Category Archives: Global Trade

Key Takeaways from the UL Product MindSet Study, Part I

Yesterday’s post conveyed some Interesting Facts and Figures from the UL Product MindSet, a recently released study that quantitatively surveyed 1,195 manufacturers and 1,235 consumers across a range of export and import markets in high-tech, building materials, food, and household chemicals. From these findings we will attempt to interpret where global manufacturing is going — and needs to go.

1. Global Manufacturing is going to continue to rise.

Not only did the top 10 export markets produce approximately 9.489 Trillion in exports in 2010, not only did growth rise an average of 13% in developed economies and 17% in emerging economies, and not only did manufacturing supply chains continue to increase to the point that an average product required 35 different global contract manufacturers, but 50% of manufacturers are still projecting, and endeavouring to increase, sourcing from additional countries. The reality is that many large multinationals, despite the increases in transportation costs brought on by the rising cost of oil, are still finding ways to make global sourcing profitable (and won’t leave the bandwagon until it breaks down to the point that it is irreparable).

2. Global Manufacturing, like Global Trade, is a Two-Way Street.

If one looks at the top exporters and top importers list, 9 of the top ten 10 countries on each list match. If an organization is going to manufacturer and trade globally, then the organization has to walk both sides of the fence and master both the importing and exporting game.

3. Going Global for Healthcare is Making More Sense by the Day

Not only is healthcare often cheaper and better in developing countries like China and India (where they have four times as many geniuses as the US), but when one considers that most of the medical devices and medications are coming from there anyway, and that the rich industrial centres have doctors that have training and equipment that rivals the training and equipment available to leading doctors in North America (and Europe), maybe an individual should go to India and pay out of pocket rather than risking his or her health (as he or she waits for 6 months to get treatment) and his or her financial solvency (as he or she waits to see if his or her co-pay coverage will kick-in or not). And if he has heart issues, the world-class Narayana Hrudayalaya Hospital in India probably beats the hospital down the street.

4. Selling Globally Is Starting To Make More Sense Than Selling At Home

China and India have four times the consumers, and China in particular is spending more on high-tech (and luxury) items than the US. And the general commitment to saving and financial solvency in Asia (as compared to the general commitment to borrowing from tomorrow to enjoy today that is prevalent in North America) means that that they have the money to spend if there is a product they want.

Come back tomorrow where we share our fifth, and final, takeaway from the Interesting Facts and Figures from the UL Product MindSet.

Interesting Facts and Figures from the UL Product MindSet

UL* (a safety science company) just released a new annual study on Navigating the Product MindSet — which resulted from quantitative interviews with 1,195 manufacturers and 1,235 consumers across a range of export and import markets in high-tech, building materials, food, and household chemicals — that had some interesting facts and findings that we should all be aware of. These include:

  • On average, manufacturing companies rely on more than 35 different global contract manufacturers to create a single product.
  • In the US, 50% of medical devices, 80% of medication ingredients, 75% of seafood, and 60% of fruits and vegetables come from other countries.
  • In the last year, global trade flows increased:
    • 12.9% in developed economies
    • 16.7% in developing economies
  • Per person, Chinese consumers are outspending US consumers 3 to 1 in High-Tech purchases
  • 81% of Chinese consumers would buy more green products if environmental claims could be substantiated
  • The majority of manufacturers believe they are ahead of the curve in:
    • safety (97%)
    • reliability (97%)
    • sustainability (94%)
    • innovation (89%)
  • The majority of manufacturers believe their quality and on-time delivery are the best-performing aspects of their supply chain with
    • 79% claiming consistent product quality
    • 71% claiming on-time product delivery
  • While 49% of manufacturers believe that product reliability & product safety are key factors in effective global competition, only 9% believe that designing sustainable products is a key factor (and only 8% believe operational sustainability is a key factor).
  • Only 31% of manufacturers consider environmental products to be profitable
  • 50% of manufacturers will increase sourcing from other countries

The Top 10 Export Markets are:

  1. USA
  2. China
  3. Germany
  4. Japan
  5. France
  6. UK
  7. Netherlands
  8. Italy
  9. South Korea
  10. Hong Kong

The Top 10 Import Markets are:

  • USA
  • China
  • Germany
  • Japan
  • UK
  • France
  • Italy
  • South Korea
  • Netherlands
  • Canada

So what does all this mean? Our next post will reflect on these findings.

* Underwriters Laboratories Inc.

The Risk of Being a MultiNational

A recent article over on ChiefExecutive.net for those who “want to be a multinational” did a great job of pointing out many of the risks that a company has to prepare for in order to become a multi-national. It zeroed in on the following seven risks:

