or certainty of provision.
Once all these things have been weighed up appropriately, it is possible to conduct feasibility analyses and decide on a supplier.
Sourcing products from overseas can often equate to low-cost country sourcing (LCCS), which is where products or materials originate from countries with exceptionally low labour and production costs resulting in modest purchasing prices.
Such examples of countries where this is the case includes much of Asia, some of South and middle America and eastern Europe.
This accounts for the epidemic occurrence of the words ‘made in China’ that we see all around us.
As aforementioned, there are always shades of grey and the decision to source internationally should not be reached on price alone. It is important to consider the weight and shipping of the items as, despite lower purchasing prices from LCCS, it might make more sense to source locally to save on expensive, long and weighty shipping options.
One of the fundamental reasons to source locally is the proximity of the purchaser to the producer.
This means the purchaser has greater control over the final product afforded by frequent checks and clear, concise communication. As the consumer trend to support small and local businesses with organic and ‘wholesome’ undertones grows, locally sourced items increase in popularity.
Therefore, sourcing locally almost turns into a marketing directive where what the customer wants, the customer gets.
For a company that exists in a low-cost country, sourcing locally could well be the cheapest option. Likewise, for other countries, it could be the cheapest option due to savings with shipping.
However, small and local plants are less prone to mass production, which drives up manufacturing costs and so, more often than not, local, boutique-level quality comes at a premium.
Considerations when choosing between local and international suppliers
Sourcing locally or internationally is not a simple, cut and dry decision.
It needs to be made after identifying the key decision criteria, what is vital and what can be compromised. Only after these have been found, can research on suppliers commence.
It is important to also view suppliers as a partnership and so it takes work as well as requiring a length of time to get to know each other and each other’s respective capabilities.
There are pros and cons of both options, so it’s best to weigh out the options and see what’s best for your specific business.
1. Communication barriers and travel costs
If you chose to source internationally and the company does not speak the same language as you, then a translator might be necessary.
Although they are helpful and can assist you in making advantageous business deals, the cost of a translator may add up. Travel costs also come into the equation. You may have to travel if your supplier is domestic or international.
However, you might not be able to visit the supplier as frequently if they are based overseas and the cost of flights are substantially high.
2. Maintaining quality
Domestic sourcing is generally your go-to option when quality cannot be compromised. It is easier to monitor on a local level and changes can be made quicker if you can visit the domestic sourcing location frequently.
If your product does not require a very high standard with its raw materials for example, than an international source may be able more beneficial to you.
3. Protect your intellectual property
When you are looking to source internationally, be aware that some of these low-cost sourcing countries have little to no regard for intellectual property.
This means patents; copyrights and trademarked designs are at risk of getting copied and sold on without your permission.
This has become a prolific problem and some companies refuse to source manufacturing to these countries because reverse engineering is commonly committed.
4. Ordering cost
It’s important to look at the ordering cost in both the domestic and international market.
Although the price per unit may be cheaper from an international supplier, the overall ordering cost may be higher or the same as the domestic cost once the order is complete. You must take into account unstable currencies, corrupt political environments, transport costs, taxes in both countries, and changes to regulations in freight.
Items also have a higher risk of damage when they are shipped overseas and can often incur delays.
All of these factors come together to potentially make the overall ordering cost from the international supplier closer to domestic prices.
5. Public image
Understand your market and what your customers want.
More and more, customers want to see locally sourced products, as it is a sign of stimulating their own local economy. Customers may also be loyal to certain products if they know their origin.
However, sometimes if it is a fair-trade product or ethically sourced from overseas, then this image can be leveraged to the public and they will be more than willing to support and purchase your product.
Also, some countries are respected for their craftsmanship in specific areas and people wiorderingll look for goods from there, as they trust their reputation.