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For businesses looking to optimise supply chains, reduce risks, and enhance cost-effectiveness without compromising quality, Thailand stands out as a compelling destination.

With around 25% of US companies surveyed by the American Chamber of Commerce in China considering relocating, many are adopting a "China +1" strategy. Industry giants like Apple and Samsung are diversifying production to countries like Vietnam and India, addressing rising labour costs, geopolitical tensions, and the need for resilient supply chains.

Thailand, heavily reliant on services and tourism, was hit hard by COVID-19 and has since focused on economic diversification. Significant investments in infrastructure, such as the Eastern Economic Corridor (EEC), and a commitment to carbon neutrality by 2050 make it an attractive manufacturing hub.

ANCA Manufacturing Solutions (AMS), an Australian-owned business with a decade of successful operations in Thailand, specialises in contract manufacturing, component sourcing, packaging, and distribution. Our deep regional expertise helps businesses navigate sourcing challenges effectively.
 

10 Common Pitfalls of Sourcing in Asia—and How to Avoid Them

 

1. Contracts Provide Confidence

Many suppliers will provide standard terms and conditions with their quotation this will be used in the absence of a contract.

A contract gives the supplier the confidence to work with their suppliers for the longer term and lower their costs based on future business, allowing them to be more competitive and speed up a production process. It offers you, the buyer, more security that the product will be delivered on time and within budget.

Take the time to read the standard terms and conditions and create a non-disclosure agreement (NDA) and a contract – this will help to protect yourself and your interests. You can negotiate:

• Better payment terms

• Better warranty conditions

• Exclusivity agreements so that supplier cannot work with any of your competitors

• Non-disclosure agreements (NDA)

• Intellectual property protection
 

2. Protecting Ownership and Intellectual Property (IP)

Understanding who owns the company is crucial, especially for safeguarding your intellectual property. Research the company's ownership structure and reputation to gauge their reliability and commitment to protecting intellectual property (IP) rights and inquire about their IP protection policies and procedures.

Request an NDA to protect sensitive information and ensure confidentiality. Your data is paramount, and you need reassurance that your suppliers’ servers are up to date and secure.

Questions to ask yourself:

• Do they have supplier NDAs for their contractors?

• Do they have employee NDAs?

• Do they have a dedicated I.T. team?

• How is your information being stored and how is it managed?
 

3. Payment terms pay off.

Know what the payment terms are. Payment terms can vary from:

• Full cash in advance

• Deposit up front and the rest upon receipt of goods

• 30, 45, 60, 90, or 120 days after shipping

Payment terms can make a big difference to your cash flow. Terms can be improved or reduced depending on how your relationship develops over time.

This is where paying suppliers on time pays off. And be aware of any late payment fees in standard terms and conditions.
 

4. Overcoming Language Barriers

Language barriers can hinder effective collaboration and understanding between you and your suppliers.

Overcoming this challenge involves considering the management team's background. Find out where they are from and the team’s first language and language capabilities. It is important to be confident you can conduct technical conversations and meet your requirements effectively.

Ensuring effective communication channels and possibly hiring translators can also help bridge the language gap if the management team are not native English speakers.

Cultural difference may also play a part in the understanding of design intent. What is taken for granted in the West may not be common knowledge in Asia or even a standard.

Dealing with multiple suppliers in different languages can be very difficult to manage lead times, delivery dates, incoterms, packing, warranty, and quality requirements. Where possible it is best to work with one turnkey supplier who can manage the entire supply chain in the local language on your behalf and deliver a finished assembly.

5. Managing Time Zone Differences

Delayed responses and difficulties in coordinating project timelines can be the challenges of dealing with suppliers in different time zones. To address this, it's important to establish clear expectations regarding communication and availability.

Ensure that the suppliers are available after hours, if needed, to improve the time delay and work as a partner rather than just a supplier. This will help facilitate real-time collaboration and minimise

delays in decision-making. Consider if your supplier has local support in your country to help bridge the time zone and communication hurdles?
 

