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. Its fastest-growing partners, however – 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 your foreign suppliers carefully

For a Swiss company, working with foreign suppliers can bring numerous benefits. Lower costs, higher production volumes, access to specialised goods… expanding into the international market can potentially give you 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 – turning to foreign suppliers is a challenge that naturally leads to restructuring and improvements that pay off in the long run. What’s more, having a presence in several markets can be a valuable form of diversification in the event of a targeted economic crisis.

That said, choosing the right suppliers is essential, since the quality of the products or services sold by the company – and ultimately customer satisfaction – will depend largely on them. It therefore pays to be thorough when selecting a supplier and to keep prospecting continuously, so as to carry weight in negotiations and avoid depending on a single partner.

#1 Geographical location

The first point to check before working with a foreign supplier is the country your future business partner is based in – a strategic factor, for several reasons.

First of all, the language difference should not be allowed to hold back the collaboration. Ideally, you should work with German-, French- or Italian-speaking suppliers, depending on your company’s profile. English is of course a great help as an international language, and translators can, where needed, make communication easier.

The same goes for cultural differences: it is far easier to deal with suppliers from a country you know well, whose customs and practices are familiar to you, given how important these are in business relationships. It is also easier to build a relationship of trust with a foreign supplier who has already been working with Swiss companies for years.

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

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

#2 Good value for money

Just as a Swiss company working with a domestic partner will scrutinise 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 attractive prices, but the quality of the goods, compliance with the standards required in Switzerland, and the logistical handling of transactions may not meet the expected standards.

What’s more, duties can vary considerably depending on the supplier’s country of origin. This is why it is important to visit the supplier in person, in order to see where they source their goods and to examine samples.

#3 Payment terms and delivery times

Given the long distance involved – crossing one or more national borders in the process – payment methods and delivery times clearly differ from those offered by a Swiss supplier. It is therefore essential to study them carefully and check that they are compatible with your company’s profile and objectives.

Although payment and delivery terms may be covered 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 most to least favourable for the importer):

• payment once the goods have been shipped and received by the exporting company;
• payment during transit of the 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 the goods are only sent once payment has been received by the supplier.

Finally, you can also pay a percentage in advance and only settle the balance upon receipt of the documents (cash against documents) or upon physical receipt of the goods.

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

Good to know: In the course of the business relationship, it may sometimes prove necessary to call on secondary suppliers to handle all the formalities relating to shipping and customs.

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

#4 Reliability and creditworthiness

Particularly important points to check before entering into a business relationship with a foreign supplier, reliability and financial health can be difficult to gauge during the first contacts.

To make sure a foreign supplier is reliable, the simplest approach is to gather as much information as possible from other importers who have been using their services for long enough. The supplier’s reputation – particularly regarding on-time delivery, product quality, ethics and compliance with standards (all of which 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, 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 you can make the most of your company’s expansion!