Category Archives: Global Trade

Increasing Your Global Presence

As a nice follow up to my When Going Global – Don’t Forget the Context post, I’d like to draw your attention to the finer points of an article that interviews Chris Zook, author of Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth, over on Knowledge@Wharton called “Achieving Full Potential: How Companies Can Increase their Global Presence”. The article, which starts off by noting that over the next decade, 25% of the companies that exist today will disappear, either because they will merge with others or go bankrupt, discusses some of the major problems companies encounter during growth and some of the solutions they should be considering.

According to Mr. Zook, and the research undertaken by his consulting firm Bain & Company, only one in ten companies worldwide achieve more than a modest level of sustained and profitable growth (at least 5.5% real revenue and profit growth). Very few achieve aggressive growth. The major problem is that industries are becoming turbulent at a faster, and faster, pace. The most profitable activities are shifting quickly, and competitive differentiations are becoming harder to maintain.

A company needs to decide if should stay focused on core business (Focus), expand its core business beyond its current markets and geographies (Expand), or begin the search for hidden sources of new potential growth (Redefine). It’s the third phase that is the most interesting, and the most challenging. According to Mr. Zook, successful redefinitions are based on “hidden assets” — customer assets, growth platforms, or underutilized capabilities which suddenly assume a center role in how you look at your business going forward.

Hidden customer assets are undervalued market segments and under-exploited customer insight. Focusing on a different market segment can greatly increase market-share. (The example given is Hartman International that gained a 40-fold increase in market value by focusing on automotive OEMs and home entertainment consumers.) If you look closely at what your customers are buying and asking for, that can often tell you what you should be offering. Amazon.com, FedEx, and American Express evolved their business by focusing on the customer, and look at where they are today.

Undervalued growth platform often takes the form of a secondary product line or strong support services that have developed over time around your core offering. For example, let’s say you have an OLAP product that can understand native output of 20 different databases – chances are your ETL tool on its own is now a valuable product. Or lets say that you support your enterprise application on Linux and Windows – maybe your Linux support division knows more about properly configuring enterprise Linux installations than most of the integration houses.

Underutilized capabilities, which are the processes and methodologies used to get things done, are the hardest to pin down – and successfully monopolizing on these will require a lot of innovation. The example Mr. Zook gives is Apple – faced with a rapidly shrinking share of the computer market, it decided to utilize its unique UI strengths to create a music device (the iPod) that was much easier to use than anything else out there and it took the consumer world by storm. A lot of companies build hardware and software products, but very few have mastered the art of user interface design as Apple has. Underutilized capabilities will be those that are not only unique in your company, but relatively unique in your industry.

All in all, great starting points, but I was a little disappointed it left out under-utilized human resource assets. Every decent-sized company has them, but few are willing to utilize them. The fact of the matter is that many corporate executives and managers typecast people to their roles. They think that if you’re an IT manager, you can’t possibly have any good ideas on how to improve the physical supply chain or innovate new business service offerings. Or, my favorite, you’re a scientist / architect – you don’t know the first thing about management.

I have personally worked with, and for, a large number of start-ups and small companies, and many of these as a technologist in my early days. And what I discovered is that many entrepreneurs were not only poor managers, but poorer still at making use of the people they would assemble. They were the first to typecast you into whatever role you filled and assume you didn’t know anything about anything else or, if you did, not more than them. Many of these companies are no longer around, and most didn’t even survive a third of the 14 years that Bain & Co. calculated as the average business life span. And in most of the later cases, I could predict that early on. I’ve found that many entrepreneurs are great at ideas, but poor at running a company, managing a team, selecting the best marketing plan, and choosing the right technology. Similarly, I’ve found that many career managers are poor at innovation. The successful entrepreneurs and successful managers are those that are able to identify talent and use that talent to their advantage – taking the best ideas that their team is able to have to offer versus just the best ideas they can come up with.

In summary, if you want to take your presence to the next level, Mr. Zook has some great ideas, but I’d start with your people first – they are the biggest assets you have and they are the ones who will figure out what customer assets, growth platforms, and capabilities you have at your disposal. (You might need to bring in a consultant to lead this initiative, as they will be able to look at your people more objectively, but the ultimate goal is to get to the point where the consulting team you bring in to do a project complements the skills your team already has. )

When Going Global – Don’t Forget the Context!