6. Ensuring Social Responsibility Compliance

Evaluate if the company complies with the Modern Slavery Act, particularly if ethical sourcing and responsible business practices are important to you. Inquire about the company's Corporate Social Responsibility (CSR) activities and whether they are part of anti-corruption alliances.

Do they provide social welfare, pension, minimum wage, and support to their staff? Check if they are following the law and regulations for occupational health and safety.

Even if your company is not directly impacted by these laws, compliance is becoming a global business standard.
 

7. Managing Currency Risks

Currency fluctuations can impact the cost of the item you’re buying. Managing currency conversions and implementing hedging strategies is essential to mitigate risks.

Are you paying the supplier in your home currency or in theirs? If payment terms are 30-60 days the supplier may hedge the currency exchange rate to reduce the risk of the exchange rate dropping. This will mean at the time of payment you may be paying more that the current exchange rate. The supplier is going to be hedging the FX rate in case it turns for the worst and they lose out.

One solution is to pay in the local currency of the supplier. Track the exchange rate and pay within the payment terms at a rate that suits you best. This will reduce your cost by removing the suppliers hedging and with a rate that benefits you.

If you are paying in the supplier’s currency, then it’s wise to consult with financial experts or currency exchange specialists to develop a robust currency risk management plan. Explore options such as forward contracts or currency hedging instruments to stabilize costs and protect against adverse currency movements.

For long standing partners, payment in advance when rates are good will benefit both parties. As the customer, you get a more favorable exchange rate and the supplier improves their cash position.

Revolut or TransferWise business accounts are two options to aid in international transfer with reduced fees. Please note these are not affiliated, so do your own research like forward contracts or consulting with banks.
 

8. Verifying Certification and Quality Standards

Compliance with certification and quality standards is essential to maintain product integrity. Inquire about the supplier's PPM (parts per million) rate or their quality metrics to assess their quality track record. Additionally, verify if they hold certifications such as:

· ISO9001 (Quality Management System)

· IATF16949 (Automotive Quality Management System)

· AS9100 (Aerospace Quality Management System)

· ISO13485 (Medical device and related service)

You can request documentation and evidence of their compliance with these standards. Confirm the company that is doing the accreditation is well known and highly regarded.

Having these accreditations demonstrates a supplier's ability to meet rigorous quality standards, ensuring reliable, high-quality products. They reduce the need for extensive audits and are key differentiators, particularly in industries with strict regulatory demands.
 

9. Supporting Sustainability Initiatives

Climate change is on the lips of governments, industrial estates, and companies alike, if this is important to you and your company, here are some questions you can ask to get some reassurance.

• Does the supplier have a vision for working towards carbon neutrality or net zero?

• Ask for an explanation of their plan and how it will be implemented?

• What steps have already been implemented?

• Do they hold ISO14001 certification for environmental management?

• Can they provide ROHS compliance if requested?
 

10. Supplier Competency Assessment

Where possible, it is useful to visit your supplier. If the supplier is in Asia, it’s also a great place for a holiday, but take the holiday first so you can action items after the visit.

A one-two-day visit will help build your working relationship and your understanding of the supplier’s capabilities. They may have capabilities you never knew they could offer. But more importantly it can help with their understanding of your requirements and the partnership.

A factory visit helps you quickly assess where the company is on their quality and lean manufacturing journey. You can see how they manage their processes and procedures; how many people are in the business and how busy they are, are they understaffed with people doing multiple roles? How clean and tidy is the facility is, do they utilise lean principles like 5S and Kanban, and what is the quality of the tools and measuring equipment they are using? These insights give you a clear and complete picture on what can be achieved.

If visiting is not an option, you can hire an independent local contractor to audit the company or consider virtual factory tours using video calls for initial assessments.
 

Thinking about relocating your production to Asia?
Let ANCA Manufacturing Solutions be your trusted partner in navigating the complexities of offshore sourcing. With local expertise, English-speaking support, and end-to-end manufacturing capabilities, we make the transition seamless.

Contact us today to start your journey with confidence.

6 February 2025