Sourcing is a fun business because it is constantly evolving. Developing new products abroad requires keeping your fingers on the pulse of a number of issues and developments, both short term and long term, taking place in many different countries. On the ground level, it's important to know that there is a difference between a company that produces a good product for the domestic market and a company that is prepared to export a product to foreign markets. From a macro perspective, there is a difference between countries and regions that are a bit premature for stable, cost-effective sourcing operations and those that are mature. The more you'll be investing into working in a country, the more in-depth your investigation ought to be. Consider just a few of the macro-forces at work that shape who is doing what, where, how, and why:
- trade relations
- economic development
- government regulations
- business trends
- commodity prices
- technology
- culture
Trade Relations:
Trade relations between the United States and a given country can have a substantial impact on long term sourcing strategy. Vietnam will continue to become an attractive destination to do business, particularly after their admission into the WTO. If you are having trouble sleeping at night, visit the WTO page regarding Vietnam's accession, and you can download and view three reports, hundreds of pages long, listing Vietnam's commitments and schedules for tariff reductions, subsidy ceilings, etc. All these items entail the reduction of trade barriers in both goods and services between our countries, making Vietnam an increasingly attractive place for foreign companies to do business.
Take the apparel industry for example, garments and textiles will have some of the largest reductions, as governement subsidies in this sector will be eliminated. One of the biggest export earners for Vietnam, the textile and garment industry will no longer be subject to quotas from its largest customer, the United States, as well as other countries. The U.S. will carefully monitor the effects of this, but taken in conjunction with the safeguard quota schedule imposed on textiles imported from China, Vietnam is already reaping the benefits. Check out this article by Just-Style, an organization that keeps tabs on the apparel trade for more info. The article points out the increased business Vietnam and other developing countries have enjoyed because of the quotas imposed on China, but also notes that the long-term effects are still up in the air due to the fact that the US's current quota schedule for China will end in 2008.
What are the implications for an overseas sourcing strategy? Well, the most obvious is that it's important to watch the consequential developments closely. The political climates in Washington and Beijing and the dialogue between them will be very important in what happens over the next 3-5 years. But what can be done aside from just watching and reacting? Major retailers, who in the past have had containers of apparel goods sit idle for over 6 months because of quotas, don't want to get caught again with their pants down...in a customs warehouse (I couldn't help myself). Thus, many are seeking more diversified sourcing strategies and set up supplier networks in multiple countries. Even though keeping abreast of trade relations and trends is important, as trade agreements flourish in a spaghetti bowl fashion, multiple-country sourcing strategies will become more popular as risk mitigation strategies. It's very difficult to predict what is going to happen. There will be a point where your small business will have grown to handle it's supply chain within the first country it has begun. Once you have stabilized your operations there, this will be a good point to begin investigating what possibilities are out there in other countries. If you do begin production in another country, your risk will be spread and your chances of absorbing damaging trade policies will be less.