Even though it has, like many articles these days, a China-centric focus, the article Context and Complexity by Edward Tse over on Strategy + Business had some great advice for any multinational thinking that they can enter a new market and immediately see dramatic, exponential, expansion in their reach and consumer base.

The article points out that if you’re an executive of a multinational company looking to enter a new market in a new country as a means of achieving growth, then in addition to the classic “three Cs” of customers, company, and competition, you also need to consider “context”. Without a deep understanding of the “context” of the country in question – the nature of its social, regulatory, economic, and infrastructure environments; how they’re changing in a period of (explosive) dynamism; and how they affect one another, then you will not be able to tap the true potential of the market you plan to go after.

In a new market, you could be dealing with a heterogeneous consumer market that is changing fast, as you have in India and China, a regulatory environment under reform, as in China and parts of the EU, and a distinct culture that impacts what the consumer will, and will not, want and be attracted to. (This last comment is especially true in food service. Those who think the cow is sacred will not eat beef burgers just like those who only eat kosher will not eat pork.) Chances are you will not be able to run your business like you do in your home country, if you can even get in to run your business at all!

Furthermore, it might be necessary to extend beyond just the biggest demand centers of a country to achieve a sales volume that makes it all worth while. In other words, just opening a store or channel in the 50 biggest cities might not cut it if you have a niche, or expensive, product. In developing countries, expanding beyond the tier one markets can be difficult due to lack of infrastructure, channels, customer sophistication, consumer disposable income, and regulation. Just like developed countries often have requirements at the national, provincial, and municipal level, so do developing countries. In nations as large and complex as China and India, opening multiple retail channels in each of the major cities in each of the provinces can be quite daunting from a regulatory perspective. Plus, in a developing economy you’ll have stark cultural contrasts between a major city that is attempting to play in the global marketplace and the rural areas just a few miles beyond the municipal line.

In summary, expanding into a new market in a new country probably won’t be quick, easy, or at all what you might expect and will take a lot of work, research, and cooperation with those who have been there and done it before to pull off. It’s doable, but not overnight.

A Ground-Breaking Study on Global Trade Metrics

Last month, I advertised the Global Data Mining Webinar in my post Global Trade Metrics Benchmarking, which I followed a few weeks later with Catching up with GDM: Don’t Underestimate Trade Compliance. In the latter post, I noted that Global Data Mining not only found that error rates in global trade processes approach 10% to 20% and effective control of global trade processes is often 100 to 200 times worse when compared to accounts payable processes within a company but that in a recent analysis of the trade data for five organizations with 66B in revenue, they found direct-compliance related savings opportunities of $262.1M, including $161.5M at a single $3B apparel company. Considering that they were only scraping the surface with their analysis, this should give you something to think about.

The webinar, which is now available for download, was very well attended and discussed the huge savings opportunities on the table for those companies heavily involved in global trade. Considering that a simple thought experiment, as described in an article by Matt Gersper of Global Data Mining and Marisa Brown of APQC (which is enclosed below in its entirety), indicates that at least 90% of shipments in an average organization are affected by at least one issue that delays the transaction and erodes expected profits, the savings opportunities from effective global trade management probably extend far beyond the benefits described by Aberdeen in their studies, which include “The CFO’s Agenda for Global Trade Benchmark Report”, “Global Trade Management Strategies”, and “Global Trade Management in 2007: Benchmarking Trade Compliance, Global Supply Chain Visibility, and Risk Management Practices”.

However, what I want to point out is that Global Data Mining and AQPC are teaming up for an in-depth study of global trade metrics, as described on the “Global Trade Measurement: Driving Supply Chain Optimization” page on the AQPC web-site. The study, which is currently seeking participants, aims to define a strategy to establish collective goals for all global supply chain stakeholders, map and analyze the global supply chain flow, identify points of breakdown, and establish metrics and measurements for global trade. Unfortunately, sponsorship of this study is not cheap ($14K for APQC members, $20K for non-members, with a $2K discount if you commit before the end of the month), but considering the quality of work that is available for free on the Global Data Mining Publications Page and the reputation of APQC, I’m sure that the study will deliver on its promises and that the advertised benefits will be realized.

