2. 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.
3. Research objectives
1. 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.
4. Research Question
1. What are the benefits of going international
procurement?
2. What are the risks of international procurement?
6. 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.
7. 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.
8. 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
10. 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.
11. Risks of international procurement
Fraud 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
12. 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)
13. 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.
14. 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
15. Risks of international procurement
Supplier 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
16. 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
administration
Sources : http://www.supplymanagement.com/news/2014/phones-4u-collapse-
classic-example-of-supplier-relationship-breakdown
17. 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.
