Meaning
Procurement strategy involving the acquisition of components or raw materials from international suppliers to optimize supply chain costs. Companies use cross-border sourcing to access specialized technologies or lower cost labor markets available outside their primary jurisdiction. This method requires a sophisticated logistical network to manage the physical movement of goods across borders.
Selection Logic
Evaluation of potential vendors focuses on the total cost of ownership rather than the invoice price alone. When a firm engages in cross-border sourcing, it must account for transport lead times and the stability of the supplier’s local regulatory environment.
Tariff Burden
Customs duties and value added tax on imports significantly impact the financial viability of international procurement. In China, cross-border sourcing requires careful classification under the Harmonized System codes to ensure correct duty rates are applied. Errors in classification lead to delays at the port of entry or financial penalties from the General Administration of Customs.
The use of bonded warehouses or free trade zones can defer these costs until the goods enter the domestic market for consumption.
Regulatory Risk
Compliance with the Export Control Law of the People’s Republic of China is mandatory for certain high technology components. If the cross-border sourcing involves dual use items, the importer must secure the necessary permits before shipment. Failure to adhere to these rules results in the seizure of goods and the blacklisting of the offending enterprise.
