Global sourcing, which involves purchasing goods or services from suppliers in different countries, has become a popular strategy for businesses looking to cut costs and gain access to unique skills and technologies.
However, as with most things in the business world, it’s not without challenges.
In this article, we’ll review what global sourcing is before we dive into its benefits and challenges.
Then, to wrap things up, we’ll talk a little bit about global sourcing for new online businesses.
Are you ready to learn more?
Let’s dive in.
Table of Contents
What is global sourcing?
Global sourcing is a method that retail businesses and manufacturers use to procure products and materials. What’s unique about it, as opposed to domestic sourcing, is that wholesale buyers do business with suppliers in different countries.
For example, with global sourcing, a business operating in the United States may source its products from India, Sri Lanka, and China.
Global sourcing aims to remove the local confines so you can find B2B trade partners that can offer better deals and manage the volume of your demands.
Global sourcing is made easier with the help of B2B marketplaces like eWorldTrade. This marketplace connects B2B buyers and sellers from different countries around the world with an easy-to-use e-commerce platform.
4 benefits of global sourcing
Global sourcing has many benefits, including lower costs and a wider variety of options. Let’s take a closer look at these perks.
1. Save money and improve margins
Global sourcing provides access to lower wholesale prices since there is a wider variety of suppliers from different regions to choose from.
The reason that products are cheaper in other countries is that some places have lower production costs. India, for example, is known for its low production costs. A major factor contributing to this is that this nation’s cost of living is low, so labor cost is equally low.
Since global sourcing opens the doors to more suppliers, you can use the offers you receive from one supplier to negotiate a better deal with others. This is another way that global sourcing lowers the costs of goods.
Accessing lower-priced goods is especially valuable for businesses considering selling their business in the future. When you improve your margins, you can demonstrate greater profitability, which looks great to those interested in acquiring your company.
2. Access a variety of options
Limiting your procurement efforts to local suppliers can reduce the availability of products to choose from. These limitations could apply to types of products, styles of products, production methods, materials used, and more.
When you look beyond your local suppliers, you’ll have a better chance of finding a supplier that meets your needs “to a T.”
For example, if you’re selling single-use plates and you want to ensure that they are eco-friendly, you’ll need to source them from a supplier in a location that has access to biodegradable or sustainable materials.
Keeping the theme of sustainability, your business may prefer to work with suppliers that use sustainable means of production. If that’s the case, you’ll need to choose a supplier with access to renewable energy and clean materials.
3. Better quality products
If you’re doing business in a place with low production standards, global sourcing can provide access to suppliers operating in a space with higher standards for quality control. This can provide access to better-quality products.
Plus, different regions have easy access to different materials. If the materials required to create high-quality products aren’t readily available in your region, it’s worth looking elsewhere.
Here are a few examples:
- Cotton: Cotton is a key raw material used in the textile industry to produce clothing and other consumer goods. Some of the largest cotton-producing countries in the world include India, China, and the United States.
- Leather: Leather is popular for shoes, bags, and furniture. Countries like Italy, Brazil, and Argentina are known for their high-quality leather production.
- Rubber: Rubber is a common material used in consumer products, including tires, footwear, and household goods. Thailand, Indonesia, and Vietnam are among the top rubber-producing countries in the world.
4. Increased capacity
Your local manufacturers may not be able to produce the number of goods you need to sustain your business. By exploring global sourcing options, you can access suppliers who can meet your demand.
Another perk to global sourcing is that since you can access so many more suppliers, you can easily select multiple suppliers to work with to source various products for your online store.
4 challenges of global sourcing
You should be aware of a few challenges with global sourcing if you’re using this procurement strategy for your business. Let’s review a few of these challenges.
1. Shipping can be pricey
One of the most notable downsides to global sourcing is that shipping can get pricey. Transporting goods overseas and across borders comes with hefty freight costs and subjects buyers to additional tariffs, taxes, and fees.
On the same note, shipping over long distances can lead to lost products, lines of communication being crossed, and more. That’s why it’s important to hire a courier you can trust.
Global sourcing can involve different sectors and products within the market, from food to entertainment. One example is medicines, which through medical couriers, can be transported and distributed to where they are most needed.
2. Cultural barriers can be challenging
Business is done differently in different parts of the world. Cultural and language barriers can pose issues for those who use global sourcing for their businesses. Things can be misinterpreted, false expectations can be set, and things can fall through.
Luckily, there are plenty of translation tools that can facilitate communication. These tools don’t remove language barriers, but they lower them.
Another thing to remember is that behaviors acceptable in some nations aren’t acceptable in others. People may get offended over things that are done with good intentions or absentmindedly.
The best remedy for this is to read up on your prospective suppliers’ business cultures to understand better what’s expected and acceptable.
3. Asset tracking can be difficult
As your products travel from the supplier to your warehouse or your payment is transferred from your bank to your vendors, tracking assets as they make their way around the world may be difficult.
Fortunately, this global sourcing challenge is becoming less of an issue thanks to various tools. Telematics, for example, is becoming increasingly important for the global sourcing industry and supply chain.
With the right telematics software up your sleeve, it’s possible to have a bird’s-eye view of where any given shipment, product, or shipping vehicle is at any given moment around the globe and easily track your assets.
Asset tracking is just as essential as managing your inventory because you need to know the real-time vehicle location, status, maintenance schedule, route information, fuel consumption, and other important info to manage your fleet and ensure every shipment is delivered on time and in the right quantity.
4. There are more variables at play
With global sourcing comes more variables that may be out of your control as a buyer. For example, laws vary since global sourcing often involves trade between businesses in different jurisdictions. This often requires keeping track of additional laws and jumping through more hoops.
Since more variables are at play, it may require greater organization on your part.
Sourcing strategies that include global purchasing can benefit from a colocation data center to improve network security, increase cost savings, and reduce the risk of downtime. As your business and infrastructure requirements grow, the colocation data center can scale alongside your business with flexible rent options.
Global sourcing for new online businesses
As you start your online business, there’s a lot to learn. When it comes to sourcing goods to sell in your online shop, you can either find suppliers locally or expand your search globally.
As we discussed before, global sourcing can be particularly valuable for those who are working with a tight budget at the start. Since global sourcing makes it possible to buy goods from areas with lower production costs, you could buy your products for your first launch with a relatively small investment.
However, if you are just starting your online business and are unsure if global sourcing is right for you, it’s okay to consider starting sourcing locally as you learn the ins and outs of the process.
Spending some time learning the industry and growing your business before tapping into the world of global sourcing can help you scale with fewer growing pains.
Final thoughts
After reviewing the pros and cons of global sourcing, it’s up to you to decide if this is the best procurement strategy for your business.
However, many business owners in your shoes find global shipping valuable due to its flexibility and cost-effectiveness.
If you’re ready to explore global sourcing, sign up for eWorldTrade and explore the marketplace to find the perfect supplier for your needs!
