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As margins continue to be squeezed, one question often asked by sourcing managers is whether or not to use a trading company. Surely, the argument goes, dealing direct with a factory is the best route to better prices and quality. Sourcing consultant Philip Worrall explains why this is not always the case.

In many cases going direct to the right manufacturer will indeed result in the best prices. However, there are also a number of reasons why this may not be possible.

It's full!

The minimum order quantity is too large;

The factory doesn't speak your language;

Lead-times are too long;

It is not willing to make sales samples;

The terms - letter of credit, pro-forma etc - may be unacceptable;

The factory doesn't have a sales team or an export licence;

Independent inspection will be required, adding another cost.

In contrast, sourcing through a trading company can open up a whole new world of factories that a retailer or brand would not normally consider, and yet can be as equally competitive. These factories don't have a sales team and rely solely on the trading company to provide business. It's then about the relationship that the merchandiser (trading company) has with the owner of the factory.

In many instances the trading company can take care of the following:

Compliance - the factory will be audited by its compliance team to the retailer/brand standard;

Trading terms can be agreed direct with the trading company, which will also be capable of taking the credit and/or insurance risk;

It will be able to offer factories capable of producing a specific product yet willing to make the samples, minimum order quantity (MOQ) etc;

There will be no language barrier;

It will be responsible for quality and will inspect to acceptable quality level (AQL).

Sourcing is about being flexible. There is no one way to make a garment - and there is no one way to source it either. Therefore, the decision on whether to go direct or not must be determined according to short, medium or long-term business needs, as well as key sourcing criteria.

For example, a direct and indirect approach in terms of factory selection was taken for an active sports brand requiring technical outerwear, mid-layers, base-layers, T-shirts and accessories, but which lacked a development and production team. The diversity of product, combined with the technical nature and quantities required, necessitated a different approach for each category.

The brief was to provide quality, but on key product lines a volume price was needed. In addition, the client wanted to know that prices were competitive, so all styles were initially dual sourced at least to prototype stage.

Sourcing is not just about price, but the ability to find the right route from source to customer. Again, three real-life examples show the advantages and disadvantages of three different routes - each determined by the relationships involved.

Trading company/factory

Dishang Group is part manufacturer, part trading company based in Weihai in northern China, and produces for clients including Zara, Walmart and H&M, as well as supplying garments such as workwear (e.g. police uniforms) and corporate clothing.

With a turnover in excess of $1bn, and employing 15,000 people across 51 wholly-owned factories, and relationships with a further 200, the company is undergoing a massive transformation and expansion - including the opening of a new 27-storey head office in Weihai later this year.

Business owner Mr Zhu empowers his teams of merchandisers to develop their own business - often in competition with each other - which works favourably for the buyer. Many customers still come through third-party trading companies across Asia, without realising the order is going direct to Dishang.

Dishang has technical outerwear manufacturing capability, as well has offering greater flexibility in terms of manufacturing volumes. Going direct to its wholly-owned units is not an option, and its relationship with external factories quite often means it will still be cheaper. As a supplier, therefore, Dishang is capable of producing the complete range across a diverse supply base that is either wholly-owned or operates as a trading company.
Advantages:

A 'one stop shop.' The Dishang merchandise team selects the appropriate factory to meet target cost, quality and volume;

A customer's brand can be managed across different product areas, reducing input resource from the customer. Freight costs can also be reduced as product shipments are consolidated;

Terms of trade can be readily agreed, including open credit;

Quality inspection agreed to AQL 2.1 and the team will inspect to this standard;

All lines of communication direct to Dishang in English;

A well-developed network of wholly-owned global offices offering design, sales and technical back up.

Disadvantages:

Prices will include a trading commission as well as a factory margin, so getting a detailed cost breakdown is essential;

The size of the company means a merchandiser may use a favourite factory rather than the most appropriate source.

Direct to factory

Wellgreen Outdoor Co Ltd, based in Fuzhou in south eastern China, is an experienced technical bag specialist, first encountered at the ISPO sporting goods fair in Germany. Meetings at trade shows must always be followed up by a visit to the factory, and in this case it was a pleasant surprise. The factory's founder/owner and her team offer a combination of design, development and manufacturing all under one roof, and were prepared to work with the customer's designer in the factory.

Developing a range in this factory has been a success by shortening lead times, improving quality and increasing speed to market. It works well because the factory actually fulfils the role of many trading companies, but takes away an additional layer and cost.
Advantages:

Direct cost;

In-house design and development facility;

The team speaks English;

The team understands the product complexity;

Shortens lead-time.

