Slide 1International versus Global SourcingInternational PurchasingSlide 4Key International Purchasing IssuesCultureSlide 7Language and CommunicationSlide 9Slide 10LawSlide 12Total CostSlide 14OrganizationSlide 16Currency Risk ManagementSlide 18Slide 19Slide 20Slide 21Slide 22Slide 23CountertradeSlide 25Sources of InformationGlobal Sourcing BenefitsSlide 28Slide 29Key Differentiates of A Successful Global Sourcing ProgarmMajor Problems in Global Sourcing Progarm1Worldwide SourcingIDIS 424Spring 2004Chapter 112International versus Global SourcingWhat is the difference between international purchasing and global sourcing?International purchasingInternational purchasing is the process of buying goods and services from suppliers outside your firm or business unit’s country of operationGlobal sourcingGlobal sourcing refers to the proactive integration and coordination of material and service requirements across worldwide business units, looking at common items, processes, technologies, designs, sourcing practices, and suppliers3International Purchasing       Why do we source internationally?4International Purchasing       What makes international purchasing more complex than domestic purchasing?5Key International Purchasing IssuesInternational purchasing topics…CultureLanguage and communicationLawTotal or landed costOrganizationRisk management, including currency risk managementCountertradeSources of international information6CultureA system of shared beliefs (the way things are done around here)Values (the way people think)Behavior (the way people act)Major complaint about Americans is their ignorance of other cultures7CultureDifferences in manners are usually not problems unless taboos are violatedExample: It is totally incorrect to hand something using your left hand in the Middle EastExample: Wearing a white shirt signifies death and mourning in the Philippines Value DifferencesharmonyBuyer-Seller rankOrientation toward guilt or shameuse of first-names8Language and CommunicationIf a supplier is using English as a second language, the buyer should be responsible for preventing communication problemsAdjust your speaking styleSlow downUse extra presentation graphicsWrite down big numbersWatch your language (profanity, jargon, acronyms)Watch your grammarWatch your body language9Language and CommunicationThe two largest differences in communication styles across countries are message speed and level of contentAmericans generally give fast messages with the conclusions expressed first. This style is inappropriate in many countries, particularly EuropeHigh-context communication assumes the receiver already understands a great deal of background information10Language and CommunicationBring an interpreter to all but the most informal meetings. Allow an extra day to educate interpreters on your issues and vocabularyDocument, in writing, the conclusions and decisions made in a meeting prior to leavingRemember that many words do not translate well11LawThe U.S. uses common or case law, which leads to lengthier and more detailed contracts than are found in countries that use code or civil lawMany foreign countries do not like to deal with U.S. law and long contractsBribery (facilitating payments) and reciprocity, while illegal in the U.S., are often not illegal overseesHave a written and signed document that describes the expectations of the buyer and seller. It does not have to look like a U.S. contract12LawAdvanced, industrial countries have legal systems that can be trusted to treat foreign companies fairly. Developing countries may not There is no effective legal protection in many countries against intellectual property piracy. Perform a thorough reference check of prospective suppliersTrue international contracts exists if they follow the Convention on the International Sale of Goods (CISG). The U.S. has signed this convention13Total CostTotal cost in international purchasing is also called landed costInternational purchasing may include many additional cost components compared with domestic purchasing…Unit priceToolingPackagingTransportationDuties/tariffsInsurance premiums14Total CostInternational purchasing may include many additional cost components compared with domestic purchasing…Payment termsFees and commissionsPort terminal and handling feesCustoms broker fees TaxesCommunication costsPayment and currency feesInventory carrying costs15OrganizationInternational purchasing officesWorldwide commodity teamsThird-party supportWorldwide strategy review and coordination sessionsExecutive steering committee support and guidanceLead buyers or site expertsGlobal matrix structuresInformation technology systemsOrganizational Support Mechanisms16OrganizationWhat do International Purchasing Offices (IPOs) do to support international purchasing?Identify foreign suppliersSolicit quotesExpedite and trace shipmentsNegotiate supply contractsObtain product samplesManage technical problemsRepresent the buying firm to the suppliersManage countertradePerform site visitsInternational Purchasing Offices17Currency Risk ManagementApproaches for managing currency risk…Purchase in U.S. dollarsSharing currency riskCurrency renegotiation or adjustment clauses Currency hedgingFinance department expertiseCurrency forecastingEscape clausesCurrency Risk Management18Currency Risk ManagementTwo major types of adjustment or renegotiation clauses:Delivery-triggered adjustment clauseTime-triggered adjustment clause Currency Adjustment Clauses19Currency Risk ManagementDelivery-Triggered Adjustment ClausesA contract for 3000 castings with Nippon Steel is issued on June 1, with delivery of 1000castings to be on June 30, July, 30 and August 30. A currency adjustment clauseis written into the contract establishing a base exchange rate of 100 yen per dollar +/- 4%. Upper BoundaryLower Boundary104 Yen/$96 Yen/$Currency RangeJune 30: Yen appreciates to 90 yen per dollar. What should happen?July 30: Yen is 97 yen per dollar. What should happen?August 30: Yen moves to 100 yen per dollar. What should happen?100 Yen/$ base20Currency Risk ManagementTime-Triggered Adjustment ClausesAn annual contract for