International Sourcing

Question 1

What is sourcing?

Answer 1

The process of obtaining a supply of inputs for use in production, assembly or resale.
(Could be domestic or foreign-global).

Question 2

What is outsourcing?

Answer 2

Situation in which a company externalizes a process or function to another business.
(Could be domestic or foreign).

Question 3

What is Global Outsourcing?

Answer 3

Procurement of products or services from suppliers located abroad for consumption in the home or a third country.
(Contractual relationship between the buyer and the foreign supplier).

Question 4

What are the benefits of Global Outsourcing?

Answer 4

• Access to products or services unavailable locally (in quality or quantity).
• Cost efficiency, due to lower wages abroad, leading to improved profitability.
• Ability to achieve strategic goals.

Question 5

What are the potential risks in Global Outsourcing?

Answer 5

• Lower-than-expected cost savings.
• Uncontrollable factors.
  (such as exchange rate fluctuations, trade barriers, and labor strikes).
• Weak legal environment.
  (which can affect protection of IP).
• Overreliance on suppliers.
• Risk of creating competitors.
• Erosion of morale and commitment among home-country employees.
  (due to outsourcing jobs).

Question 6

What are the differences and similarities between sourcing and outsourcing?

Answer 6

// Differences //
- Company maintains control over production or process. (Sourcing)
- Control of the task is handed to an external provider. (Outsourcing)

• To obtain the best materials or services efficiently. (Sourcing)
• To reduce costs and focus on core activities. (Outsourcing)
• Focuses on procurement and supply chain management. (Sourcing)
• Focuses on contracting out entire processes or functions. (Outsourcing)
• Acquiring goods, services, or materials from suppliers. (Sourcing)
• Delegating specific business functions to third parties. (Outsourcing)

// Similarities //
- Can be domestic or international.

Question 7

What is the step-by-step of Importing?

Answer 7

1. Import Readiness Diagnostic.
2. Select Country.
3. Select Supplier.
4. Selection Criteria.
5. Manage your Purchases.

Question 8

What is Import Readiness Diagnostic?

Answer 8

• Evaluate the firm’s resources (human, financial, operational) as a function of the requirements for importing.
• Identify strengths to exploit and weaknesses to correct.

Question 9

What are the criteria of Selecting Country?

Answer 9

• Cultural & language barriers.
• Political situation.
• Rules and regulations.
• Economic situation.
• Tariffs to be paid on import.

Question 10

Where to find suppliers?

Answer 10

• Trade publications.
• Trade fairs and shows.
• Embassies and trade promotion offices of various countries.

Question 11

What are the criteria of Selecting Suppliers?

Answer 11

• Production capacity.
• Price.
• Delivery time.
• Quality control procedure.
• Financial Status

Question 12

What are the challenges of Managing Imports?

Answer 12

• Allows enough lead time to avoid stock shortage.
• Determine security stock levels.
• Reduce risk by identifying “backup” or secondary suppliers, perhaps even in different countries.
• Optimize freight cost vs inventory cost.

Question 13

What are freight cost?

Answer 13

Expenses incurred to transport goods such as:
- Transportation Cost
- Fuel Surcharges
- Handling Charges (loading and unloading)
- Customs Duties and Taxes
- Packaging Costs
- Insurance Costs
- Storage and Warehousing Fees
- Documentation Fees
…

Question 14

What are some of the most common mistakes of potential importers?

Answer 14

• Insufficient knowledge on the import process. (lack or research on suppliers)
• Product to be imported.
• The costs involved in obtaining.
• Importing and marketing a product. (label, packaging & culture)
• Neglecting Currency Exchange Risks.
• Not Understanding Incoterms (FOB, CIF, EXW). –> Confusion over responsibilities, leading to delays or unexpected costs.
• Underestimating Total Costs.