Disadvantages:

The factory adds a cost to accommodate the additional in-house design/development team, so the overall cost breakdown doesn't give a clear picture;

There is no independent monitor of production.

Trading company

Bangladesh based Signet Enterprises Limited Trading Company is a specialist trading company that focuses on sourcing, quality and compliance.

With sales in excess of 25 million garments a year, the company employs a team of over 160 staff - of which 90 are involved with compliance and quality control. An in-house sample team means samples can be turned around extremely fast, as well as enabling Signet to establish quality requirements and truly understand the actual cost of the product.

Signet then uses its fabric sourcing team to seek the optimal fabric for each client. In addition, a team of merchandisers works with around 20-30 core factories, enabling it to provide a fast, quality-driven, compliant service.

Signet's diverse product ranges from home wear to workwear and men's/ladies' casual wear. It also has a wholly-owned shirt factory. The company combines a no-nonsense approach to delivery and quality of product at exceptional pricing, combined with duty-free savings from Bangladesh to the European Union (EU).
Advantages:

Speak English;

Understand customers' requirements in terms of quality;

Carry out inspection AQL2.1; nominated by Next;

Carry out factory audits and compliance;

Capable of sourcing fabric and trims offshore;

Competitively priced;

Understand pricing locally and capable of beating customers going direct to factories.

Disadvantages:

Price will include commission;

Lead times tend to be longer for some woven items.

All of the above routes have their strengths and weaknesses, and determining the one that best suits each brand can depend on a number of factors.

It is also important to have a clear sourcing strategy and then the ability to adopt short, medium and long-term goals that enable flexibility and change.

Sourcing is not just about price, but also quality and service. Defining the "wants" and then the "must haves" and spreading these questions across the business will help to give a more objective approach to a company's sourcing strategy.
About the author: Sourcing consultant Philip Worrall has held production and sourcing posts at Musto, John Lewis and Lee Cooper. He has also developed 'The Spyder Sourcing Tool, which helps sourcing managers to evaluate their short, medium and long-term goals. Click here to contact him.

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Trading company or factory direct - what's best?

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As margins continue to be squeezed, one question often asked by sourcing managers is whether or not to use a trading company. Surely, the argument goes, dealing direct with a factory is the best route to better prices and quality. Sourcing consultant Philip Worrall explains why this is not always the case.

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Introduction

The study will dwell of different facet of factors to see for traveling the works into Turkey. The country which will be covered will be the PESTLE analysis along side with the Porter 's Diamond and besides an analysis on the cultural factors.

PESTLE Analysis for Turkey

Political

One of the current political strengths in Turkey is that their authorities have policies on liberalization. Turkey is protagonists of broad trade and investing policies which allow unfastened trade between different states in the EU. Turkey forged a usage brotherhood understanding in 1996 to let many Turkish houses to acquire bigger and more successful in the planetary economic system. Exports have been lifting on norm at a rate of 10 % every twelvemonth and this will let the manner industry to boom with the exports produced in the Turkish works.

One of the current political challenges in Turkey is the series of violent terrorist onslaughts that have happened in the state due to Islamic extremist, Kurdish groups, Turkish activists that may hold nexus with Al-Qaeda. This is a disadvantage for conveying the works to Turkey as it may be targeted by these terrorist.

Economy

One of the current economic strengths in Turkey is that there is a high flow of foreign investing coming from abroad. The investing plays apart in Turkey 's rapid enlargement and this, according to the case study, has been driving the state's economic growing. In Turkey there is a denationalization plan planned to get down from 2008 that will let the sale of major Bridges, main roads, electricity grids and a portion in the partially commercial bank. The money generated from foreign investing will be used for spread outing the substructure of the state ; this will be an advantage for conveying the works into Turkey as the Turkish economic system will be in growing and to convey the works here will merely profit the company and the manner industry.

One of the current economic challenges in Turkey is the current history shortage for Turkey. The worsening current history has been was delayed the economic stableness. The import market has seen a speedy rise as an result of increased planetary trade good monetary values and a hardy Turkish lira. Turkey is even more vulnerable during times of planetary fiscal uncertainty. This will be a disadvantage for conveying in the works into Turkey as it the company may necessitate to relocate if there is a fiscal crisis which may go on with Turkey.

Social System

One of the societal system strengths in Turkey is that they have turning proportion of immature population as they have more than half the population being aged below 30. This will let Turkey to increase their employment rate by acquiring the most out of the immature labor force. This is an advantage for the works being brought into Turkey as shows there is a healthy supply of immature population willing to work so the company could make occupations for these people.

