Category Archives: Global Trade

106 Discrete Steps to Global Trade

Stanford University Professors Warren Hausman and Hau Lee recently decided that an end-to-end model was required for global trade management and decided to research the requirements. Analyzing imported goods from Asia to the US in the apparel sector, Hausman and Lee identified 106 discrete steps in the global trade management process. One Hundred and Six. Wow!

They also found ample opportunities for ROI for investment and improvement of global trade processes. Specifically, they estimated that importers actively using Asian sourcing had an opportunity through automation to reduce their supply chain costs by a range of 0.6-2.2% of annual sales. This is a substantial level versus average corporate net profit margins in the apparel sector. For instance, at an average profit margin of about 6%, such a decrease in costs would boost the corporate bottom line by 10% – 37%.

So, if you have IT-enabled global trade management, you:

  • have enhanced efficiency
    as you don’t have to manually execute 106 steps
  • are significantly safer
    the visibility lets you corrupt hiccups before they become costly seven or eight figure disruptions
  • have profits a-plenty
    as you’ve just increased the bottom line by 10% to 40%

So if you don’t have one, go get yourself a GTM solution today! Need a provider listing, start with the resource site.

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“Surprise” Tariff Increase on Solar Panels

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

The October 1 New York Times has an interesting article on a tariff increase on solar panels. While the panels came from China, that’s not the interesting part of the story. The interesting part is that CBP (The US Customs and Border Protection department — successor to the US Customs Service) announced the tariff increase eight months ago and nearly the entire solar panel industry missed it.

To summarize, one US company asked CBP for a classification ruling that would set duty rates for the solar panels they were importing. The company proposed using a semiconductor classification, as the rest of the industry was doing. CBP replied that solar panels were more complex and should be classified as DC generators. CBP published this ruling through normal channels and almost nobody noticed. Here are a few key paragraphs in the article:

 

“It is somewhat unusual for an industry to take as long as eight months to become aware of a customs ruling that affects it,” said Mel Schwechter, a partner at Dewey & Leboeuf in Washington and a former president of the Customs and International Trade Bar Association.

Customs decisions, even for a single importer, are made public on the agency’s Web site and on commercial Web sites, said Mr. Schwechter, who is not advising any of the participants in the dispute.

Mr. Resch said the growing industry lacked the resources to constantly track tax and regulatory decisions.

Duties will be doubled if customs officials determine that companies have been negligent in not paying them earlier.

 

Importers might also be liable for duties on all solar panels brought into the United States in the five years before the ruling if customs officials decide that the companies were guilty of “material misstatement or omission” for failing to notice sooner that solar panels had evolved to the point that they no longer met duty-free rules.

The duty on semiconductor devices is zero. The Times said the duties on DC generators is 3.5%. I think it’s 2.5% but my opinion is should not be relied upon for reasons I’ll explain below.

So what went wrong here? Mr. Resch is right, the industry “lacked the resources to constantly track tax and regulatory decisions.” What does that take? In the US, it takes a relationship with a very professional customs brokerage firm who would be under retainer to keep a client informed of regulatory decisions impacting the products a company imports. This is getting more difficult due to structural shifts in the customs brokerage industry. There used to be large, stand alone customs brokerage companies. Many importing companies had different companies doing their freight forwarding and customs brokerage. However, about five years ago two major customs brokers were purchased by UPS and Fed Ex respectively. The remaining customs brokers are much smaller companies. Importers can and should change freight forwarders if there are performance issues, but customs brokers are harder to change. They need detailed knowledge of their clients’ business and the learning curve can be steep.

Why shouldn’t you rely on my opinion on duties on generators? CBP can increase penalties for non-compliance if they determine an importer didn’t use “reasonable care” in their customs decisions. They look for an audit trail back to either a licensed customs broker or a customs attorney. I’m neither, so taking my advice wouldn’t meet the “reasonable care” test. I still think I’m right though.

Dick Locke, Global Procurement Group and Global Supply Training.

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A North American Near-Shoring Obstacle

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

It appears that Mexican drug cartels are taking advantage of the US’ C-TPAT program to occasionally put marijuana into trucks that have been granted expedited clearance into the US. How serious is this?

Here are a couple of articles:
* Trucker Program Attracts Drug Smugglers
* Mexican Drug Smugglers Taking Advantage of New Program That Speeds Truckers Across the Border

If you dig into the articles you will see that there are about 5 million north-bound truckloads crossing the Mexican border annually. In two weeks CPB found four shipments containing marijuana. They say that ten percent of the trucks are inspected, but it’s not clear if that’s ten percent of all trucks or ten percent of the C-TPAT certified trucks. Worst case, that’s 20 trucks carrying marijuana per week, or 1,000 per year. That comes to 200 trucks per million. Your judgements will vary on how serious this is.

C-TPAT was not designed to catch drug smugglers. Of course, the obvious question is whether terrorists could substitute a weapon of mass destruction (WMD) for the marijuana. Theoretically it’s possible of course. However, I don’t think the Mexican drug cartels would do so voluntarily. A cynic would say that their customer base in the US is too valuable to them, and there are probably other reasons as well.

But the articles do raise some questions. Certified trucks are only required to notify the US Customs and Border Protection (CBP) staff 30 minutes ahead of reaching the border. This is in marked contrast to the Container Security Initiative that applies to ocean freight. For ocean freight, CBP must be notified of the contents of all containers 24 hours before a US bound container ship is loaded.

