Many enterprises have started low cost country sourcing from countries like China and India, where the prices of goods are lower than their domestic counterparts. But there are a few considerations that you must keep in mind before deciding on the countries that you want to source from. For instance, you must know the regulatory framework of the country you plan to source from. It would be best if you also learned about the country’s multilateral trade policies.
Understanding the existing regulatory frameworks
If you’re in the business of foreign trade, you may have already heard of Foreign-Trade Zones (FTZs) and the benefits they can offer your company. FTZs are secure zones that are overseen by Customs and Border Protection (CBP). Generally, foreign and domestic merchandise may be moved into FTZs for manufacturing, processing, assembly, or exhibition purposes. Although not mandatory, FTZs have a proven track record in boosting economic growth in the U.S. Moreover, FTZs are not limited to the big leagues.
As you can imagine, FTZs have their share of naysayers. For example, navigating the often convoluted zone rulesets isn’t a cakewalk. However, FTZs are an excellent choice for manufacturers who want to save money or those who wish to expand their international reach without the hassles of doing business abroad.
The most obvious benefit of operating in a foreign trade zone is the reduced cost of doing business. While the cost of goods produced in the U.S. can sometimes be prohibitive, FTZs allow manufacturers to reap the benefits of cheaper labor, raw materials, and other essentials required to produce top-notch products.
Understanding the country’s multilateral trade policies
Multilateral trade is a term used to describe the process by which countries set up trade agreements with each other to reduce tariffs on certain products. This is a common method of encouraging trade. However, a lowered tariff is not the same as free trade.
The World Trade Organisation (WTO) is a global trade system established to ensure that all member nations are treated fairly. Aside from WTO rules, countries can negotiate bilateral trade deals. These are usually made up of bilateral safeguard measures, which allow them to suspend preferential tariff treatment for a partner country temporarily.
Four main agreements form the foundation of the WTO: the General Agreement on Trade and Tariffs (GATT), the Agreement on Agriculture (AoA), the Trade-Related Aspects of Intellectual Property Rights (TRIPS), and the Multilateral Agreement on Investment (MAI).
The WTO is a global trade organization that sets international trading rules for 160 member countries. Its main purpose is to encourage fair and open competition and provide a dispute resolution body to handle trade disputes.
Keeping supply chain records in an FTZ
There are several factors to consider when it comes to keeping supply chain records in an FTZ. First, an importer or exporter must determine whether an FTZ is right for them. Second, an understanding of the FTZ program is necessary.
The Foreign-Trade Zones (FTZ) program is designed to benefit any company involved in international trade. They enable companies to import raw materials, finished products, and other goods without paying duties. This allows companies to take advantage of more competitive prices while lowering costs and improving their competitiveness.
An FTZ is a designated area near a U.S. port. Keeping supply chain records in an FTZ requires complete warehousing and inventory information. It also involves transportation companies and materials to move the goods.
Some benefits of an FTZ include faster customs handling, reduced administration costs, and more flexibility in managing inventory. In addition, FTZs can help improve speed to market by enabling the shipment of goods directly from an FTZ to a U.S. market.
Choosing a suitable category for low-cost country sourcing
Sourcing from a low-cost country is a way for businesses to boost their profitability. It is a strategy that enables companies to source materials, technology, or other services from countries with lower costs.
However, a business should conduct a detailed cost analysis before deciding to source from a country to determine whether it is feasible. This includes the labor and transportation costs involved. In addition, companies should assess the risks associated with the sourcing process.
If you are planning to source a product from a low-cost country, you should also consider the quality of the materials. To guarantee the quality of the product, it is essential to have a quality inspection performed. Investing in quality control will ensure that your products align with the budget you set for them.
Another consideration to consider when considering sourcing from a low-cost country is the tax structure. Businesses can save on taxes by investing in free-trade countries.
