A sourcing agent is a regional representative who performs outsourcing activities on behalf of the employer.
The Need of Sourcing Services
In most cases in today’s global market, sourcing agents are located in low cost countries. High cost country companies, who want to gain competitive advantages by purchasing components, products or materials from low cost countries such as China, Vietnam, Thailand and Latin American locations but who don’t want to set up an IPO (international procurement office) abroad, may well employ a representative in the country to search for, select, negotiate with suppliers.
Language and Culture
High cost country companies often don’t have in house language capability or cultural knowledge to do the sourcing work on their own. Dealing with suppliers who speak Asian languages and in foreign cultures is totally different from dealing with domestic suppliers.
Services provided
Often, services provided by sourcing companies can include market research, vendor / supplier selection, price negotiation, quality assurance, quality control, raw materials pre-positioning, shipping and logistics, pre-shipment inspection, customs clearance, etc.
Fees
The structures of fees vary among sourcing companies. The most common is a commission based on the free on board (“FOB”) cost of the products sourced as negotiated with the client. FOB is the cost of manufacturing the product and delivering it to the freight forwarder. Some sourcing companies provide an alternative called landed duty paid (“LDP”). LDP, alternatively, is the price of both manufacturing and actually delivering the product to the client (e.g., includes costs of shipping, logistics, customs clearing, etc.). Other types of fee structure include annual retainer fee with performance bonus or fee based on savings achieved.
The total fee payable to a sourcing company in Asia ranges from 1% to 7% depending on the quantity and quality of the services provided and the complexity of the product being sourced.