Small international companies face a magnitude of challenges when sourcing, developing and manufacturing in Asia. From limited resources to effectively identifying and managing suppliers and having little knowledge of local cultures and best practices, they often find themselves at a disadvantage against their supplier counterparts. This directly impacts their negotiation capabilities, operational risks, and longer-term efforts to sustainably and successfully scale.
In this article, we explore some of the challenges smaller companies face when procuring from Asia and how partnering with Onward Global can help them optimize, save, and grow.
As MIT Professor Yossi Sheffi says, “Products can be easily copied. But a supply chain can provide a true competitive advantage.”
The Hurdles Small Companies Face Procuring from Asia
Small companies often struggle to find reliable suppliers capable of meeting their quality, quantity, and cost requirements. This is usually because they lack the resources – such as experienced staff or financial capital – to visit Asia in order to engage multiple suppliers, evaluate them, build relations, and set clear direction on what’s expected. Ineffective sourcing not only results in higher procurement costs, reducing profitability but also longer-term operational, reputational and financial risk.
Operational Management & Oversight
Managing day-to-day operations to ensure timely responses, accuracy, and compliance from a distance can be challenging. Without real-time follow-up and oversight, this not only leads to delays but also the risk of suppliers taking advantage. When suppliers know customers aren’t around to check on them, their leeway increases to cut corners, prioritize other orders, or make excuses. It also increases the risk of unethical supply-chain practices, such as sub-contracting.
Small companies often lack the bargaining power that larger companies have when negotiating with Asian suppliers. This results in less favorable pricing and terms. Being overly dependent on a single supplier without leverage also poses risks if disputes or issues arise. Without leverage, it’s hard to maximize accountability.
Knowing Best Practices & Terms
Unfamiliarity with local business practices, cultural norms, and industry-specific terms can lead to misunderstandings and miscommunication. As importantly, it can lead to lost opportunities by not knowing when best to negotiate, how, or what terms to agree to. This can directly impact opportunity, risk mitigation, and profit maximization.
Legal Risk Management
The notion of “standard contracts” often leads to a false sense of security. Legal recourse can often be limited or unpredictable in some Asian countries. This is especially the case when customers introduce contracts to their suppliers that lack enforceability. Signing contracts with suppliers is critical, but it requires considering local courts and realistic enforceability. It also requires being coupled with effective sourcing, supplier management, operational oversight, and quality control measures.
Small companies may lack a reliable network of local contacts, consultants, or partners who can provide guidance and support. This can be important during strategic planning, investment considerations, or in the case immediate help is all of a sudden needed. Difficulty in finding assistance can result in lost opportunity, delayed issue resolution, and growth capabilities.
All these outlined challenges have a cascading effect on a company’s bottom line and longer-term success.
How to Improve Leverage, Reduce Risk, and Increase Profit
Onward Global has worked with a variety of large and small companies, each facing unique challenges and opportunities. This has provided Onward Global with incredible insight and experience into what works and doesn’t and how companies can best implement improvements that ensure long-term and sustainable results. The below outlines examples of how smaller companies can especially benefit from working with Onward Global as they seek to enhance efficiency, reduce risks, and increase profitability.
Supplier Management & Accountability
As companies grow, so do the number of product categories, order quantities, and the number of suppliers involved. Managing this can become complex, and without doing so efficiently, challenges can quickly mount. By being “on the ground,” Onward Global provides companies with local assistance in managing their supplier relations and operations. With Onward Global involved, supplier accountability and compliance also increase. This ensures a consistent and reliable supply chain, reducing disruptions and enhancing product/service quality.
The Power of Options: “Huo bi san jia.”
Huo bi san jia is a famous Chinese idiom meaning “Always compare multiple shops when buying products.” Smaller companies often start business with a supplier and naturally grow with them over time, never considering or having the resources to know what other options exist. Relying on a single supplier increases supply-chain risk if the supplier faces an issue, though. Onward Global helps companies identify, assess and on-board new suppliers, providing companies with opportunities and diversification options. When a supplier knows they have competition, this also increases a company’s leverage to negotiate better costs, terms, and compliance.
Quality Standardization & Compliance
Many smaller companies lack formal product standards, systems or enforceability measures to ensure their products meet their desired quality, functionality, and safety prior to shipment. Onward Global works with companies to first define their quality standards and criteria. It then works closely with suppliers to train them on those standards and ensure they have adequate processes in place to meet those during mass production. Onward Global also provides inspection services, holding suppliers accountable for compliance while helping companies reduce the risks of defects in order to ensure customer satisfaction is always met.
Standard Operational Procedures Implementation
As companies grow, so do their employment infrastructure, communication and reporting channels, projects, and compliance requirements. Lacking organization in how this is managed can not only create inefficiencies in how things are done, but it can also impact a company’s ability to execute accurately and in a sustainable and scalable manner. This, of course, also impacts profit. Onward Global believes that it’s better to do things right from the start than try implementing improvements once it’s too late. By evaluating what works and doesn’t early on and documenting best practices in procedures, standards and expectations, Onward Global helps companies streamline operations. This not only reduces errors and improves productivity internally, but it also does so externally with both suppliers and customers alike.
Your Terms, Not Theirs
Time and again, companies tell Onward Global, “We’ve been working with our supplier for a few years now, and that’s the terms they required.” Or, “We just assumed those were industry terms.” While it’s expected that smaller companies have limited leverage when first starting a supplier relationship, it’s important that they control their relationship dynamics and position themselves to negotiate terms that help them grow. This includes both costing and payment terms. Working with Onward Global, companies not only increase their leverage to negotiate but also learn what terms to aim for and the best strategies to achieve them.
However small a company, large legal complexities always exist when procuring from or doing business in Asia. One of the biggest mistakes companies make, small and large alike, is believing that just because they spent big bucks on a legal agreement and had their supplier sign it, it protects them. Onward Global works with companies not only in the drafting of agreements but also in ensuring they’re written and signed by suppliers in a manner that ensures their full enforceability where each supplier resides. Failing to consider this, local legal practices, and the unique dynamics of each buyer-supplier relationship more often than not results in foreign companies believing they are legally protected from things that they in reality, are not.
As companies grow, the ability to make informed, forward-looking strategic decisions becomes paramount. Naturally, smaller companies often lack the resources or time to think of anything other than what’s immediately in front of them. Onward Global works with a variety of different companies across a wide range of product categories and currently operates in China, Vietnam, Cambodia, India, Bangladesh and Indonesia. This diverse expertise, network, and insight allow Onward Global to provide the companies it works with data-driven information on emerging trends, models and competitive advantage. This allows companies to maximize operational investments in alignment with longer-term considerations and goals.
Smaller international companies procuring from Asian suppliers face a range of challenges that can hinder their growth and profitability. By proactively addressing issues like supplier accountability, negotiation leverage, and quality compliance, they can not only benefit from improved short-term results but also position themselves to scale in a more efficient and sustainable manner.
Onward Global provides smaller companies with the tools they need to navigate cultural considerations, optimize operations, minimize risk, and build a resilient supply chain ahead of next-level growth.