Presented by, Jeinorvay Vitalis

Introduction Basically procurement is the process of acquiring

goods and services from outside the external sources. Goods, services and works supplied by external sources must meet the standard requirement outline by the buyer. The US Defense Acquisition University (DAU) defines procurement as the act of buying goods and services for the government.

Research objectives1. To find out the what are the benefits and risks on

international procurement perspective.

2. To see whether there is an evidence of international procurement issues globally.

Research Question1. What are the benefits of going international

procurement?

2. What are the risks of international procurement?

Methodology : Secondary resources Journal articles

Past research paper

News articles

International Procurement In a global economy, international procurement is a

term used to describe the process of allowing firms around the world to bid on contracts for goods and services. (WiseGeek.com)

The concept has gained popularity as shipping and transportation costs have decreased due to an influx of cheap, readily available fuel. The globalization of large corporations has allowed them to reap the benefits of lower labor and materials costs while still selling the same quality and quantity of products.

Benefits of international procurement Lower the costs

In international procurement, industrialized nations purchase goods from countries with a lower dollar, gaining in the currency exchange.

Product specialization - some items have a lower cost of production, based on the natural or human resources available in different locations.

Benefits of international procurement Eg. Low cost-country sourcing (LCCS), mainly done to

reduce the operating cost of business. A procurement strategy in which a company uses foreign

companies with lower wages to produce resources for manufacturing.

By finding companies that are operate on leaner budgets than domestic operations, a company may be able to reduce operational expenses.

The customer and the supplier countries like US, UK, Canada and Australia considered as high cost country

Whereas resource rich and regulated wage labor locations like China, India and Indonesia, considered low cost countries

Sources: http://www.gibsonconsulting.com

Benefits of international procurement Stimulation of a global economy

• Each nation must have some contribution or basket of goods that they can offer to potential customers.

• Country which have resources that could not be produce by other country can benefit them, thus vice versa to the other country

• For instance, A country with no natural oil can build an oil drilling mechanism as to be supply to country that have natural oil.

Risks of international procurementFraud risks

• a particular instance of such deceit or trickery

Some of the suppliers received the buyer’s payment for deposit, but failed to deliver goods and services.

This is a transaction trap for the buyers which causes losses to be direct and difficult to recover.

Failure of either party to fulfill the conditions of the contract

Eg. (PricewaterhouseCoopers) PWC, one of the broadest and most comprehensive economic crime surveys had have ever conducted — with over 5,000 global respondents found that 29% are among procurement fraud

Sources: http://www.pwc.com/gx/en/economic-crime-survey/

The sectors reporting the most procurement fraud were state-owned enterprises, followed by energy, utilities and mining; engineering and construction; and transport and logistics.(global economic crime survey 2014)

Risks of international procurement Purchasing quality risk

Concerning to the quality of the goods and services acquired

The suppliers of the product and services doesn’t meet the standard quality requirement which will bring economic issue and corporate reputation loss to the buyer.

Risks of international procurement Eg, Two-thirds of the Supply Management Jury believe Chinese

suppliers no longer deserve a reputation for poor quality. (article) Lee Parkinson, director of Parkinson Procurement, said Chinese

suppliers have improved their processes and quality management systems. (positive)

Eunja Hwang, supplier expeditor at Howden stated that, We have had more quality-related issues with Chinese material than from other countries. (negative)

There is an ambiguity issue purchasing quality of goods and services from another country.

Sources: http://www.supplymanagement.com/news/2014/chinese-suppliers-dont-deserve-reputation-for-poor-quality-say-buyers

Risks of international procurementSupplier management risks

• When suppliers are far away and thousands miles apart, the supplier of choice will cause greater risk.

• Relationships between supplier and buyer have to be worked out and maintain as there are always problems will occur in procurement process.

• Spoken language can be one of the reason why international procurement process can somehow be misunderstood. Buyer and supplier interpreted information differently.

• Communication through communication device can be very easily misunderstood by supplier

Risks of international procurement Phones 4u collapse 'classic example' of supplier

relationship breakdown. (article) There is a problem occur in next generation negotiation of

contract with suppliers. Bargaining. Unexpected decision of EE (Everything Anywhere) and

Vodafone to withdraw supply from Phones 4u. Suppliers’ decisions to end the supply indicate that

something must have gone wrong when next generation contracts were being negotiated

In the end, phone 4U have been decided to enter into administrationSources : http://www.supplymanagement.com/news/2014/phones-4u-collapse-classic-example-of-supplier-relationship-breakdown

Conclusion As the conclusion, international procurement does

have it own benefits and risks toward procurement process. Buyer should be equip mentally and physically before choosing whether to pursuing procurement internationally on domestically. Most importantly, the rules and regulation pertaining to international procurement process should be enforced strictly so to ensure good procurement practice.