As a disclaimer, I’d like to note that, at the present time, neither myself, nor my company, have any association with Global Data Mining or AQPC. I Am promoting the webinar recording and the upcoming study, and reprinting the article below, because I believe that, relative to the number of e-Sourcing and e-Procurement solutions and knowledge-bases out there, there is a lack of trade management and analysis solutions, and that companies are losing significant amounts of cash in their global trade operations due to the constantly increasing levels of complexity being introduced with enhanced classification requirements (such as the HTS revisions that occurred early this year), free trade and tax requirements (such as the VAT changes that just occurred in China), and security requirements (such as the Automated Commercial Environment and Container Security Initiative in the US) and the lack of processes, technologies, and benchmarks to help companies improve their operations. On a related note, over on the e-Sourcing Wiki [WayBackMachine], I’d like to point out the new Global Sourcing Primer subsection, which, by the end of the year, is slated to have wikis on the basics of global trade, customs and security, free trade, regulatory compliance, and supply chain finance, in addition to the current wikis on Low Cost Country Sourcing and Supply Risk Management This should prove to be a good resource as well. As a further disclaimer, I will be authoring or co-authoring many of the initial releases of most of the wiki-papers.

GDM and APQC Launch Ground Breaking Study of Global Trade Metrics

by Matt Gersper (Global Data Mining) and Marisa Brown (APQC)

“I’ve always struggled to find metrics that can help me quantify the value that a global trade compliance operation brings to its organization,” says Beth Peterson, President of BPE, a consulting firm facilitating global trade compliance, automation and strategy for multi-national shippers. Many corporate executives are struggling with the very same question.

More than 150 global traders from 24 countries recently registered to attend a webinar hosted by Global Data Mining (GDM) and APQC to learn about a ground breaking global trade consortium benchmarking study. They gathered to consider the opportunity to participate in the study designed to help organizational leaders measure performance in global supply chain processes and tap vast financial rewards that lie in global trade process optimization.

APQC, a member-based non-profit research and education organization, has a long and distinguished history of helping companies around the globe discover effective methods of improvement, broadly disseminate findings, and connect individuals and the knowledge they need to improve. Over a 30-year period, APQC has conducted more than 6,000 benchmarking studies and has a deep history of existing supply chain research. Once APQC learned about the incredible inefficiencies in global trade processes, they quickly determined this would be an important study to take on.

Global trade remains one of the last corporate frontiers where upgrading and optimizing business processes can drive very significant financial and operational gains, giving corporations an additional strategy to create competitive advantage and add significantly to their bottom line. Yet standardized metrics for measuring performance in global trade processes have eluded this $10 trillion industry leaving business executives in the dark.

There has been a quiet evolution from domestic sourcing of raw materials from domestic suppliers to increasingly complex, global supply chains. The size and financial significance of this shift has caught many executives by surprise. Cross-border global transactions have grown from $3 trillion in 1990 to $10 trillion in 2007 and, according to a recent McKinsey report, are expected to grow to more than $70 trillion by 2025. [1]

In the face of increasing government regulations and with logistics expenditures at a staggering 9.9 percent of US GDP and rising, only 7 percent of executives are fully satisfied with their global trade programs.[2] The other 93 percent may be shocked to learn that error rates in global trade processes often exceed 20 percent. In a recent thought experiment conducted by GDM and APQC, it was estimated that more than 90% of all international shipments have mismanaged “hand-offs” that slowed the transaction and added “hidden” costs to the importing company.

Imagine that your organization has the ability to precisely measure performance in eight major “hand-offs” in your international supply chain.

1) Once a purchase order is created, your systems can measure if the supplier filled the order complete and on-time.
2) It can measure if the foreign in-land transportation delivered the goods the to foreign port on-time.
3) The system can track the activity in the foreign customs process and determine that the goods cleared with no delays.
4) You can measure if the international transportation delivered the goods to the domestic port on-time.
5) The system can measure if the goods cleared domestic customs with no delays.
6) You can measure if the domestic in-land transportation delivered the goods to your warehouse on-time.
7) The system tracks if receiving was complete and damage free.
8) And finally, your system can report if all customs declarations were complete and accurate creating no post-entry consequences.

