Sourcing overseas refers to buying materials, products or services from manufacturers or suppliers that are located outside of your home country.
While domestic sourcing typically allows for quicker logistics, better production control and shorter time to market, sourcing overseas is generally considered cheaper.
Benefits of material sourcing overseas
Cost-savings are one of the main advantages of global sourcing. Many foreign suppliers and manufacturers offer their services at a competitive price, especially in low-cost regions.
Manufacturing costs are generally lower and businesses can often buy goods at a lower unit price. For businesses with tight budgets, this can be a great way to maximize their bottom line. However, keep in mind that other factors can affect any potential cost-savings, such as costly international administration or communication, transport costs or duty rates.
Besides the often-cheaper unit price, other things can tip the scale in favour of sourcing overseas. For example:
- Availability of world-class technology that exists in certain markets
- Access to cutting-edge research, design or specialized knowledge
- Proximity to raw materials that may be unavailable domestically
- Manufacturing capabilities that may unavailable domestically
- Higher quality goods compared to domestic products
- Abundance of potential suppliers you can choose from
In addition, businesses that source overseas are often able to enhance their competitive position in the supplier home country by getting to know the market.
Disadvantages of sourcing overseas
Global sourcing is typically more complex than purchasing supplies domestically.
While the advantages of sourcing overseas can be obvious, you must carefully consider and manage the unique issues and increased risks. For example, dealing with increased rules and regulations that apply in international markets, the various customs requirements, cultural and language differences, quality risks, currency fluctuations, complicated logistics, etc. These obstacles are often the reason why many businesses decide to remain with local suppliers.
To make sourcing overseas a success, you should take steps to scrutinise and understand all of the complexities involved. Read more about the challenges of sourcing overseas.