Last updated on December 8th, 2022
When it comes to running your own business, there are a lot of terms and phrases which business owners learn about for the first time. I get a lot of questions asking for explanations about different terms – and global procurement is one of them.
So, here I will be covering what global procurement is. If you are wondering the same thing but can’t find a source that explains it well, then I hope the information below will help you out immensely!
What Is Procurement?
Before I go onto what global procurement is, I first need to explain what procurement itself is.
Procurement (see also, ‘What is Service Procurement?‘) is an essential part of running a business as it involves both sourcing and obtaining the goods and services which are vital for supporting a business’s operations.
What this means is that procurement involves going to third party businesses and organizing ways for them to supply your business with goods and services to help it function.
For example, perhaps the products you sell (see also, ‘How to Sell on Amazon Without Product‘) require a specific type of polymer plastic – going to a manufacturer and purchasing those raw materials is a type of procurement.
So is hiring the machines needed to turn those raw materials into products, and hiring the people to run and maintain those machines, and the materials needed to pack them up, the trucks to deliver them to your customers’ doorstep, and hiring the drivers for the trucks – these are all examples of procurement involved in making one product and getting it to your customers.
Procurement is not a simple ‘buying and selling’ process.
A lot of research goes into finding the right supplier, negotiations to make sure your business gets a fair price, and inspecting the goods and services to ensure the suppliers uphold their end of the bargain – or your unhappy customers will blame you for poor quality products or missing goods.
There are two main types of procurement found in business. The first is direct procurement, which is the process of obtaining the goods and services needed to produce your business’s end product.
The second type is indirect procurement, which includes all the goods and services your business needs to function including laptops for your employees, marketing resources, even office supplies like pens and paper.
As you can see, procurement is vital for a business.
What Is Global Procurement?
If procurement is the process of obtaining goods and services for your business, global procurement is when you source and obtain those goods and services from all around the world.
Basically, you’re not shopping locally for your raw materials and marketing services – you are obtaining them from different countries.
Global procurement is huge.
The global procurement service market is expected to grow to $13.58 billion in size by 2030, and other studies expect global spending on outsourcing to reach $731 billion in 2023. This means that many companies are involved in global procurement – but why?
The Benefits Of Global Procurement
Global Procurement Can Cut Business Costs
Many businesses (61%) use outsourcing as a cost cutting tool.
Companies that outsource some of their processes to the Philippines report that they can cut their labor costs by up to 70%. As a result, outsourcing globally for indirect services means that businesses can save more on costs.
There are many factors behind this. Different countries have different labor laws, different costs of living, different standards of pay – and all this means that it can be a lot cheaper to make a product in a different country then ship it to the states.
Global Procurement Can Lead To Better Quality Services
Accounting and IT services are the two most popular processes small businesses (see also, ‘How to do Bookkeeping and Accounting for Small Businesses‘) outsource to another company.
According to this survey from Clutch, 37% of small businesses report that they outsource their accounting and IT processes, with 34% outsourcing digital marketing, development (28%) and other services like human resources (24%) and customer support (also 24%).
The reason why processes around accounting, IT services, and digital marketing are outsourced is most likely because outsourcing these processes lead to a higher quality of service.
Not every business owner can be expected to be an expert in finances, IT, and marketing.
As a result, their work in these areas may not be as effective or efficient as when an actual expert takes over.
So, some small businesses prefer to outsource these as it frees up more time for them to concentrate on aspects of their business they are confident in while knowing that the expert they have hired will be doing a better job than them at it.
Global procurement allows you to find the best of the best.
This means that you don’t have to settle for the nearest accountant – you could find someone that can handle your business’s finances from the other side of the world but they have the best security, the best data management systems, and the highest quality people working in their team.
Global Procurement Provides Greater Access To Goods
Probably one of the main benefits of global procurement and why so many businesses source goods and services outside of their base countries is because there is more goods on offer when you ‘shop’ internationally.
Trying to source your materials and sources within the same country your business is based in means that you are seriously limiting yourself on the resources you can access and also at what price they are sold.
Sometimes, it’s more affordable to source a type of wood for your products from another country and ship them in than it would be if you sourced the same material in your current country.
Also, there’s more variety of products available internationally so you can find better value materials at a better price.
So, global procurement is the term used when you obtain your goods and services from outside your business’s origin country.
Due to benefits including cheaper costs, higher quality, and more options available, a lot of businesses procure their goods and services beyond their country’s borders – but not always.
Some businesses find outsourcing globally to be too expensive and I’ve seen some find better options at home. So don’t feel that you need to use global procurement when it makes more sense to source your goods and services a little closer to home.
I hope this has helped you understand global procurement!