Further, imagine that your company-wide performance across all eight of these major supply chain activities averaged 80%. In other words, 80% of the time, the activity was completed on time and according to expectations set by your company. The result of this level of performance across 10,000 transactions would be that only 1,678 transactions would be completed according to expectations and that 8,322 would incur some problem or problems slowing the transaction and adding unintended costs to your organization. We call the performance metric across these 8 supply chain activities The Supply Chain Performance IndexTM. The formula reads:

80% * 80% *80% *80% *80% *80% *80% *80% = 16.78%
A June 2007 article by the Global Economy reported that “in the first quarter of 2007, only 47% of container vessels globally arrived at the ports on time, the lowest level on record.”

When we insert this data into our thought experiment, the level of performance across 10,000 transactions would now have more than 9,000 or 90% of the shipments with some problem or problems slowing the transaction and eroding expected profits.

80% * 80% *80% *47% *80% *80% *80% *80% = 9.65%
What could possibly cause such poor performance? Each stakeholder is acting with incomplete information and in self-interest rather than in the best interest of the supply chain itself, acting independently rather than collaboratively. Other factors that contribute to mismanaged supply chain hand-offs include language differences between the stakeholders, cultural differences, differences in industry jargon, breakdowns in communication and failure of the importer to set and control expectations for each activity within the supply chain. Inefficient supply chains cost corporations millions of dollars in unexpected “hidden costs” severely impacting company profits.

Financial opportunity also abounds on the plus-side of managing an international supply chain by effectively managing the proliferation of Free Trade Agreements, improving sourcing options, and implementing new supply chain finance programs for international suppliers. Leading executives are beginning to use data mining and metrics to identify significant financial and operational opportunities within their global supply chain. One leading Industry analyst, Beth Enslow of the AberdeenGroup and GDM recently collaborated on an extensive data mining project for the International Compliance Professionals Association (ICPA). The project included five Fortune 500 companies and identified more than $500 million in potential savings.

In a separate Aberdeen study (the CFO’s Agenda for Global Trade Benchmark Report), Beth Enslow concluded, “A $1 billion company can free $10 million to $40 million in cash by better controlling its basic global trade processes.” How large is the opportunity for your company?

Have you ever wondered … ?

  • How effective are my global trade operations?
  • Is there a way to effectively measure its performance?
  • How much does it contribute to or detract from the company’s bottom line?
  • What are my competitors doing?
  • Are others using global trade to a competitive advantage?

“Global Trade Measurement: Driving Supply Chain Optimization” is APQC’s newest consortium benchmarking study designed to answer these questions and give executives the measures and metrics needed to assess current performance and implement strategic changes to tap the vast opportunities that lie in global trade process optimization.

The study was developed with the collective intelligence of your peers. GDM and APQC used a collaborative process called “voice of the customer” interviews to compile the thoughts and expertise of leading trade professionals. Over a recent four week period, we conducted 15 interviews with trade professionals from a wide variety of industries and experience. Many represented well-known Fortune 500 companies that have been struggling to measure performance in their global trade processes. The results of our interviews focused the scope of our study in these primary areas:

  1. Define a strategy to establish collective goals for all global supply chain stakeholders
  2. Map and analyze the global supply chain flow (current state)
  3. Identify points of breakdowns
  4. Establish metrics and measurements

APQC’s research follows a disciplined and well-tested four-phased methodology: plan, collect, analyze, and adapt. During the plan phase, the project team reviews research to identify potential best-practice organizations and screens willing organizations to learn about innovative processes or approaches used to measure global trade process performance.

Companies participating as study sponsors will participate in a virtual kickoff meeting to review best-practice candidates and select the organizations that they wish to study as best-practice partners.

In the collect phase, best-practice partners host virtual site visits to address qualitative questions around the study scope areas and to share lessons learned and critical success factors. Additionally, all study participants will complete a quantitative survey. The data is aggregated to provide a gap analysis between the sponsoring organizations and the best-practice partners. APQC has a strong adherence to a Code of Conduct that ensures that all data shared during a research project is kept strictly confidential.

The APQC team, along with the study’s subject matter experts, then analyzes the quantitative and qualitative data and prepares in-depth profiles on each best-practice organization.

