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
- 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?
Production & Procurement Decisions
|We have the experiences and
expertise to help you decide What to Source,
Where to Source, and How to Source.
framework we use to guide the decision of
What and Where to Source?
evaluation criteria to determine Where to
you work with a third party or establish your
own production or sourcing unit in the country?
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
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.
criteria and total cost analysis, Argowave can assist you to make the right
decision and provide sourcing services according
to your specific needs.
|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
|Other factors to
consider in adopting an overseas production
and procurement approach
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.
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
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
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.
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.