One of the societal system challenges in Turkey is that they have a high degree of unemployment. Turkey unemployment degree rose by 38,000 in that twelvemonth to 2.3 million in 2007 but so in 2008 it rose once more by 737,000 from the old twelvemonth so this shows that there was a significant addition from the old twelvemonth. This is a disadvantage to convey in works into Turkey due to the high degree of unemployment as they may non be skilled workers in the pool of unemployed people. There is another side to this where it can go an advantage by engaging these unemployed and developing them to work sufficiently for the company.

Technological

One of the technological strength 's in Turkey is the important development in the ICT sector. During 2001-2007, Turkey 's ICT sector expanded so quickly it expanded by double-digits so that shows that it was a really successful growing. In 2007, Turkey 's ICT market reached $ 24 billion and in the old twelvemonth it reached $ 21 billion so this shows that in a infinite of one twelvemonth the market grew by $ 3 billion which is a really significant sum of money. The ground for this crisp addition is due to the Turkish telecommunications sector as they have been privatised by the authorities. This is an advantage for the works being brought into Turkey as this will pull more foreign investing undertaking every bit good as making more occupations for the people of Turkey.

One of the current technological challenges in Turkey is the low outgo cost on the research and development. Turkey 's research and development cost in 2006 was around 0.6 % which is below the norm of the European states which are at an norm of 2.3 % .This is an disadvantage for conveying in the works into Turkey as there is non that much investing being put into the Turkish research and development, they will necessitate investing from both the private and public sector because the state will necessitate to hold a healthily sum of investing in order to turn into a state which is in the EU. In the hereafter is the research and development cost are still low so this will gnaw and halt the fight of different industries in Turkey which will be bad for the long tally.

Legal

One of the legal strength 's in Turkeys is the comprehensive legal construction they have. The judicial system is made up of general tribunals which deal with domestic instances, heavy penal tribunals which deal with more serious instance, military tribunals which will cover with the military instances and the Constitutional Court which is the highest degree of tribunals that will cover with many different instances which is indispensable in the Turkish authorities such as war offenses. This is an advantage for the works being brought into Turkey as this shows that the Turkish authorities are strict on the jurisprudence and will implement the jurisprudence if need be, it will let the company to hold a just test if any signifier of break were to come up such as trade brotherhood issues that would do the company any serious jobs.

Another legal advantage in Turkey would be the robust model for the concern entities, as the company who are looking to put into Turkey will non necessitate to travel through a really long and drawn-out concern enrollment procedure as there is a freedom to get down, operate and shut a concern by the Turkish regulative environment. so for illustration in Turkey, it will take on mean 6 twenty-four hours to get downing up a concern compared to 43 yearss in the other universe states which is a much longer clip and could be good for the type of market the company is involved with. As the manner industry clothe scope alteration really frequently and will necessitate to be able to accommodate rapidly if the works is being brought over to Turkey.

One of the current legal challenges in Turkey is the judicial inefficiencies as there are some holds in the Turkish judicial system which can do some serious issues. There are besides Judgess who are politically biased and this has affected legal result. This is a disadvantage for conveying in the works into Turkey as there may be a determination made against the company if of all time in a legal conflict as the Judgess may non hold an indifferent position of the instance but in fact have a biased position harmonizing to the political state of affairs at the clip.

Environmental

One of the environmental strength 's in Turkeys is the comfortable biodiversity they have. Turkey has a really flush natural resource base and has ranked 9th on biodiversity in the European states. Examples of the type of biodiversity they have are non merely a scope of wild species but of import domestic species such as wheat, lentils, garbanzos, pears, apple, chestnut and Pistacia veras. The biodiversity has a really great potency for the development for Turkey and this is an advantage for the works being brought into Turkey as this will stuffs such as cotton to be grown in Turkey and used in the works so the stuff will be home adult and will hold a cheaper monetary value and there will be more occupations created for the company involved in cotton picking.

One of the current environmental challenges in Turkey is the high pollution degrees and the planetary heating being caused from the pollution degrees. The H2O intervention installations, effluent intervention equipment and solid waste direction in Turkey needs pressing attending as there is high degree of environmental pollution as the is an addition in chemical and detergent flood and this rises in the air and can do terrible unwellness to people who inhale particularly in urban countries. The air pollution has increased over the past since 1990s and is the air pollution is rather terrible in the capital of Turkey, Ankara and other metropolis such as Istanbul. Smog in these metropoliss is due to the increasing figure usage of autos. Besides there is a batch of industrial air pollution from power workss and installations used by the fertiliser, cement and sugar industries which do n't hold the flirting equipment needed to filtrate out the pollution. Turkey loses out on about one billion dozenss of surface soil yearly and this has an progressively degree of environmental pollution and that could harm the people and economic system of Turkey.

