When the time comes to source supplies for your business, it is only natural to want to get as large a quantity of your required product as possible for a minimal outlay. In some cases, that will lead you to look overseas for a supplier who can offer a better deal than local counterparts.
On the face of it, there is nothing wrong with that strategy – particularly as the gains made will make a significant financial contribution to your profitability in the long run. But there is a word of caution that should be issued: dealing with overseas suppliers is not always trouble-free. And there are other factors to consider when sourcing supplies from foreign countries.
So, here’s a quick checklist of things to remember when considering sourcing products and services from abroad.
Trade regulations and tax
When using a domestic, UK based supplier, you know exactly what the rules and regulations are and what the charges will be when sourcing stock. Importing from overseas brings with an air of uncertainty with regards to what you can import, how much of it and which countries you can source it from.
Trade regulations exist on many different product types. While these tend to be easy to navigate when importing from the EU – how Brexit will change that is yet to be determined – sourcing supplies from outside of the European Union, from Asia or India for example, can be much more complicated. So an awareness of these regulations on imports – and the costs of doing so – have to be factored into your thinking.
For example, you will have to pay VAT on non-EU imports, and there is a customs duty charge on many products that can be as much as 2.5%. So do your homework in this area before committing to an overseas supplier.
The perils of foreign exchange
When transacting with a UK supplier, you both know that payments will be made in the pound sterling, and that allows for complete transparency as you seek to agree on a deal that works for both parties. But importing from overseas will require international payments to be made, and the exchange rate involved can either be very agreeable or a considerable cost to your business.
You also need to know whether you will be paying taxes and costs in your supplier’s local currency because again, this will impact upon whether any agreement is financially viable or not.
Make sure you do your homework on any foreign exchange broker you use because there is an increasing number of scammy brokers emerging. If you fall victim to one of them, it could severely impact your profitability.
When transacting business domestically or with an English-speaking supplier in the USA or Canada, there are no language barriers to overcome – everyone is singing from the same hymn sheet.
Efficient communication is vital in business. If you are struggling to explain what you need, to establish if your shipment has been dispatched, or if you cannot communicate any issues to your supplier, then clearly you are fighting a losing battle. Poor communication or discussions that get lost in translation do not lend themselves to having a smooth and efficient supply chain.
Location, location, location
On a similar note to communicating with an international supplier, there are also other factors to consider based upon their location and the nature of the goods you intend to import.
How easy are your specific products to transport? Are they bulky and heavy? If so, the fees of importing them from China are likely to be prohibitive when compared to a supplier in mainland Europe – even if the original transactional costs are lower.
Typically speaking, the closer the supplier is to the UK, the cheaper the import costs will be, and there’s also time zone differences to consider. If your supplier is in Asia or North America, you will find that your office hours do not necessarily tally with your suppliers’ – that can slow down communication channels and result in unwanted delays.
Risk and reward
The further your goods have to travel, the more likely there are to be complications en route. However, there is a temptation to use overseas suppliers because labour and production costs are lower, or because materials are abundant in the country.
But what other risks do you face internationally? Consider unexpected increases in shipping costs, the breakdown of global trade agreements (the perfect example of that is American firms importing from China right now) or even the unfortunate possibility that your shipment will be lost or damaged in transit.
Deciding whether to use an overseas supplier or not is another instance in which a business owner must weigh up the risks and rewards.