How to Lessen Import Sourcing Concerns
Risk Analysis Checklist for Finding Honest Suppliers
May 9, 2009
If not structured properly, the search for a trustworthy supplier in another country can lead home country businesses into extreme-risk situations. A great deal of money can be lost. In fact, entrepreneurs who have not done the proper due diligence sometimes have to declare bankruptcy.
The following analysis can be used to construct a checklist for evaluating proposed suppliers from around the world.
Where Supplier is Located
Entrepreneurs need to exercise extra care when a potential provider is located in or near countries with known trade problems. Examples include piracy in Somalia as well as armed conflicts in Afghanistan and Iraq. Trade costs are much higher for these high-risk countries, which often require sky-high insurance premiums. It should come as no surprise that Canadian businesses first focus on countries like the United States with which they enjoy friendly relations and favorable trade terms under the North American Free Trade Agreement (NAFTA).
Importers should also meditate on whether prospective supplier countries have received poor press on human rights violations, tainted food products or any other topic. This could negatively affect sales of goods imported from those nations.
In addition, entrepreneurs should visit the World Trade Organization (WTO) website which lists outstanding trade disputes by country. For example, Canada has a longstanding complaint against European communities for unreasonable duties imposed on imported Canadian wheat.
Company Reference Check on Supplier
Importers must verify how long a prospective supplier has been in business from credible third-party sources. This includes existing clients, competitors, and even suppliers to the prospective supplier. Retailers in the supplier’s home country may also have revealing information about those businesses and their products. An important question to confirm is how fast the supplier can replenish inventories during peak periods like the Christmas rush in December.
Another quick way to investigate online is via Google keyword searches. Importers can type in both the company name plus the word complaint into Google search, and then research any pertinent items returned.
Entrepreneurs are encouraged to check with local embassies or the Trade Commissioner in the supplier’s country of residence. These parties will answer questions and communicate any adverse information about the supplier’s past history.
On discovering any past or present disputes that are not settled, careful entrepreneurs then patiently delve into the reasons why not.
Personal Reference Check on Supplier
In addition to investigating a supplier company, entrepreneurs need to conduct individual reference checks on principal owners and executives for the supplier.
This can be accomplished by checking with trade associations, business councils, chambers of commerce and professional affiliations to see if that person is a member in good standing.
These days, a great deal of information about business people is available online on such global resources as Twitter, Linked-in and YouTube. Even random searches on these social networking sites can uncover warning signs about companies known for borderline business practices or who are immersed in consumer disputes.
For example, a YouTube search on Oliver Jewellery reveals that DC Comics once sued gold trader Russell Oliver for impersonating Superman in a commercial. Researching YouTube videos can have considerable weight in deciding whether one can reliably import gold from the individual seen on screen.
Credit Check on Supplier
Import companies need to know that their suppliers will be in business when inventories need to be replenished. In general, banks and other financial institutions are good sources for credit checks on the financial health of suppliers. However, financial companies typically provide only partial information in the credit check as a way to keep positive relations with their customers.
Alibaba.com is an international trade site that links up importing and exporting companies by product. This global trade portal offers profiles on participating buying and supplying companies. For a fee, Alibaba.com will verify listed companies on its site.
Query Freight Forwarders and Insurance Brokers
Entrepreneurs should discuss with freight forwarding professionals details regarding workflow, financing and potential issues for transporting the imported products from the departure point to final destination. For example, a large shipment of rice can sink a cargo ship if moisture is allowed to contaminate the containers holding the grain.
Before finalizing any deal, importers should schedule time with several experienced insurance brokers in order to gain a full understanding of the financial risks of doing business with a specific foreign country supplier.
Given the large number of sources and questions to investigate, importers need some type of paper or online system to track findings of their searches for a trustworthy international supplier.
Sources for this Article
This article presents independent insights and comments based on a review of Dr. Harmeet Singh Kohli’s analysis titled International Trade – A Simple View to a Complex Process (Global Training Center, Inc).
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