CBP is also finding trucks where secure seals have been broken or circumvented by removing doors at the hinges. That’s disturbing. These are the same seals that are used on ocean freight containers.

My thought is that there will probably be more delays at the border. One sensible approach would be to require trucks coming from further into Mexico than the immediate border area to provide more advance notice. CBP tries to judge security risks at least partly based on the names of the shipper and receiver and more time to react would help them select riskier for further inspection.

Dick Locke, Global Procurement Group and Global Supply Training.

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Have You Extended Your REACH?

If you haven’t, you might find that you’re shut out of European markets in 2010. You see, when January, only two short months away, comes around, another 15 substances must be reported under REACH. Furthermore, the EU is planning to add substances to the list every six months, possibly until the entire SIN List of 356 chemicals that have been identified as Substances of Very High Concern is on the table. If you can’t complete the necessary reporting, you can’t import into, manufacture in, or export from the EU. Right now, you just have 15 restricted substances that require mandatory reporting but the following 15 substances identified on the ECHA website will soon be restricted and require mandatory reporting as well.

Are you ready?

And are you ready for the Global RoHS initiatives? China, Japan, California, etc. … it’s not just the EU anymore.

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Overcoming Cultural Differences in International Trade with Thailand

Today’s post, which is partially based on materials from Dick Locke’s seminars on International Purchasing, is edited by Dick Locke, Sourcing Innovation contributor and President of Global Procurement Group and Global Supply Training.

This post is going to examine some of the cultural differences that you may encounter (as an American or Canadian Sourcing / Procurement Professional) if you are doing business with Thailand. We start by discussing each of the eight key cultural considerations outlined in our introductory post and then highlight a few other points that you should be aware of.

As per our initial post, this discussion is high-level and general in nature and, as Dick Locke points out in his classic text on Global Supply Management, while it is too easy to stereotype a country, individuals in each country will vary from the stereotype. You need to take time to get to know the people you will be dealing with because their behavior may be nothing like the usual behavior of the country in which they reside and there is always a chance that you might run into people who are trained to act like you … while in your presence.

Thailand, which has maintained unbroken control over its territory since 1238, is fiercely independent, astutely diplomatic, and a very distinct trading partner to deal with as over 95% of its population declare themselves as Buddhist, with the majority belonging to the Theravada school of Buddhism. As a result, in negotiations, you should be prepared to avoid direct confrontations at all costs.

  • Power DistanceThe power distance is high. In Thailand, authority and power are natural to the human condition and hierarchy is good for you. Decisions, especially sensitive ones, come from the top.
  • Uncertainty AvoidanceUncertainty avoidance is very high in Thailand. With security before risk-taking and a belief that easy work for sufficient pay is better than hard work for high pay, there is a large reluctance to initiate change.
  • IndividualismThere is a strong sense of familial and filial piety in Thailand and a strong desire to fulfill one’s place in society. As a result, individualism, as in most Asian countries, is rather low.
  • Polychronic vs. Monochronic TimeBuddhists have a cyclical concept of time. Everything repeats. As a result, they are in no rush to seize an opportunity, as it will come again and success is as much due to luck as it is to anything else. They do not believe that the use of time equates with earning a living, reject the Western work ethic, and hate deadlines. As a result, they are much more polychronic than monochronic, but polychronic doesn’t really capture their views on time.
  • Personal / ImpersonalThey are very personable as long as you keep your “cool”, speak and act in moderation, stand close (without touching), and take your time. Negotiations can not be hurried and are usually preceded with 3 to 5 days of “getting to know each other” before business is even introduced.
  • Buyer / Seller RankWhile Locke and his colleagues, who mirror Hofstede, indicate that the buyer is given high rank, I would argue that, despite appearances, it’s not really the case in Thailand. Buyers and sellers don’t have status or rank in the Thailand belief system, people do. Both senior negotiators will be equal and there will be a desire to work together to create harmony.
  • Importance of HarmonyThey have a deep desire for inward comfort, outward peace and acceptance of their place in society, and maintaining face for others. So harmony, which takes on somewhat of a different meaning than it does in many other Asian cultures, is important. However, their definition of harmony also includes balancing business and pleasure, which results in both being mixed at all times. Social interactions will regularly take place in the office and business discussion will regularly take place outside of the office at a dinner, social, or sporting event. It’s a harmonious continuum.
  • Importance of FaceWhile hypocrisy is not always negative, saving face for others is of vital importance … and white lies are permissible if the goal is achieved. This is why many decisions will be ambiguous, as it insures that no one loses face.

Probably the most important piece of advice you can be given is to learn the basic teachings and beliefs of the Theravada school of Buddhism. It has such a large influence on their daily life as a whole that it will be difficult to really understand how they do business if you do not understand their dominant and ever-present religion.

Finally, as I strongly recommended in my first post, if you plan to start doing business with any new international country, including Thailand, you should do a thorough job on your homework. You can start with:

  • Dick Locke’s course on the Basics of Smart International Procurement (which is offered through Next Level Purchasing and counts towards the SPSM2 certification or ISM Continuing Education Hours), or
  • a customized seminar from Dick Locke’s Global Procurement Group. Dick Locke and his associates each have decades of experience doing business with over two dozen countries, including the fifteen biggest importers and exporters to and from the United States, and Thailand. A single day with an expert like Dick Locke could save you months of headaches.

Again, a big thank you to Dick Locke for serving as editor for this special series of posts and providing some up-to-date materials and information for the purpose of this series.

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