Four things to check before working with a foreign supplier

It’s hardly surprising that in 2019, Germany, Italy, and France were Switzerland’s main trading partners, as reported by the Federal Customs Administration. Neighboring countries have long been traditional partners of the Swiss. However, newcomers are on the rise, namely Vietnam, Hungary, and Hong Kong, and this recent activity clearly demonstrates that Swiss companies want to expand.

Here are four essential points to check on before engaging with a foreign supplier.

It’s important to choose your foreign supplier partners well

Working with foreign suppliers can provide many advantages to a Swiss company. Low costs, greater production volume, access to specialized goods… expanding your business to the international market can potentially provide an important competitive advantage.

In addition to positioning your company at the heart of a new market—much larger than the Swiss market—engaging foreign suppliers is a challenge that will naturally lead to corporate restructuring and will improve your business over the long term. Moreover, having a presence in several markets can serve as a form of diversification, a salvation in the event of an economic crisis in one of those markets.

However, the right selection of suppliers is crucial to success because the quality of the products or services sold by your company, and therefore ultimately customer satisfaction, will depend largely on those foreign suppliers. Therefore, it’s best to be meticulous in choosing your foreign suppliers. In addition, you should always be on the lookout for additional and/or new suppliers. That way, you will not be dependent on one supplier alone, which will provide you with some power in the next round of negotiations.

# 1 Geographic location

It is absolutely essential to know the location of your future foreign supplier business partner before you do any work with them. This is a strategic factor for several reasons.

First of all, a language difference should not stand as an obstacle to a smooth business relationship. It is ideal to work with German, French, or Italian-speaking suppliers, depending on the manner in which your company typically conducts business. English, being an international language, would, of course, be of great assistance. Translators could facilitate communication if need be.

The same is true of cultural differences: it is much easier to deal with suppliers from a country that we know, whose habits and customs are familiar to us, given their importance in commercial relations. Moreover, it is easier to establish a relationship of trust with a foreign supplier who has already been working with Swiss companies for years.

In order to expeditiously determine the business practices of suppliers in a specific country, contact:

• The Swiss embassy of the selected country;
• Commercial departments of banking institutions;
• Other importers in your particular industry; and
• Trade associations in your particular industry.

In addition, you should visit the selected country and attend trade shows that they host.

# 2 The optimal price-quality ratio

Just as one Swiss company working with another Swiss company would be very careful about the quality and price of the goods or services provided, the quality-price ratio offered by a foreign supplier must be studied in detail.

The quality of the products or services acquired is generally a compromise between their price and the level of regulation and protection in force in the supplier’s country.

Although suppliers from developing countries often offer attractive prices, the quality of the goods, the degree to which their standards adhere to those required in Switzerland, and supply chain management issues might not meet expected standards.

In addition, taxes can vary greatly depending on the supplier’s country of origin. This is why it is important to visit the supplier directly to see where they source their materials. You will also want to inspect samples.

# 3 Payment terms and delivery timeframes

Since the goods will be transported over a long distance and across one or more national borders, payment and delivery methods and delivery timeframes will clearly differ from what you are used to when dealing with a Swiss supplier. Therefore, it is important to study them carefully and make sure that they are compatible with the goals of your company and the manner in which your company typically conducts business.

Although payment and delivery terms may be covered by commonly accepted international rules such as Incoterms, it is essential that you pay special attention to each of your orders.

As far as payment terms are concerned, foreign suppliers are likely to offer any of the following (from the most advantageous to the importer to the least advantageous):

• Payment once shipment and receipt of the goods by the exporting company has been made;
• Payment during transit of the goods, by means of import documents transmitted to the importing company’s bank;
• Payment guaranteed by the importing company’s bank upon presentation of export documents; and
• Payment in advance, implying that the goods are only sent once the supplier has received payment.

Finally, you also have the option of paying a percentage in advance with the balance due upon receipt of the documents (cash against document) or upon physical receipt of the goods.

In general, your company should seek to minimize its exposure to risk by limiting advance payments as much as possible. However, as part of the negotiation process, exporters frequently require a significant portion or even the entire payment in advance. So, unless you stand in a strong negotiating position, your company may have to make some concessions.

Noteworthy: As part of the business relationship, it may sometimes be necessary to engage secondary suppliers to handle all the shipping and customs formalities.

Finally, the currency in which you make payment is often a key bargaining chip! Paying a supplier directly in their local currency can indeed allow you to negotiate better prices or better contractual terms.

# 4 Reliability and solvency

It’s particularly important to verify the foreign supplier’s reliability and financial health before entering into a business relationship. This can be difficult to assess during initial contact.

The easiest way to be sure that a foreign supplier is reliable—to the extent possible—is to check with other importers who have been using their services for a long time. The reputation of the supplier, particularly with regard to respecting deadlines, providing quality products, acting ethically, and adhering to standards—which will have a direct impact on the importer’s image—is a strong indicator of reliability.

The supplier’s creditworthiness can also be checked with other business partners and by consulting any available financial data, especially if they publish certain figures or results on their website.

Now you know the four essential points to check before entering into a business relationship with a foreign supplier. These will help you make the most of your company’s business expansion!