With the rapid development of economic globalization, the economic dependence between countries in the world has gradually strengthened, and global sourcing based on finding suppliers around the world has gradually extended to all parts of the world. The front end of the supply chain extends to low-cost countries and regions to obtain satisfactory raw materials and products. With this in mind, we’ve outlined some challenges that come with global sourcing.
Language and Cultural Differences
Sourcing in China, language and cultural differences are probably the most obvious challenges you will face. Even if you speak Mandarin, there are a lot of nuances in translation. This can lead to disagreements and miscommunication between you and your suppliers due to differences in language, culture, business practices, etc., which can lead to a lot of trouble if left unresolved. Aside from the language barrier, it’s important to understand that Chinese co-suppliers often think differently than Westerners.
Another challenge directly related to sourcing in China is cultural sensitivity, particularly understanding the local culture and language, and understanding how these factors will affect the communication between manufacturers and buyers involved in global sourcing.
Another challenge of global sourcing in China is how quickly your shipments arrive in your city. At present, the transportation method for global sourcing in China is mainly by sea. Because of COVID-19, the transportation capacity of China’s major ports Shanghai, Ningbo, Tianjin, Qingdao and Shenzhen has been tight, and freight reimbursement is still difficult to find.
Since November 2022, the shortage of capacity on the routes from China to North America, the Mediterranean and Europe, South America, and Southeast Asia has continued, and the international freight prices have skyrocketed, and the prices of some routes have doubled.
cash flow problem
Cash flow issues are common in the early stages of any purchasing relationship. The longer the lead time and the higher the payment, the bigger the cash flow problem. In some cases it can be as high as 30%. Global sourcing in China involves currency exchange, communications, letter of credit margin, cargo insurance, etc., which lead to capital occupation, which will lead to an increase in capital costs.
Cash flow problems typically occur in two ways:
- The customer does not have enough money on hand to pay for the product or service when it is due. For example, if you don’t have enough cash flow to pay for your materials until your suppliers deliver them, then you have a problem where your suppliers will stop delivering until you pay.
- Or problems with customers not getting paid on time by customers (their customers); then they either won’t pay on time or won’t pay at all – which likely means a lot of companies will delay payments or stop paying them altogether because they You are going through a tough time right now!
Difficulty finding reliable suppliers
China occupies an important position in global sourcing. There are a large number of suppliers in China, and different suppliers have differences in quality control. However, due to the long distance in global sourcing, the purchaser cannot conduct on-site inspections and supervise product quality. Due to the consistency of information, It may cause the goods provided by the supplier to not meet the requirements of the buyer, so a reliable supplier is an important guarantee to ensure the smooth completion of the procurement.
So how to find a reliable and suitable supplier among many suppliers?
5 Ways to find reliable suppliers for your reference.
Different payment terms
When you are purchasing in China, it is important to have a clear understanding of the payment terms. If you don’t already have a relationship with your supplier and don’t have an established credit history, securing payment terms of any kind on your own can be challenging.
If you decide to sell with a first-time supplier from China and find out that the payment terms are different than originally agreed upon, or if they simply cancel the order, there is nothing you can do about it outside of legal action. You may want to consider having your attorney draft an agreement on how much interest should be charged each month until both parties involved in the transaction receive payment.
While geographic restrictions are generally not an issue for Chinese businesses, it is important to consider where and why you are sourcing.
Proximity to your customers, suppliers, competitors and reliable shipping options has many benefits: shortened lead times for goods, faster supply chain response times, lower shipping costs and less risk of damage in transit. But being close to a market that has the resources you need (or need access to) is also valuable, including labor and materials. This includes supplying raw materials such as steel or cotton to apparel manufacturers, which are sourced locally to meet their product needs.
If your business is located outside of China, but is working with an export agent in China, distance is even more important as they are usually able to provide better support as they can easily send people locally on short notice if necessary market.
Currency fluctuations and exchange risks
Currency fluctuations and exchange rates are a challenge for many global sourcing companies. Currency fluctuations can have a significant impact on your company’s profits, so it is important for you to understand and manage the risks associated with them.
To protect themselves from currency fluctuations, many companies hedge their currency risk by using options or foreign exchange forward contracts with options providers or banks.
Protection of Intellectual Property Rights (IPR)
Protecting intellectual property rights (IPRs) is the biggest challenge for global sourcing companies that sell products around the world. Intellectual property includes patents, trademarks and copyrights.
- Patent: A document issued upon application by a government agency or a regional organization representing several countries. This kind of document records the content of the invention-creation, and within a certain period of time produces such a legal state, that is, the patented invention-creation can be implemented by others only with the permission of the patentee under normal circumstances.
- Trademark: refers to the characters, graphics, letters, numbers, three-dimensional signs used on the goods and their packaging or service marks by producers and operators to distinguish their own goods or services from those of others and color combinations, as well as a combination of the above elements constitute a visible sign.
Legal constraints and interpretation
Global Sourcing’s business in China is significantly affected due to the different constraints and scope of application of laws and regulations in different regions, some of which apply to most countries, while others are specific to China. There are also differences in how the law is interpreted, which can lead to confusion and misunderstanding between foreign businesses and their Chinese partners. At the same time, some countries have set up trade barriers to certain products from China, which has greatly affected some global purchasing behaviors.
In order to understand China’s legal constraints on global sourcing, we need to first understand China’s legal environment. Over the years, the Chinese government has promoted economic modernization and internationalization by formulating policies to support foreign investment.
Legally, any company doing business overseas (whether directly through exporting or indirectly through outsourcing) must ensure compliance with local laws and international trade agreements signed in its home country so as not to conflict with any unforeseen circumstances. Given the opportunity due to insufficient prior knowledge of the options available, there are consequences when trying to bring a product back home after it was made abroad, as other businesses might do today.
To sum up, China’s global sourcing faces many challenges. But the rewards can also be great!