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Strategic Considerations

When assessing the potential for overseas production and procurement, there are various questions your business needs to take into consideration:

  • What type of products and service are suitable for overseas production or procurement?
  • Which country or which region to source from?
  • Should you work with a third party or establish your own production or sourcing unit in the country?
  • How to minimize the risks associated with overseas production and procurement?
  • What Additional business environmental factors need to be taken into account that may be taken for granted within a Domestic Sourcing Approach?
Overseas Production & Procurement Decisions Top
We have the experiences and expertise to help you decide What to Source, Where to Source, and How to Source.
1. The framework we use to guide the decision of What and Where to Source?
2. Our evaluation criteria to determine Where to Source?
3. Should you work with a third party or establish your own production or sourcing unit in the country?
Many international companies had established their own sourcing capabilities and done well in a Low Cost country. Overseas production, procurement and marketing operations are a cross-functional effort that has impacts across all existing functions. However, the decision of using a third party may still be a better option for most medium-sized companies.
Companies migrate from one option to another based on their objective and internal capability development. Most successful companies initially enter into a global sourcing strategy by leveraging third party trading agents. Once increased trade volumes and strengthened market positions are established, there is an evolution from an agency relationship to an established IPO in the particular country. For large purchase volumes, running a direct-procurement division should be less than the cost of dealing with an agent. Generally, if a company purchases less than $100 Million a year from one country, it makes better sense to use a third party, at least at the initial stage.
If a company decides to build its own in-country procurement unit, it needs to establish a basic set of capabilities such as recruiting in country procurement specialists, establishing processes to ensure integrity, understanding government regulations and local business practices, and most importantly setting up testing/monitoring procedures to ensure product quality and consistency.
Using decision-making criteria and total cost analysis, Argowave can assist you to make the right decision and provide sourcing services according to your specific needs.
Risk Mitigation Top
Even with its 27-year open-door development, China is still an economy of high complexity and risk for operating a global business. With that well-recognized fact in mind, we develop and execute strategies for each step of sourcing activities to mitigate risks.
Success Factors Top
Other factors to consider in adopting an overseas production and procurement approach
Total Cost of Ownership:
A company needs to assess total costs product-by-product when making the sourcing decisions. Total cost of ownership should take into consideration of Labor cost, Raw Materials, Machine depreciation, Tooling/Mould cost, Energy, Overheads, Packaging, Supplier margin, Transportation, Duty related costs, and Overhead.
Managing Internal Resistance:
It is important to be aware of internal resistance for the cost-migration plan. When there are many benefits from sourcing globally, your internal procurement, inventory, logistic and quality control organizations will have many concerns. To execute the sourcing plan successfully, it is important to have an effective communication and change management plan. Having executive buy in is critical to achieving success.
Production and Sourcing Locations:
Sourcing location is also an important consideration in the decision making process. The factors for selecting a site includes infrastructure, transportation, communication, local government policy & support, labor skill & knowledge, and supplier market density
Taxation:
Asian countries’ corporate business structures and taxation systems are largely incomplete and in a constant state of flux. Taxation can be a particularly notable area, as developing countries often open up “tax-friendly” business zones. Being able to fully understand those business zones and policies will enable international companies to effectively leverage them and generate benefits for businesses.
Building Relationships:
Many companies have an awareness that they need to develop a deep understanding of local business cultures and relationships when negotiating for quality, service and price, however this is very challenging to put into practice. The mentality, means and experience required to build a true and working “guanxi” (relationship) vary differently from culture to culture. It is our ability to navigate across these cultural differences that will enable your business to establish stronger, more secure supplier relationships that will in the end lead to an improved customer experience.