When it comes to sourcing products from overseas, it’s important to follow a process rather than simply browsing websites and sending emails. This article will provide an overview of the sourcing process, including identifying potential suppliers, screening and verifying candidates, and conducting quality control. Additionally, the article will delve into the pros and cons of working with overseas manufacturers and provide 10 tips for successful product sourcing.
Key Takeaways
- Following a thorough sourcing process is crucial for success when working with overseas manufacturers.
- It’s important to carefully screen and verify potential suppliers before making a final decision.
- Quality control should be a top priority throughout the entire production process.
How to Source Products from Overseas?
1. Draw the Ideal Supplier Profile
To find the ideal overseas supplier, one must first ask themselves a few questions to determine what they need. Factors to consider include the supplier’s engineering capabilities, the number of designs available, the focus on low cost or high quality, and the capacity of the supplier. It is important to note that factories can fall into three different classes, which vary in performance and price.
- Tier 1 factories are typically used for very small orders and often require working with a trading company.
- Tier 2 factories are a good fit for orders that are not large enough to interest a large factory, but are still large enough to work directly with the manufacturer.
- Tier 3 factories are ideal for large orders where big companies are aggressively competing for business.
2. Go to an Online B2B Directory and/or Trade Show
Attending a trade show related to the product category is an excellent way to find potential overseas suppliers. If attending a trade show is not possible, B2B directories can be used to find suppliers. These directories function like the Yellow Pages, with vendors who pay more to make their products more prominent.
Some online overseas directories include:
- Online Wholesale Websites
- Product Sourcing Company
- Alibaba Alternative
3. Incentivize Potential New Suppliers to Respond to You
When reaching out to potential new suppliers, it is important to keep the message simple and short, with a clear call to action. If possible, share a product spec sheet and follow up on any questions quickly. It is also important to eliminate any outliers that make the price 20% above or below the market price.
4. Request Product Samples
Before finalizing an agreement with an overseas supplier, it is important to request product samples to ensure the quality of the products. Requesting product samples also allows for the ability to show the actual product to potential customers.
5. Finalize the Agreement
When finalizing an agreement with an overseas supplier, it is important to have everything in writing to avoid any language barriers. Key points of the agreement should include product details, payment terms, trade terms, delivery time, and pre-shipment inspection.
Common overseas inspection services include:
- Inspection During Production (DPI)
- Final Random Inspection (FRI)
- Packing & Loading Supervision (PLS)
- Full Inspection
- Factory Audit
6. Hire a Freight Forwarder
Different logistics methods can make a vast difference in transit time and freight charges. Hiring a freight forwarder can help determine the most cost-effective shipping method and keep in close contact with the supplier. The freight forwarder can also handle tasks such as pick up, collecting goods, arranging shipping, and customs clearance.
Overall, following these six steps can help in finding the ideal overseas supplier and securing a successful business agreement.
The Pros and Cons of Working With Overseas Manufacturers
When deciding where to manufacture a product, sourcing from overseas is an obvious choice for many businesses. The advantages of overseas sourcing are well-documented, but there are also some drawbacks that must be considered. Here are the top five advantages and disadvantages of working with overseas manufacturers.
Top 5 Advantages of Using an Overseas Production
Many business owners and product development teams immediately choose to do business with an overseas manufacturer. When looking at the top five reasons why entrepreneurs, small businesses, e-commerce sellers, and product-focused companies choose overseas partners, it’s easy to see why.
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Lower Labor Costs: The United States has some of the highest labor costs globally, making foreign countries attractive. Labor wages in countries like China, Mexico, Vietnam, and Thailand are significantly lower, which can significantly impact production expenses, lowering the selling price or increasing the profit margin.
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Large Number of Manufacturers: Countries overseas have large clusters of manufacturers, giving product developers various options. China, for instance, accounted for 28.7% of global manufacturing output in 2019 before the pandemic. Other Asian countries and Mexico are increasing the number and variety of manufacturing facilities, giving you more options.
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Large Capacity: One of the most significant advantages of overseas manufacturing is capacity. Overseas manufacturers can scale up quickly and produce large volumes of products in a relatively short period. Depending on the volume of your orders, you can save money through volume discounts and reduced raw material costs.
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Proximity to Raw Material and Component Suppliers: Overseas contract manufacturers usually have established supply chains and relatively sophisticated access to various raw materials. This can significantly reduce time-to-market and costs, especially if your product requires raw materials or imported components.
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Large Pools of Skilled Talent: The availability of skilled foreign manufacturing workers often exceeds that of the U.S. Countries like Vietnam, Indonesia, and Thailand are actively training people in rural areas to become skilled manufacturing workers.
