If you plan to source goods or materials overseas, you should be aware of the many unique problems that may arise. Typically, these may include difficulties with logistics, regulations, customs and language, cultural differences, time zones and currency fluctuations.
Problems associated with sourcing abroad
You shouldn't assume that the same rules will apply overseas as they do in the UK, particularly when dealing with a country outside the European Union.
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 restrictions at 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 climate or 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.
Conflicts with overseas suppliers
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, other issues can come up when purchasing supplies abroad. For example:
- Language differences, especially if you need to discuss complex technical issues or engage in detailed exchanges. Misunderstanding or misinterpretation can affect your requirements - eg your supplier can confuse order quantities or miss deadlines. 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. 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 if one of them goes down. On the other hand, having too many supplier may be difficult to manage. See how to manage your suppliers.
- Cashflow issues can crop up since payments usually take longer with overseas suppliers. 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. See rules of origin for imported and exported goods.