If you plan to source goods or materials overseas, you should be aware of the many unique problems that may arise. For example, longer distances, less reliable logistics network, global trade regulations, customs and language barriers, cultural differences, time zones and currency fluctuations.
Problems associated with sourcing abroad
It's not safe to assume that the same rules will apply overseas as in the UK, particularly when dealing with a country outside the European Union (EU). Depending on the supplier's market, you may come across:
- different technical or industrial standards, which may or may not meet UK requirements
- varying import or export restrictionsat either end of the transaction, such as tariffs and quotas
- complicated documentation requirements for cross-border processes
- fluctuation of currency exchange rate
- unstable economic and political local or regional environment
Frequently, local customs or court decisions - in addition to international treaties - apply in overseas countries. It is therefore critically important to establish the relevant law and jurisdiction in case of a disagreement.
Common causes of disputes with overseas suppliers include:
- liability claims, in situations where a product causes harm or loss
- infringement of intellectual property rights
- provision of insurance at each stage of transit
A well-drafted, written supply contract will help establish expectations for responsibilities and indemnification, and avoid potential disputes. See more on overseas supplier contracts.
Other challenges with international purchasing
As well as legal and regulatory differences, you must keep in mind many other issues if purchasing supplies abroad. For example:
- Language differences matter, especially if you need to discuss complex technical issues or engage in detailed exchanges. Do not underestimate the risk of misunderstanding or misinterpretation, as this can affect your requirements - eg your supplier can confuse order quantities, deadlines etc. Language barriers can also affect contract negotiations or cause communication delays, both of which can affect your bottom line.
- Payment methods for international transactions can be complicated. Find out more about paying overseas suppliers.
- Shipping procedures are also more complex, given the increased distances and the need to cross borders. See international transport and distribution.
- Cultural differences can be a concern. Understanding the business and social practices of your supplier's country can help build trust and develop relationships. Remember also that UK consumers may judge you on the business practices of your suppliers. Read more about entering overseas markets.
- Managing the supply chain can be challenging. Consider how many suppliers you need. Over-reliance on key suppliers can result in problems is one of them goes down. If you have too many suppliers, your managerial burden will increase. See how to manage your suppliers.
- Cashflow issues can crop up since it usually takes longer to deal with overseas suppliers than with the domestic ones. You may need to send cash out earlier for advanced payments and have it tied up for longer, which can affect your liquidity and working capital.
Keep in mind that the origin of your goods can affect the level of duty you pay. Some goods attract a preferential rate of duty, so check the source of your supplier's raw materials. The best way to do this is to visit your suppliers - see rules of origin for imported and exported goods.