Top 5 Disadvantages of Overseas Production
Even with all the benefits, there are challenges to sourcing products from overseas manufacturers. Here are five issues every product development team should be aware of before sourcing products from overseas.
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Higher Shipping Costs and Longer Lead Times: Once products have passed through your offshore facility, you must get them to your market. A large number of manufacturers pushes up demand and freight costs in the region. These costs often offset the financial advantages of overseas manufacturing.
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Lack of Oversight: Without being present, building relationships is more challenging, especially in countries where face-to-face interaction is highly valued. Regular travel is often cost-prohibitive and can deplete savings from working overseas.
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Language and Cultural Barriers: You may find language and cultural barriers when working with overseas manufacturers. This can present challenges when negotiating contracts and pricing, understanding workflows and ethics, and respecting cultural differences.
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Customer Service Issues: When working with an overseas manufacturer, you manage your customer service. Consumers don’t care if the problem is a manufacturing issue or not. They see your brand, and you need to fix it.
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Safety Hazards: Only some countries/region values employee safety or environmental standards at the same level. Finding manufacturing partners known for following good labor practices, implementing safety programs, and protecting the environment should all be part of your review process.
Overall, sourcing products from overseas can be a viable option for businesses that want to produce a quality product quickly and at a reasonable price. However, it’s essential to understand the options available, the advantages and disadvantages, and what to look for in a manufacturing partner. By doing so, businesses can make informed decisions that align with their goals and values.
10 Tips for Sourcing Products from Overseas
When sourcing products from overseas, it’s important to understand that Western thinking and Eastern thinking are very different. To help avoid miscommunication, here are the top 10 mistakes sellers make when sourcing products from overseas.
#1: Understanding the Different Terms
It’s important to understand the different terms used in the industry to avoid confusion. A factory is where the product is built, while a trading company is a middleman who finds the supplier and ships the product. A sourcing agent is a liaison who puts you in direct contact with different factories or vets multiple suppliers to find you the best price. Manufacturers and suppliers are used loosely and could overlap with the previous three terms.
#2: Consider More than Just Price
Although prices impact profitability, it’s important to consider quality, flexibility, and delivery experience when selecting suppliers. The cheapest supplier isn’t always the right one, and the most expensive supplier isn’t always the best.
#3: Don’t Negotiate on Shipping
Comparing shipping prices between suppliers is important, but trying to negotiate on shipping may make a supplier less likely to continue working with you. Suppliers have to charge a minimum price for shipping, and negotiating may make them think you don’t understand the industry.
#4: Understanding Suppliers on Alibaba
Many suppliers on Alibaba claim to be factories, but most are trading companies who have bought products directly from factories and raised the price to make a profit.
#5: Don’t Assume a Supplier is a Factory
Just because a supplier shows pictures of a factory doesn’t mean they’re a factory. Suppliers may call themselves factories to attract customers who believe working directly with a factory means a better price.
#6: Don’t Assume Working Directly with a Factory is Cheaper
Trading companies often have better prices than factories because they have better relationships with them. Building a relationship with a factory takes time, and factories don’t start giving better deals until they trust you.
#7: Be Realistic About Sourcing and Shipping Times
Building a highly customized product can take up to six months, while even non-customized products take time for research, differentiation, production, and shipping. Budget at least two to three months for sourcing and shipping.
#8: Work with a Sourcing Agent
Working with a sourcing agent can help prevent serious risks, including fraud, product quality issues, and legal risks. A sourcing agent can select the right supplier, negotiate the best price, and ensure a fair deal while building a strong relationship with the local supplier.
#9: Don’t Assume Suppliers Will Honor Your Contract
To prevent your product from being hijacked, have one supplier build all the pieces of the product separately and ship them to you for assembly. Adding accessories and extras to your products also makes them harder to duplicate.
#10: Understand Minimum Order Quantities
Suppliers won’t lower their minimum order quantity (MOQ) if it isn’t worth their time. Buying in bulk is cheaper, and suppliers want to ensure the time and labor spent building your product yields a big enough sale to be worthwhile.
By understanding these common mistakes, sellers can successfully source products from overseas and avoid miscommunication and frustration.
Overseas Production Conclusion:
When sourcing products from overseas, it is crucial to work effectively and efficiently with suppliers to ensure a smooth importing experience. Globalization and the internet have opened up countless opportunities for finding overseas suppliers. However, there are common mistakes that sellers make which can hinder the process. By following simple steps and learning how to work with suppliers, sellers can easily find overseas suppliers and get their products selling quickly. With this knowledge, sellers can confidently navigate the world of overseas production and expand their business.