Thursday, July 5, 2012

What does it take to source and do contracts internationally?

That was a question someone asked. While anyone can source internationally, it takes a substantial amount of knowledge and skills to be able to do it right.

There are differences in general laws of each country and their contract law. For example in some countries penalties are allowed whereas in others penalties are prohibited.

There are differences languages, cultures and the way business operates in different parts of the world. For example, if you have never done business with a Japanese company before you may not know that culturally they will not say no. They will say that something will be very difficult. You may think that they will do it, while they have no intention of doing it.

Each location may also have different risks such as political and financial. For example the current economic crisis in places like Greece would create significant risks as it can make both the currency unstable and the interest rates increase or funding dry up.

If there is a problem with what you purchase, how successful you would be in enforcing your contract rights will vary by country. Even if you had the contract be your local law as being applicable and the case litigated in your jurisdiction, unless the other party has significant assets in your country you would still need to try to enforce the judgment in their country through their court system.

How long it may take to resolve disputes or the dispute resolution process used will vary by country. For example arbitration is standard to use for contract disputes in India as the legal system is so clogged it could take fifteen years for a case to be heard.

If you buy through distribution channels you need to understand the impact that has on your contract and who is standing behind the commitments. If you buy through distribution the privity of contract on that purchase is with the distributor, not the supplier.

In establishing a landed cost model you need to understand distribution costs, costs of licenses, fees and duties that will be charged and you will need to be able to hire customs brokers and shippers to move product. For example products from some countries when shipped into the United States are subject to anti-dumping fees that could add significantly to the landed cost of the product.

There are significant differences in import laws and import duties that can have a major impact on a supplier’s ability to acquire materials from certain countries.

If you have high value product you probably would want to know shipping lanes that have the highest frequency of loss. Piracy still exists and there are still locations where the potential loss of a shipment is high due to theft.

Currency and hedging is also knowledge you should have, as you have your currency, the supplier’s currency, and possibly another country’s currency involved. If you agree to pay in the supplier’s local currency the exchange rates can impact your cost either positively or negatively and you may need to hedge against that risk by buying forward rate contracts.

If you are supplying your IP or designs you need to know that IP will be protected. Not all countries, especially those of a communist background, provide the same protection for a company’s IP rights.

You may need to check to ensure the supplier isn't making extra of your product to sell into the black market that may compete with you as a way to improve their profits.

Each country and each company is at different levels in their management of quality. You need to know what you will be getting into so you can manage it.

These are only some of the issues.

A good book to read about the cultural differences so you don’t alienate the other party is “Bow, Kiss or Shake Hands, (the Best selling guide to doing business in 60 countries)” by Terri Morrison and Wayne A. Conaway.

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