Monthly Archives: September 2010

Don’t Forget the Binding Ruling!

Industry Week recently ran yet another 10-step checklist for those who are planning to offshore production of an existing or new product for the consumer market. While most of the steps mirrored every checklist that came before and contained no new advice, there was golden needle in that bale of hay that I haven’t seen before, and its one that can make or break your offshoring initiative. Step 5, get a binding ruling to determine import duties, is an often overlooked but critical step before you commit to overseas production and packaging. It can literally be the difference between healthy profit and mounting losses.

Not only can one slight difference be the difference between VAT and no-VAT markups on export, but one slight difference in opinion can mean the difference between one classification in the HTS system that carries an import duty of 5% and another classification in the HTS system that carries a duty of 10%. Literally. Consider 6204.19.40 and 6204.19.80 which are both for women’s or girls’ suits of textiles material. In the first case, the duty rate is 1%. In the second, 6.5%. That’s a difference of 5.5%. What’s the difference? In the first case, the suit contains 70% or more by weight of silk or silk waste, in the second case, under 70%. 1% difference in composition can cost you an additional 5.5%. There are hundreds, if not thousands, of other examples where a minor difference in material, packaging, or classification can have a whopping difference on your profitability. So get the ruling first. Otherwise, offshoring might not be as attractive as it looks.

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Cultural Intelligence I: An Introduction to Culture

This series is edited by Dick Locke, SI’s resident expert on International Trade, author of Global Supply Management — A Guide to International Procurement (which was the definitive guide for almost a decade), and President of the Global Procurement Group which regularly gives seminars on International Trade and working with International Cultures.

As per Wikipedia, culture is a term that has various meanings. For example, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of “culture” in Culture: A Critical Review of Concepts and Definitions.

For our purposes, we’ll define culture as the set of shared attitudes, values, goals, practices, qualities, and beliefs regarding daily interaction, manners, arts, and worthwhile pursuits for a characterizeable group of people.

Culture is important because, as noted by social scientist Geert Hofstede, it conditions individuals’ responses to their environment. Deeply embedded inside each of us, culture affects our mannerisms, our manner of speaking, our dress, and just about every other aspect of our personality. Since it deeply affects who we are, it affects the way we do business, and an understanding of different cultures is thus deeply important when conducting international trade.

Therefore, this series will continue what Dick and I started last year in Overcoming Cultural Distances in International Trade by not only defining what Cultural Intelligence is, but discussing some of the basics of cultural intelligence with respect to each of the seven countries we covered last year: China, Germany, India, Japan, (South) Korea, Mexico, and Thailand.

But first, we’ll discuss some characteristics of culture, as put forward by David C. Thomas and Kerr Inkson in their book Cultural Intelligence, People Skills for Global Business. Culture is:

  • Shared

    and people within a group have it in common, so even if each individual in the group has a distinct personality, each member of the group shares a common understanding

  • Learned and Enduring

    as it is absorbed over long periods of time and deeply ingrained

  • A Powerful Influence on Behavior

    as we have a natural tendency to revert to our cultural roots and it will unconsciously influence our decisions

  • Systematic and Organized

    and every value is contextually related to every other

  • Largely Invisible

    as the values and beliefs that define the culture are much deeper than the expressions of those values and beliefs.

Furthermore, its effects and behavior and decisions are many and varied. For example, it:

  • Influences our Perception

    as it determines what we focus on in any given situation, and what we don’t; for example, some people will hang on your every word and ignore everything else about you while others won’t listen to a word you say while instead focussing on all of your non-verbal behaviors

  • Defines our Categorization

    and helps us place people into groups such as race, culture, country, ethnic background, and social status

  • Creates our Stereotypes

    that tell us what we should expect, right or wrong, from a person of a certain cultural background

  • Specifies our Attributions

    and determines our rationale for why people do what we do.

That last point is key, for if we assume that a response means yes when it actually means no, or vice versa, in our international pursuits, we’re just setting ourselves up for failure.

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Want To Improve Your Performance? Increase Your CQ!

