4 Tips For Developing a Profitable Low-Cost Country Sourcing Strategy
The integration of low-cost countries in the international markets and increased consumption and consumer demands have led businesses to form new sourcing strategies. Many companies now turn to develop nations to obtain their products. They do not rely on local producers, especially if there are high local production costs. Instead, they focus on countries known for significantly cheaper manufacturing and labour costs. This low-cost country sourcing strategy helps them provide their products at competitive prices. If you are thinking about adopting this strategy, check out some tips below.
Think Beyond the Cheap Production and Labor Costs
Do not select a nation just because of the low manufacturing and labour costs. It will be a grave mistake, as when you acquire products from another country, there will be other costs involved too. A few of the common additional costs include tax, tariff, and legal compliances. Also, consider the impact of customs processes on sourcing costs. Failing to understand them may lead to further expenses in the form of government-levied fines. Hence, before you choose a country, do a thorough cost-benefit analysis.
Do Not Rely Solely on Digital Meetings with Producers in Another Country
In low-cost country sourcing, certain manufacturers may try to mislead you to secure a deal. Hence, be cautious, even while working with famous suppliers or producers. The ideal way to verify whether a particular producer is genuine is to visit its production units and examine them thoroughly. It will be a bit costly, but it will be worth it. You can also hire a professional sourcing agent to do the job on your behalf. Hence, do not just start trusting them based on virtual meetings and conferences. First, know more about their qualities, capabilities, and limitations. It will help you decide whether you should collaborate with them.
Ensure that your Chosen Manufacturers Meet Legal Standards
When you collaborate with a producer from a foreign country, you will want it to be a long-lasting partnership. For this to happen, verify whether they comply with the industry and legal standards. If they do not meet the right standards, it could affect your business severely. For example, if the producer you work with does not meet some industry standards, you may get low-quality products. It may then ruin your relationship with customers. Also, you may get into legal trouble if the authorities detect illegal trade practices.
Opt for Longer Contracts Instead of Shorter Ones
You may find shorter contracts much more affordable than the longer ones. However, in the long run, you will find that the latter is more useful. When you form long-term contracts and work with suppliers/producers, you can better understand your supply requirements and modify the contracts when necessary. It is not possible with short-term contracts and may cost your business heavily.
Keep these tips in mind while forming your low-cost country sourcing strategy. Hire professional and experienced sourcing agents, and work with them for a successful sourcing venture.