The adapt phase of the study includes the Knowledge Transfer Session, the concluding event for the study. This session is an action-packed, face-to-face, interactive meeting open to all study participants and their leadership teams. Events at this session include a networking reception, presentations by the subject matter experts and best-practice organizations, panel discussions, and breakout sessions.

A previous participant shared this about his experience:

“APQC has a high-quality process and is a good value for the money. I have participated in studies with other groups, and APQC’s method is far superior. The ability to see where we sit in relation to other companies and to set a vision of where we want to go has been the most beneficial aspect.”
– Patrick Powaser, Occidental Petroleum Corp.
Companies joining this exciting industry study will realize benefits for their staff members who participate as well as for the company itself.

Benefits for Study Participants

  • Learn proven, actionable best practices
  • Gain access to organizations
  • Influence the study’s direction
  • Interact with peers
  • Gain access to world-class knowledge
  • Involve your colleagues, senior executives, and process champions
  • Receive a detailed final report
  • Acquire a set of tools to effect change in your organization

Benefits for Participating Companies include the ability to implement study results and the potential for improved outcomes such as:

  • Accelerate the supply chain
  • Increase corporate profit
  • Decrease cost of goods
  • Improve global trade compliance
  • Drive executive decisions
  • Establish competitive advantage

Key Dates:

Deadline to receive Early-bird discount Aug. 31, 2007
“Meet the sponsors” conference call Sept. 27, 2007
Study kickoff conference call Oct. 24, 2007
Best-practice partner virtual site visits Nov – Dec 2007
Knowledge transfer session in Houston Feb. 27-28, 2008

In addition to GDM providing subject matter expertise and thought leadership during this study, Beth Peterson will also be serving as a Special Adviser. Beth has more than 21 years experience in the logistics and international transportation business, and is a licensed customs broker and CBP ACE Trade Ambassador.

This is your opportunity to make your mark on our industry and make a significant impact on your company. Join this global trade consortium benchmarking study today. For more information please contact Matt Gersper at mattgersper<at>gdmllc<dot>com, or Gerry Swift at gswift<at>apqc<dot>org or visit www.apqc.org/studies/gt.

The ‘Home Bias’ Effect and International Investments

Continuing with the impromptu delusions theme, that started with Managerial Delusions two weeks ago and continued with What Got You Here Won’t Get You There last week, this week we discuss another recent article from Knowledge @ Wharton, “The Impact of Good Governance on International Investing: The ‘Home Bias’ Effect and Other Issues”.

The article, which discussed the important of good corporate governance and how it can enhance the attractiveness of one country’s financial markets relative to another’s, also discussed the ‘home bias’ effect, which is the tendency for investors to buy shares in companies based in their own countries despite the globalization of financial markets.

It referenced a paper by Frank Warnock, a professor of business administration at the University of Virginia’s Darden Business School, Rene M. Stulz, a professor of finance at Ohio State University, and Bong-Chan Kho, a professor in the College of Business Administration at Seoul National University, titled “Financial Globalization, Governance, and the Evolution of the Home Bias” that found that, despite the disappearance of many barriers to international investment, the home bias of U.S. investors towards the 46 countries with the largest stock markets did not fall from 1994 to 2004.

There are often a number of reasons for a ‘Home Bias’, including barriers to investment, hedging motives, access to information, behavioral biases, and, as suggested by the authors, “optimal insider ownership”. The “optimal insider ownership” theorizes that since foreign investors can only own shares not held by insiders, there will be a home bias toward countries in which insiders own a large corporate stake.

Regardless of the reasons, it’s an important bias, or delusion, to be familiar with. Considering that the US population is about 301 Million, or 4.56% of the world’s population which is about 6,602 Million, even though the US currently accounts for roughly 19.91% of the gross world product (1,313 billion of the 6,595 billion), this percentage is only going to continue to fall as the GDP of the current low cost country poster children, and India and China in particular, continue to rise. (Statistics from The World Factbook.)

Furthermore, when you consider that even five years after the introduction of the stringent Sarbanes-Oxley act, foreign companies are continuing to delist from American Stock Exchanges on a regular basis (and just last week, over on the European Leaders in Procurement Blog, Richard Edwards points out how “Sarbox Sends Another Blue Chip Running For The Hills”), it’s obvious that investment is going to continue to diversity globally as time marches on.