A recent article over on the HBR blogs on how your brain connects the future to the past discussed some recent studies that suggest that the areas of memory that remember the past and the areas of creativity that imagine the future in your brain are almost one in the same. More specifically, the brain’s memory circuits are not merely for reflecting on the past but are also vital mechanisms for imagining, anticipating, and preparing for the future, a skill that each of use needs daily in this fast-paced knowledge-driven economy.

In the business world, it’s a distinct advantage to have a brain that anticipates future demands and negotiates them well because accurate predictions typically translate to success. A proactive brain that flexibly recombines details from past experiences that, by analogy with your current surroundings, help you make sense of where you are, anticipate what will come next, and successfully navigate the transition increases your performance. But how do you get a proactive brain?

The article provided some tips, which included:

  • thinking about your (organization’s) goals for the future,
  • giving your brain a rich bank of experiences, and
  • interacting with others.

In short, increasing your CQ will increase your performance. So what’s CQ? That’s the subject of a new 10-part series, edited by Dick Locke — SI’s resident expert on international trade, that starts tomorrow!

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Clean Data Is Good …

but the ability to clean it on the fly is better!

Chain Link Research, which has been publishing some of the best thought leadership on Supply Chain Management in recent months, recently ran a piece on contract and supplier management lessons that summarized eight key lessons from their recent research. Seven of these are dead on and emphasize lessons I’ve been trying to impart for years (including a couple that still haven’t been learned by most of the space).

The eighth lesson, which states that data cleanliness cannot be overemphasized is correct, but overlooks the fundamental problem associated with data — it will never be 100% clean. Even if you have one hundred bodies manually reviewing and cleansing the data (which is exactly what you get if you buy a certain vendor’s solution, since that’s their unwritten strategy for dealing with all the transactions that their automated mapping algorithm is unable to classify), you’re not going to get it all right. First of all, data is always being added to the system — you’ll never be 100% up to date. Secondly, classifications need to change over time. And, most importantly, humans make mistakes and while they’ll fix some errors correctly, they’ll screw up other errors (which they may miss entirely).

The real to success is having a data analysis tool that allows you to fix an error in real time as soon as its spotted — not a traditional data warehouse where you have to wait weeks (or months) for the refresh. Then you can get away with 80% to 90% accuracy* (which is all you need to figure out where the problems really lie) because, if a supplier or customer spots an error in the data, you can say “sorry, let me fix that”, click on the transaction, click on the link that shows the rule that ultimately produced the mapping, and either (a) change the rule if it is wrong or (b) create a new exception (overlay) mapping rule if the mapping rule is normally right, but this is a special case. The report is updated, very little changes in the big picture, and you move on. That’s the way you do it.

* You can achieve this level of mapping accuracy in a matter of days, creating rules by hand, no matter how much data you have. All you have to do is apply the secret sauce of:

  1. Map the GL codes
  2. Map the top Vendors
  3. Map the Vendor + GL codes (for top Vendors who sell more than one Commodity)
  4. Map the Exceptions (for example, GL codes that always map to a particular Commodity)
  5. Map the Exceptions to the Exceptions**

** If your data is really bad or you have a really sophisticated categorization scheme.

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Are You Ready for the Asian Juggernaut?

Forget the European Union. That’s old news. According to the World Bank, their combined GDP didn’t exceed the US GDP in 2009. Once China, which now has the 2nd largest GDP of any country in the world, combines with India, which might only have the 10th largest GDP now but which is expected to be the 3rd largest GDP within 30 to 40 years, Asia Major will be the dominant market force on the planet.

And if you’re thinking that they’re oil and water, and can’t mix, it would appear that recent headlines are indicating otherwise. China is moving into India, with a recent example being SANY Group that opened a new plant in Pune, India earlier this year, and India is moving into China, and Tata Communications just opened a new data center in Singapore to meet the growing IT needs of the region, and China in particular.

A new world will soon be upon us, and it will be ruled by the Asian Juggernaut. (Whedon’s vision of the future where we speak a mix of Chinese and English isn’t far off!)

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