Offshore Sourcing: An Ever-Shifting Landscape, Part I

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.

Working with Independent Sales Reps

We get a lot of questions about finding and partnering with the right ISRs (independent sales reps).  George Krall, National Sales Manager for Regal Lager/Baby Bjorn, a distributor for the juvenile products industry, has written a great article on what's involved in a strong working relationship with an ISR (posted in Baby Shop Magazine).  You can quickly refresh yourself or learn about your responsibilities and those of the rep, and what are the most important elements in creating a successful sales team for your product.  It's not surprising that Mr. Krall finds that "the key factor in the success of a company/rep relationship is founded in the selection process".  Why would you ever entrust the sales of your product or the production of your product to people or companies that you haven't thoroughly investigated and believe to be the right provider of each? 

Launching Your Product: Go Big or Go Home

The Marketing Profs, a great website which puts out bite-sized tips on marketing your business, put out a good article reminding us not to let ourselves think the job is done when the product is on the boat and will soon be in customers' hands.  The article, Launching Your Product: Seven Marketing 'Musts', gives some great ideas and inspiration for the ever-critical marketing aspects of launching your product.  The steps are (my comments in parenthesis):

1) Secure a great name
2) Nail down the "what is it?" description (especially all you former NASA engineers out there)
3) Establish a strong visual identity
4) Insist on effective creative (codeword for: an attention-grabbing promotion strategy)
5) Promote in multiple channels
6) Tier your message
7) Collaborate from the get-go

Most articles out there focus on the marketing aspects of a new product launch.  That's because marketing is so hard to get right.  Between Engineering, Manufacturing, Marketing, Sales, Product Support, and Field Serivce, there's a lot to keep track of.  Most of these steps will occur before your product actually touches down in your market.  This is just a reminder to make sure you plan for marketing to lead up to GOING BIG when it will.

Step 1) Product Development Schedule; Step 2) Set First Customer Ship Date

Calculating your first customer ship date can be tricky business.  When you are engaging in product development and marketing simultaneously, you must make sure that not only are you letting the customer lead you down the path towards the product they really want, but you know how long it's going to take to get it to them before you begin promising ship dates. 

It is not uncommon to encounter companies or inventors that have done remarkable jobs of generating buzz for their product, but find themselves in a bind because they didn't realize that developing and getting a high-quality, finished product to market can be a time intensive process.  Of course, this greatly depends on the complexity and uniqueness of the product.  But, too often, inventors and smaller companies attempt to mitigate their risk by evoking demand from the marketplace before they thoroughly investigate all the steps that will be involved in getting their product into their customers' hands.  What is the second question a potential customer or distributor, who loves your product, will ask you?  "When can I get it?"  (The first question is, of course, "How much is it?")  It's very tempting to want to throw out a promise at that point.  Some experts might advocate the strategy of 'get the sale, worry about making it happen after'.  And, you might be able to scramble and hasten a few steps in the process, but if your product requires some sort of testing or certification, such as by UL, then there's no getting around that time requirement.  Timing things like media attention, product development, and product launch is an art.  It's extremely difficult to get everything right.  When taking new products to market, nail down a development schedule with some extra time for cushioning, and you'll save yourself a lot surprises and backpeddling.

Web Resources for Product Launch

Squidoo?  It's a website that allows people to create a "lens", or aggregate web resources on a particular topic.  Websites that break down the web into more navigable, useful sources of information like this are becoming increasingly important in the ever-expanding internet.  Tatsuya Nakagawa, president and CEO of Atomica Creative, a product marketing firm, has put together this lens on product marketing.  It has quite a few helpful resources on this issue. 

Indonesia: Beginning to Get it Together

Since I lived in Indonesia a few years ago, the country has experienced impressive signs of growth and potential.  The economy is "lebih sehat" (in better health) as they might say.  But, as most know, they've also experienced the devastation of natural disasters, terrorism, and other setbacks.  Unfortunately, disasters like these have always seemed to make for better news than 5% yearly economic growth over the last few years.  Or, the first democratic elections in over 30 years, in which there was a 90% voter turnout rate and proceeded in a peaceful fashion.  These are some respectable achievements only 8 years after the Asian Economic Crisis sent the whole region into a tailspin and ousted a government that held power since the 1960's.  But when I overheard a conversation the other day about traveling to Bali, and one woman asked "Isn't that where that horrible earthquake was?", and another woman chimed in, "no, that's where the terrorists blew up a bar", I realized that Indonesia needs to hire a PR firm in America.  They really have made some laudable advances, but you wouldn't otherwise know it if you tuned in to the majority of media outlets here.   

They certainly have a ways to go, but the challenges they have had to deal with and the accomplishments they have made in this decade are worth pat on the back.  A politically stable, low-wage country with considerable natural resources stands to offer quite a lot.  If ASEAN (Association of Southeast Asian Nations) is able to move forward with bilateral and regional trade agreements, and the government can effectively deal with the growing workforce and stabilize the country, we will see a resurgence in economic activity and foreign direct investment in the region.  Keep your eyes on Indonesia.  In five to fifteen years, the largest muslim nation in the world could be a major economic force in the region.