Finding International Product Sources

Helping Hands

Working with a consultant who can compare the strengths and weaknesses of countries and set up appointments overseas before you fly is a good first step in your search. Local trade organizations and chambers of commerce often offer assessments of consultants.

Some entrepreneurs shun consultants, preferring to use online marketplaces, but these can be risky. Michael Zey , professor of management at Montclair State University in Montclair, New Jersey, says: "If you go to the net and put in 'sourcing to China,' you'll get a slew of companies purporting to help you through the barriers. The question is, How do you know if they're good?"

Thad Hooker knows the danger of relying too much on the internet. "I did a lot of internet research before a trip to Vietnam," he says. "But when I got there, I found the people I'd contacted tended to be [middlemen], not direct contacts with factories or artists."

Some smaller companies planning to source extensively hire an executive who has overseas experience with a larger company, even if the executive's work was not in the country from which the company is sourcing. "If [the executive] has had experience in another developing country, even Mexico, those soft skills and experience--dealing with red tape and corruption--are transferable," says Runckel.

Whether working with a consultant or handling sourcing yourself, you should also examine industry research on suppliers through organizations like the Federation of International Trade Associations and trade groups specific to your industry. Also look into U.S. government assistance programs. FITA has comprehensive business directories on many source countries, while the Export-Import Bank now offers larger capital loans for small global traders. The U.S. Commercial Service's Gold Key Matching Service introduces entrepreneurs to U.S. embassy officials overseas, who then introduce Americans to local suppliers.

Making Your Move

If you've been briefed on foreign cultures, know what you're looking for and are stocked with in-flight reading, you're ready to hire a supplier. At this point, remember a few crucial keys for success:

1. Hire a source that's not a competitor. It's best to find a supplier whose own business does not directly compete with yours and who isn't tempted to rip you off. Intellectual-property protection can be a major problem in Asia. Robert Kushner, 38, president of Pacific China Industries , a novelty manufacturer with 20 employees, mostly based in Hong Kong, knows the drill. He recently outsourced a product to a factory in China, and the samples came to him with a design flaw. "The factory [told] me, 'We know how to fix the flaw.' Why? Because they'd already knocked off my item and were selling it themselves," says Kushner.

To protect himself, Kushner now insists on having his own inspector inside Chinese factories. For valuable items, he spreads the product components across numerous factories so no one supplier has the prototype for the entire piece. His most trusted supplier does the assembly.

Other smart entrepreneurs, Runckel notes, insist on a nondisclosure agreement before they contract with a source, or they try to patent the item in the source country itself. That way, if a supplier rips them off, it is vulnerable under local law. Hooker obtained an official importer certification from Thailand, which could help him curry favor with the Thai government if he runs into any of these problems.

2. Determine a source's turnaround time. For many entrepreneurs, finding a source that can move quickly is critical. Three years ago, Mia Abbruzzese, 39, left her job as an executive for a major shoe company to start her own shoe business, Boston-based Morgan & Milo . She's learned an important lesson along the way: When you have a small company, you don't have as much power with factories as a large company operating its own factory does. "I can't dictate to my factories--being smaller, you don't have that kind of control," says Abbruzzese. "So if I can find someone who can do it quickly, I can succeed."

3. Give your source an exact model of what you want produced. "It's always better to cost something from an actual item rather than an idea of an item," says Adams. You can obtain a form called an ATA Carnet from the U.S. government that lets you import commercial samples duty-free.

Finding someone who will accept an irrevocable letter of credit--a promise by a bank to pay the source--is also important, Runckel says, because this adds a bank's oversight to the process. In addition to letters of credit, other types of financing include a bill of exchange, which is essentially a check. Of course, like a personal check, a bill of exchange has a higher risk of fraud. Some entrepreneurs, like Hooker, prefer to use cash for smaller orders because they get better deals from sources that way.

Logistics is another area that can perplex entrepreneurs. "Don't assume that your source understands transport; you have to manage it yourself," says Runckel. He suggests finding a top-quality freight forwarder who has worked with first-time importers. The freight forwarder can assist you with all elements of cargo, including negotiating the documents needed to move containers, such as bills of lading, which are the contracts between the source, the shipping company and the buyer.

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This article was originally published in the June 2005 print edition of Entrepreneur with the headline: On Foreign Soil.

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