But the home bias doesn’t just affect individual investors or investment funds, it affects global sourcing teams as well. In this context, the home bias reflects the natural tendency of the sourcing team to continue sourcing, and investing, in countries, and suppliers, from which they have previously sourced. Even when the team accepts that they need a new lower cost or higher value source of supply, they’ll look first at countries they are currently doing business in and the competition to their current suppliers. Although the team should consider these sources, as well as the impact of a strategic investment in their current supply base to decrease costs or increase value, the team should also consider sources in new countries and subject them to the same, unbiased, evaluations that their current suppliers are subject to. Only then will the sourcing team truly be able to identify the best source of value.

Catching up with Global Data Mining: Don’t Underestimate Trade Compliance

Last October, while discussing Global Trade Data Management, I introduced you to Global Data Mining (acquired by CUSTOMS Info which was acquired by Descartes), a company that specializes in helping high-volume, high-value global trade businesses build effective trade databases for extensive trade reporting and comprehensive auditing to significantly improve their processes, reduce their error rates, and save time and money in their global trade endeavors.

Even though one of my interests is understanding how you can improve your global strategic sourcing processes with better trade data, it’s clear that the most pressing issue today for most companies is just trade compliance. Today, Trade Compliance goes well beyond just assigning the proper Export Control Classification Number (ECCN) and the proper Harmonized Tariff Schedule (HTS), but also involves making sure you are paying the proper duties, qualifying for Value Added Tax rebates, and taking advantage of Foreign Trade Zones. It also means that, before you ship your goods to their destination, you make sure they are complaint with any local regulations such as the EU RoHS, WEE, or REACH directives, the HAZMAT requirements, or the EC ELV directive. (Don’t know what these are? Keep checking the e-Sourcing Wiki [WayBackMachine] – a wiki-paper defining the basics of Global Trade is forthcoming.)

It’s a lot more costly than most organizations think it is. According to their whitepapers, error rates in global trade processes approach 10% to 20% and effective control of global trade processes is often 100 to 200 times worse when compared to accounts payable processes within a company. And the savings opportunities often go well beyond the 2.5% to 10% that previous Aberdeen research studies have indicated it to be. In conjunction with the Aberdeen Group, in preparation for their upcoming benchmark study, GDM analyzed the actual trade data for five organizations with 66B in revenue and found direct-compliance related savings opportunities of $261.2M alone. It might not sound like much, but it’s likely just the tip of the iceberg as the savings came only from non-compliance, self-filing, and free trade zone savings that could be identified on data analysis alone. Imagine what better sourcing that considered trade compliance and import / export rates, free trade zones, and automatic e-filing opportunities from day one could accomplish!

With complex cross border transactions expected to account for more than 10T this year, according to the McKinsey quarterly, with many companies still struggling to adapt to the HTS reforms in January, with pre-arrival e-manifests almost the norm now for cross-border trucking into the USA, with the recent elimination of many VAT rebates in China, and with the rapid multiplication of foreign trade zones in dozens of countries around the world, each with their own laws and benefits, it’s a given that billions of dollars are being lost by businesses around the globe just on Trade Compliance alone. So take it seriously, and if you need help, seek it out.

I’d be comfortable starting with Global Data Mining or their partner, the International Trade Bureau. They’re open about their tools, capabilities, and results, and will happily work with other vendors if you need a solution they can’t supply on their own. As to whom else plays in the trade management space, there’s Bearing Point Consulting, Core Solutions, Management Dynamics, Integration Point (acquired by Thomson Reuters), QuestaWeb (acquired by Descartes), and Tradebeam (acquired by CDC Software). As with PLM, I’m not an expert in the Global Trade Management space when it comes to all the players and their capabilities, but I do think a few of capabilities of Global Data Mining, along with a few of the reports, are unique and certainly worth investigating if you do a significant volume of global trade and have never analyzed your compliance or cost efficiency. Having them audit your data and prepare a summary will not cost you much, but could identify millions in savings. In one $3B apparel company alone they found $161.5M in potential duty and free trade savings – 5% of revenue – not cost, revenue! It’s something to think about.