How to Get Started in Offshore Sourcing

Despite the fact that some people think "offshoring" is a dirty word, there are some products and businesses that simply could not exist in our market and economy without importing. So like it or not, it is an obvious reality. That said, it's neither a fast nor easy process and can be full of challenges -- especially for new and/or very small businesses. Finding and using overseas resources takes some knowledge, effort, patience, and a good dose of caution.

Many companies start out by using sourcing agents. A credible agent eliminates most of the hassles and risk of going it alone, but it obviously comes at a price, in the form of an agency commission or markup (though in fairness, there are situations in which an agent can save money by virtue of its relationships and overall business with offshore sources). But sooner or later, if you are doing any significant overseas manufacturing, it will almost always be in your interest to establish direct relationships.

There is way too much to this subject to cover in a single post, but here are five basic steps to help you get started:

1. Identify prospective suppliers: This is the easiest part, as there are powerful (and free) online tools that let anyone find just about any supplier for any product. The two biggest are Global Sources and alibaba.com. These sites have robust search features and allow you to efficiently contact multiple suppliers at once. Other ways to identify possible suppliers are sourcing fairs (which are also listed on those sites), industry guidebooks and even government agencies.

2. Get personal: As I said, you can use sourcing sites to send a blanket inquiry to many suppliers at once, but the sooner you can get to more personal contact the better. The keys to almost all overseas business are relationship building and effective communication, so find the right contact people and start establishing those relationships. And though English is the "language of international business," the level of understanding varies widely, so write simply, very clearly, and very politely. Most offshore suppliers think and operate in the realm of big orders and high volume, so if you are a small company with more modest needs, you need to convince them that you'd be a great partner, and make them want to try to help you. International business relationships are usually much closer to equal partnerships than are most typical American buyer/seller connections.

3. Do your due diligence... and then some: This is one of the hard parts. There are tens (or hundreds) of thousands of suppliers out there. They will invariably be nice and eager to please, many will provide impressive company information or drop household names ("we do work for Sony"). But unfortunately it's a jungle out there and things are often not as they seem. Do everything possible to establish a contact's credibility and appropriateness for your purpose. That means getting solid trade references, making sure you know whether the supplier is an actual manufacturer as opposed to a trading company or agent, and anything else you can find out. Just because there is a picture of a huge factory on their website (and there always is) doesn't mean they own or operate a huge factory.

A great resource for this is an independent inspection agency like AsiaInspection. On very short notice and for a very reasonable cost, these companies can go anywhere and inspect factories for a variety of purposes (factory condition and capabilities, human rights/worker audit, product inspection/quality control, etc.). We use them and they have been a fantastic resource, saving us a lot of travel, time, money and risk. They are incredibly easy to use (via sophisticated Web interface), and very thorough.

4. Master the details: International business is full of critical details and there are endless ways to wind up with problems if everything is not 100% clear upfront. Make sure you have an unambiguous, written agreement on payment and INCOTERMS, sample/prototype policies, minimum orders, payment currency, lead times, quality assurance practices and guarantees, compliance issues, etc.

Be certain you understand everything related to import regulations and duties/tariffs that apply to your product. Start by checking the harmonized tariff codes to find out what duties you can expect to pay, but verify with a customs broker, as there are often exceptions, binding rulings and loopholes that may help or hurt you. Needless to say, knowing your true "landed" cost (product + shipping + duties + fees) can mean the difference between making and losing money... or worse.

5. Seek expert guidance: It is invaluable and comforting to get a little hand-holding from people who do this stuff every day. Your banker can help you understand payment options, issues and fees. Customs brokers/forwarding agents will guide you in the complicated world of shipping and importation, and government agencies may even be helpful in some situations.

As always, there are tons of great online resources for learning more about overseas sourcing. One way or another, make sure you are fully informed and prepared before you put your money -- or your business -- at risk.

Please share any other tips, comments, experiences or questions.

(Flickr image by stevecadman)