Without a doubt, over the last two decades, the Internet has helped more and more small businesses to become international. Like them, your business doesn’t have to be mega-big to trade globally.
However, when you decide to take advantage of the global supply chain to build your business, there will inevitably be challenges along the way. Knowing how to manage your international vendor relationships becomes key to ensuring your international business sails smoothly.
Unlike arm’s length transactions, building international vendor relationships is a long-term strategy that needs to be enriched and maintained on an ongoing basis.
In 2009, my husband and I started our own small international business. Since then we have developed some successful partnerships with our overseas suppliers, yet at the same time we have also had some frustrating experiences.
I would like to share some painful but formative lessons we have learned along the way that could be valuable to your start-up international business.
1. Never underestimate the importance of relationships
First of all, you have to be mentally ready to engage in an international relationship. Being open-minded and understanding of cultural differences is a prerequisite.
As my husband once said:
Understanding culture is not about knowing when to bow or how to eat the food, it’s about appreciating your partner’s worldview enough to anticipate how they might be inclined to perceive you and your actions.
Ultimately you can only put yourself in that person’s shoes if you have some feeling for the life experiences that person has had before they encountered you.
For instance, you don’t have to speak Chinese in order to do business with people in China.
English is an international language and any Chinese companies which trade internationally will have people who can communicate in English proficiently.
The obstacle is not the language; rather, it’s the way people think about business problems and how these ideas influence their conduct.
2. Don’t lose focus as you make your first steps
China is a fast-growing economy and, as such, the rapid pace of business development often brings about problems. Sometimes, people only focus on the final results, while paying less attention to details and quality.
This is especially true for new companies and SMEs that often lack the resources to cope with unforeseen challenges.
So when you first start doing business with Chinese companies, you have to be patient, flexible and forgiving; even though you know the outcome may be less than ideal, you must be willing to give it a try.
It may take multiple attempts to get a product right, but it’s possible for those who are persistent.
3. Take the time to choose your future suppliers carefully
Once you’re mentally ready, it’s time to find the right suppliers for your business. It’s much harder to find the right suppliers overseas than locally.
Sometimes you may need to take an overseas business trip, but even visiting a lot of factories in person will not guarantee success. Conducting plenty of research beforehand is of absolute importance.
Your choice of country shouldn’t depend on your own preference. It should be based on a country’s competitive advantage.
For example, many textile products in North America were produced in China during the 1990s, because of the abundance of low-cost labour and the technological capabilities of China’s textile industry.
However, as labour costs in China have increased in recent years, more and more textile companies have shifted their manufacturing from China to other developing countries such as Vietnam and Cambodia.
This shift means, compared to other countries where labour is less expensive, China no longer enjoys an overwhelming competitive advantage in the textile industry.
When it comes to choosing the right suppliers, it’s important to narrow down your choices and qualify your options based on a set of criteria.
For example, the quality of a company’s website, trade references, product samples, and communication are all important indicators for qualifying a potential supplier.
A third party’s onsite evaluation or factory audit can often save you the expensive costs of an overseas visit.
4. Plan ahead to ensure the quality your customers demand
Finding the right supplier is only the first step towards a successful international vendor relationship. There are also many risks associated with long distance relationships.
One of the biggest risks, in my opinion, is quality control. It’s important to articulate clear specifications and standards to your suppliers.
Equally important is your willingness and ability to foresee and pre-emptively mitigate any problems that might occur.
It’s crucial to insist that pre-production samples be delivered to you prior to production. Hiring a third-party agency to perform a quality inspection during production and/or before shipment is an effective way to ensure products meet specifications.
Be sure to inform your supplier of the inspection before they start production, as this will make them more cautious during production.
5. Reduce risk by diversifying your suppliers, but not at the expense of building trust
As mentioned earlier, building successful international relationships requires a long-term commitment. At the same time, it’s very risky if you only have one supplier for your key product lines. Don’t put all your eggs in one basket.
It’s necessary to have more than one supplier, especially in an unstable economy. Your key supplier could go out of business in a year or even a month.
This has happened to us several times over the years. Each time we had to start all over again to find and qualify a new supplier. Therefore, it’s smart to have at least one other supplier as a backup.
Although having multiple suppliers is important in managing risks, reducing the number of suppliers and focusing on your key supplier will help you build and manage a long-term relationship.
Just as you evaluate your suppliers, your suppliers will evaluate you as a customer. Overseas suppliers often assess their customers based on the importance to their business.
If your business is of significance to your supplier, they will value you as an important partner.
Keeping your promises, such as consistently paying on-time, is one of the ways you prove to your supplier that you are a good customer with whom it’s worth building a relationship.
Although it takes a lot of time and effort, developing and building trust is not only worthwhile – it’s absolutely critical to your success.
6. A strong contract can help prevent expensive legal disputes
The reality is that disputes can and will happen even with your best suppliers.
To resolve an international dispute through legal means is much more complicated and expensive than with domestic disputes. Most of the time, it’s easier to negotiate and settle disputes privately rather than through legal action.
That said, you should always have some sort of contract in place in order to set clear expectations.
Once a purchase order (PO) is accepted, it becomes a simple but effective form of contract between a buyer and a seller. Any terms and conditions should be stated clearly in your PO to your supplier to avoid the possibility of a dispute.
Again, an understanding of cultural differences plays an important role in avoiding and settling disputes. Sometimes, there is a way to find a win-win solution to minimize the harm for both parties.
There are many more strategies and tactics in managing international vendor relationships which you will learn through experience.
All in all, having an open-minded and understanding approach is essential for small businesses interested in building relationships with international vendors.
What have your experiences with international vendors been like? How can you apply these lessons to your current or future vendor relationships?