When assessing the potential
for overseas production and procurement,
there are various questions your business
needs to take into consideration:
- What type of products and service are
suitable for overseas production or procurement?
- Which country or which region to source
- Should you work with a third party
or establish your own production or sourcing
unit in the country?
- How to minimize the risks associated
with overseas production and procurement?
- What Additional business environmental
factors need to be taken into account
that may be taken for granted within a
Domestic Sourcing Approach?
Production & Procurement Decisions
|We have the experiences and
expertise to help you decide What to Source,
Where to Source, and How to Source.
framework we use to guide the decision of
What and Where to Source?
evaluation criteria to determine Where to
you work with a third party or establish your
own production or sourcing unit in the country?
international companies had established
their own sourcing capabilities and done
well in a Low Cost country. Overseas
production, procurement and marketing
operations are a cross-functional effort
that has impacts across all existing
functions. However, the decision of using a
third party may still be a better option for
most medium-sized companies.
Companies migrate from one option to another
based on their objective and internal
capability development. Most successful
companies initially enter into a global
sourcing strategy by leveraging third party
trading agents. Once increased trade volumes
and strengthened market positions are
established, there is an evolution from an
agency relationship to an established IPO in
the particular country. For large purchase
volumes, running a direct-procurement
division should be less than the cost of
dealing with an agent. Generally, if a
company purchases less than $100 Million a
year from one country, it makes better sense
to use a third party, at least at the
company decides to build its own in-country
procurement unit, it needs to establish a
basic set of capabilities such as recruiting
in country procurement specialists,
establishing processes to ensure integrity,
understanding government regulations and
local business practices, and most
importantly setting up testing/monitoring
procedures to ensure product quality and
Using decision-making criteria and total
cost analysis, Argopackaging can assist you
to make the right decision and provide
sourcing services according to your specific
How to Mitigate risks:
with its 29-year open-door development,
China is still an economy of high complexity
and risk for operating a global business.
With that well-recognized fact in mind, we
develop and execute strategies for each step
of sourcing activities to mitigate risks.
|Other factors to
consider in adopting an overseas production
and procurement approach
A company needs to assess total costs product-by-product
when making the sourcing decisions. Total
cost of ownership should take into consideration
of Labor cost, Raw Materials, Machine depreciation,
Tooling/Mould cost, Energy, Overheads, Packaging,
Supplier margin, Transportation, Duty related
costs, and Overhead.
It is important to be aware of internal resistance
for the cost-migration plan. When there are
many benefits from sourcing globally, your
internal procurement, inventory, logistic
and quality control organizations will have
many concerns. To execute the sourcing plan
successfully, it is important to have an effective
communication and change management plan.
Having executive buy in is critical to achieving
and Sourcing Locations:
Sourcing location is also an important consideration
in the decision making process. The factors
for selecting a site includes infrastructure,
transportation, communication, local government
policy & support, labor skill & knowledge,
and supplier market density
Asian countries’ corporate business
structures and taxation systems are largely
incomplete and in a constant state of flux.
Taxation can be a particularly notable area,
as developing countries often open up “tax-friendly”
business zones. Being able to fully understand
those business zones and policies will enable
international companies to effectively leverage
them and generate benefits for businesses.
Many companies have an awareness that they
need to develop a deep understanding of local
business cultures and relationships when negotiating
for quality, service and price, however this
is very challenging to put into practice.
The mentality, means and experience required
to build a true and working “guanxi”
(relationship) vary differently from culture
to culture. It is our ability to navigate
across these cultural differences that will
enable your business to establish stronger,
more secure supplier relationships that will
in the end lead to an improved customer experience.