The air pollution is a disadvantage for conveying in the works into Turkey as at that place many signifier of pollution in Turkey which are harmful and could impact the environmental value our company holds and the & A ; lsquo ; green ' certificate which many of our clients may see before making concern with our company. Besides the disadvantage is that the part to planetary heating where there are so many attempts to cut down the green house gas but Turkish authorities should put into going green so that it could go a cleansing agent environment besides it may necessitate to cut down on the pollution degree as they are in the EU and will hold to run into the pollution degree they have planned to cut to.

PESTLE linked to Porter 's Diamond

Turkey 's political strength that links to the Porter 's diamond would be how the Turkish authorities are making new statute law to assist the industry and different companies to turn and foreign investing to better and do it better for Turkey as a national advantage.

Turkey 's economical strength that links to the Porter 's diamond would be how they are doing the market more demanding by exciting foreign investing to do them more competitory for different industries and companies so it will profit Turkey as a national advantage.

Turkey 's societal strength that links to the Porter 's diamond would be how the Turkish have a turning proportion of immature population which the Turkish authorities can utilize to make new occupation by promoting and developing them up to hold new accomplishments and qualified to work in different sectors and this will be a national advantage for holding a really adept work force.

Turkey 's technological strength that links to the Porter 's diamond would be how the Turkish authorities are bettering the ICT sector so non merely is it modern but its construction would profit Turkey and back up different industries to enable them to accomplish their optimum so that will be a national advantage that benefit Turkey.

Turkey 's legal strength that links to the Porter 's diamond would be how they have created a rigorous system for the tribunals which is at that place to maintain companies and people within the jurisprudence that Turkey have set out to assist them turn so that would be a national advantage.

Turkey 's environmental strength that links to the Porter 's diamond would be how they have a good biodiversity and hold a rich resource to different stuff used for assorted industries and the Turkish authorities are seeking to keep this biodiversity and making occupation in the procedure so that it can provide to different states and for Turkey this will be a national advantage.

Cultural issues to be considered

There are cultural issues that need to be considered before conveying the works over to Turkey. There three chief issues in Turkey would be faith, location and gender equality.

Turkey 's chief faith is Islam and it is to a great extent influenced in the many facet of Turkish life and it plays a major portion of the Turkish people lives. The religion has many limitation and many particular occasions where to observe the religion. Where the company will necessitate to see if they clothing being manufactured will be able to look good for most of the Turkish population gustatory sensation and the frock sense as the religion has many limitation on the type of vesture worn and will non back up inappropriate vesture for the people Turkey. Particularly in the female subdivision there are many limitations what to cover up and where, but in recent twelvemonth the limitation have been really flexible as the state is going more modern and more western.

The location where the works will be positioned will necessitate to be thought over as at that place may hold reverberation as there may be houses, schools and mosque nearby so this will make a bad environment because if the works was to be made near houses so the community may be really unhappy with the break of they everyday live with a works being made near them. Besides the location will necessitate to be considered in footings of pollution so if there was any pollution so it needs to be good off from people.

Gender equality will necessitate to be considered as the males tend to acquire paid more than the female as they feel that they do more. It is serious issue within the Turkish authorities but it relate to the Turkish civilization on how the males are the dominate species so the company may necessitate to see this could be a opportunity to interrupt the gender barrier and supply same rewards for the female as the males.

Decision

In decision, the company should earnestly see traveling the works into Turkey as it is still an emerging state that has defects but has many advantages and over clip the defects will be sorted out and profit the company in the long tally.

Mentions

Books

International Business, Environments and Operations, Pearson International Edition, Daniels, Radebaugh, Sullivan

Online PDF

Datamonitor Turkey PESTLE Analysis

Web sites

hypertext transfer protocol: //www.cia.gov/library/publications/the-world-factbook/geos/tu.html

hypertext transfer protocol: //www.datamonitor.com/store/Product/turkey? productid=074DD3A8-BC2C-40A9-9672-3793A75DEBA0

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The study will dwell of different facet of factors to see for traveling the works into Turkey. The country which will be covered will be the PESTLE analysis along side with the Porter 's Diamond and besides an analysis on the cultural factors.