Transport systems and technology
Transport systems and technology render the world as a global village. Individuals and corporations find it easy to conduct business. Many companies can source raw materials and sell final products in the international market to increase competition and market share. However, to do business requires an organization to conform to international and local laws. Source country laws to ensure the company runs its operations effectively without the likeliness of lawsuits.
In our example, when sourcing the raw steel from Italy, which means international sourcing, issues that need addressing include:
Regulatory environment and compliance
Countries have independent rules, standards, and regulations on how business is conducted. The rules apply to foreign consumers like some countries can state that for their products to leave for another country, they need value-addition first before release. The value addition is a way to capture highest price for the goods. It is vital to conduct business in consideration of the end consumer.
Ethics
The profit maximization objective should not be the driving force. The company should ensure they are ethical in the sourcing of raw materials. Many organizations in the past have been criticized due to the source of raw materials. For example, chocolate making companies criticism because they source raw materials in regions where there is child labor. In our situation also, the company should ensure that the company selling the raw materials conforms and abides by the local laws and regulations. Customers will have a negative perception if they realize that the organization’s source of raw materials. The company should join and consult the Fair Trade Social Movement, which aims at ensuring producers receive equitable compensation for the products.
Quality
One of the main reasons for sourcing raw materials outside the country of operation is the cost. In most situations, prices and quality have a direct relationship, meaning low expenses are associated with low quality. In international sourcing, it takes a long time to rectify quality products due to time differences and lead time, and the company should ensure the raw materials are of high quality to prevent making a loss.
Monetary risk
Most organizations Source their raw materials due to low costs, but international has many financial implications. Forecasting when conducting business outside the country of operation is characterized by unanticipated rising shipping costs, delays for goods in transit, and additional expenses like storage costs associated with the delays due to approvals in the source country.
Taxes, tariffs, and custom duty
Many organizations sourcing products internationally are enticed by low prices, not aware of other additional costs that will come hand in hand with purchases. Every country has its tax rates, and before deciding to purchase the raw materials, it is necessary to know the tax rates and custom duty applicable to purchases to have a more comprehensive picture and know how much it will cost in total.
Operational barriers
There are many barriers to international business caused by different factors. These factors can trigger the swiftness of conducting trade, and the counsel should ensure documentation on the structural way of doing the business. Such barriers include communication, logistical issues, terms of payments, and methods of payments. Both parties, the organization buying, and selling should sign the document. The document acts as the constitution between the two parties in case conflicts arise in the future, and the document is used to settle down the issues.
Taking care of the issues raised ensures smooth operations by an organization due to the elimination of the logistical problems, following local and international laws, and ethical responsibility. Global business needs extra care compared to a local operation, but the rewarding is also high due to operational advantages like a vast market.