4 things to check before working with a foreign supplier

Germany, Italy, France… Switzerland’s main trading partners, as revealed by the Federal Customs Administration for 2019, come as little surprise. However, its fastest-growing partners – namely Vietnam, Hungary and Hong Kong – clearly demonstrate Swiss companies’ desire to expand.

Here are four key points to check before doing business with a foreign supplier.

The importance of choosing the right overseas suppliers

For a Swiss company, working with foreign suppliers can offer numerous benefits. Lower costs, increased production volumes, access to specialised goods… expanding into the international market can potentially provide a significant competitive advantage.

As well as positioning the company at the heart of a new market—one far larger than the Swiss market alone—sourcing from foreign suppliers presents a challenge that naturally leads to restructuring and improvements that will prove beneficial in the long term. Furthermore, having a presence in several markets can serve as a form of diversification that proves vital in the event of a targeted economic crisis.

However, the selection of suppliers is of paramount importance, as the quality of the products or services sold by the company—and, ultimately, customer satisfaction—will depend largely on them. It is therefore advisable to be meticulous when choosing a supplier and to continually seek out new options, so as to hold a strong hand in negotiations and avoid becoming dependent on a single partner.

#1 Geographical location

The first thing to check before working with a foreign supplier is the country in which your future business partner is based; this is a key piece of information for a number of reasons.

First and foremost, language differences should not be allowed to hinder the smooth running of the collaboration. Ideally, you should work with German-, French- or Italian-speaking suppliers, depending on the company’s profile. English is, of course, a great help as an international language, and translators can, if necessary, facilitate communication.

The same applies to cultural differences: it is far easier to deal with suppliers from a country we know well, where we are familiar with local customs and practices, given how important these are in business dealings. Furthermore, it is easier to build a relationship of trust with a foreign supplier who has already been working with Swiss companies for years.

To effectively find out about the practices of suppliers in a specific country, you can request:

• the Swiss embassy in the selected country;
• the trade visits and exhibitions available in the selected country;
• the sales departments of banking institutions;
• other importers in the relevant sector;
• the trade associations in the relevant sector.

#2 Good value for money

Just as a Swiss company working with a domestic partner will be very particular about the quality and price of the goods or services supplied, the value for money offered by a foreign supplier must be examined in detail.

The quality of the products or services obtained is generally a trade-off between their price and the levels of regulation and protection in force in the supplier’s country.

In fact, suppliers from developing countries often offer competitive prices, but the quality of the goods, compliance with the standards required in Switzerland, and the logistical management of transactions may not meet the expected standards.

Furthermore, taxes can vary significantly depending on the supplier’s country of origin. This is why it is important to visit the supplier in person, so that you can see where they source their goods and examine samples.

#3 Payment terms and delivery times

Given the long distance involved, particularly when crossing one or more national borders, the payment methods and delivery times differ significantly from those offered by a Swiss supplier. It is therefore important to examine them carefully and check that they are compatible with the company’s profile and objectives.

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

With regard to payment terms, foreign suppliers are likely to offer (from the most favourable to the least favourable for the importer):

• payment once the goods have been dispatched and received by the exporting company;
• payment during the transit of goods, via import documents sent to the importing company’s bank;
• payment guaranteed by the importing company’s bank upon presentation of export documents;
• payment in advance, meaning that the goods are only dispatched once the supplier has received payment.

Finally, you also have the option of paying a percentage upfront, but settling the balance only upon receipt of the documents (cash against documents) or upon physical receipt of the goods.

Generally speaking, your company should aim to minimise its exposure to risk by limiting advance payments as much as possible. However, during negotiations, exporters frequently demand an advance payment of a significant portion, or even the entirety, of the total amount. Unless your company has considerable bargaining power, it may well have to make some concessions.

Good to know: In the course of business, it may sometimes be necessary to engage third-party suppliers to handle all the formalities relating to shipping and customs.

Finally, the currency of payment is often a key negotiating point! Paying a supplier directly in their local currency can indeed enable you to negotiate better prices or more favourable contractual terms.

#4 Reliability and creditworthiness

Key considerations before entering into a business relationship with a foreign supplier include the supplier’s reliability and financial health, which can be difficult to assess during the initial stages of contact.

To ensure that a foreign supplier is reliable, the simplest approach is to seek as much information as possible from other importers who have been using their services for a sufficient length of time. The supplier’s reputation—particularly with regard to meeting deadlines, product quality, ethical standards and compliance with regulations (all of which will have a direct impact on the importer’s reputation)—is a strong indicator of reliability.

The supplier’s creditworthiness can also be checked with other business partners, as well as by reviewing all available financial data, particularly if they publish certain figures or results on their website.

You now know the four key points to check before entering into a business relationship with a foreign supplier, so that you can make the most of your company’s business expansion!