  1. Country Risk
    Third parties from countries with less mature corporate governance laws/regulations are more likely to create a compliance breach for a multinational firm.
  2. Industry Risk
    Some industries are riskier than others. For example, food distribution — the risk of contaminants from unknown factories or partners with less rigorous quality control could be high and exposure you as the importer to massive liabilities and lawsuits. Defence is risky as well. Maybe only non-controlled components are being outsourced, but one accidentally exposed document can lead to very serious repercussions to the company and the executives, who could be held personally liable.
  3. Spend Exposure Risk
    If a single vendor accounts for 80% or more of a specific business unit spend and something happens to that vendor, negating the ability of the vendor to meet its commitment, the entire business unit is then at risk.
  4. Compliance Risk
    Failure to comply with import or governing regulations in the importing country from a product perspective can lead to entire shipments being size and destroyed. This is particularly bad in Europe where certain chemicals have been severely restricted or banned by RoHS, WEE, or similar EU directives. It’s also becoming a problem in North America, where substances such as BPA are finally being restricted or banned.
  5. Discovered Exposure Risk
    The supplier, who may not be corrupt today, may have been corrupt in the past — and the corruption could come to light during the time in which your organization is doing business with the supplier. This could be devastating as it could bring your firm under investigation.
  6. Partner Disruption Risk
    If the supplier is supplying a critical part or service, and is the only (significant) source of such product or service, it could jeopardize an entire product or service line and bring significant financial risk to organization as a whole, even if the spend on the supplier is less than 20%. (This risk is complementary to the Spend Exposure Risk.)
  7. Dependency Risk
    If the organization cannot function without the supplier, then each of the above risks that apply to the relationship increases substantially. The financial risk could escalate from significant financial loss to bankruptcy as significant supply chain failures, as chronicled in Supply Chain Digest’s 11 Worst Supply Chain Disasters, can bankrupt even a multi-billion dollar organization.

And it mentioned the following risk, which is buried under discovered exposure risk, that should probably be front and centre:

  • FCPA and Bribery Act Risk
    Your subsidiaries or partners could violate the US FCPA or UK Bribery Act in the course of doing normal business in the country in which they are operating. Although both acts allow for a form of facilitation payments, as that is just the way business is done in some parts of the world, there’s a difference between a facilitation payment and an outright bribe and, in some countries, while they still exist, facilitation payments are not as common as they used to be as they adjust to doing business with the West. (Of course, they find new ways to extract blood from your stone, but I will leave that discussion to a global trade expert.)More importantly, especially under the UK bribery act, even relatively inexpensive gifts — such as business dinners, sports tickets, or Christmas Party invitations — can be construed as bribes. Extra care has to be taken, especially if such gifts go to the winning party.

There can be great rewards to being a multinational that taps the opportunities in emerging markets from both a supply, and demand, perspective, but there are similarly great risks. Is your organization prepared? And more importantly, is your supply chain?

Trade Partnership Programs: Are You Ready for Global Compliance?

Chances are that, if you are a US based organization, you are up to date on you C-TPAT (Customs-Trade Partnership Against Terrorism) and if you are a multi-national, your AEO (Authorised Economic Operators) initiatives to achieve a safer supply chain while streamlining trade through self-compliance security initatives (designed to withstand comprehensive audits). And while this may have been enough in the beginning, today the C-TPAT and AEO are just two of many global trade partnership initiatives that you should be aware of. If your organization is to be a major player in the global marketplace, you should be aware of at least the following seven initiatives:

  • AEO (EU)
    Authorized Economic Operator: AEO status is granted to reliable operators that are compliant with respect to security and safety standards and who can therefore be considered “secure” traders. Benefts include fast-tracked consignment, streamlined declarations, and mutual recognition with countries with a similar program.
  • C-TPAT (US)
    Customs Trade Partnership Against Terrorism: A voluntary supply chain security program focussed on securing supply chains against terrorism. Benefits include reduced customs inspection, reduced border delays, and eligibility for account-based operations.
  • Customs Co-operation and Mutual Administrative Assistance in Customs Matters
    An European Union program that provides the necessary tools for customs cooperation between EU member countries and other importers and exporters, including Korea, Canada, Hong Kong, the US, India, China and Japan.
  • FAST
    Free and Secure Trade: A voluntary joint initiative between the Canada Border Services Agency (CBSA) and U.S. Customs and Border Protection that enhances border and trade chain security while making cross-border commercial shipments simpler and subject to fewer delays.
  • ISA
    Importers Self Assessment Program: a voluntary approach to trade compliance that provides the opportunity for importers who have made a commitment of resources to assume responsibility for monitoring their own compliance in exchange for benefits.
  • SAFE Framework
    SAFE Framework of Standards to Secure and Facilitate Global Trade: a WCO Framework that includes requirements for Customs and Authorized Economic Operators that is designed to facilitate the implementation of secure trade programs in member nations
  • SEP
    Secure Export Partnership: A US-New Zealand Customs security arrangement (which is representative of emerging US security arrangements with other countries).

Can Electronic Postage Really Demystify International Shipping?

A recent white paper by DYMO Endica claims that “Electronic Postage Technology Demystifies International Shipping”. Needless to say this got my attention because, being aware of the dozens and dozens of issues that can arise in international shipping, postage usually doesn’t make the list.

The paper starts off with some facts that every supply manager needs to know, which include:

  • 96% of the world’s consumers live outside the US and collectively hold two thirds of the world’s purchasing power
  • currently, US-based online retailers that ship abroad acquire 5% of their revenue from foreign orders and this number is rising
  • 14.5% of retailers that ship abroad see more than 25% of total sales from foreign orders
  • rate classes that change annually, tariffs and taxes in multiple currencies, the disparate shipping rules of numerous countries, plus the rigours of complying with customs documentation and reporting are just a few of the challenges of international shipping

And then defines electronic postage systems as:

software platforms that enable the online purchase and printing of U.S. Postal Service postage, from the computer, to be used for domestic and international mailing and shipping

which is the proper definition of a country-based electronic postage solution. But how does that address the issues of tariffs, the disparate shipping rules of multiple countries, and the rigours of complying with customs documentation? All a typical electronic postage system does is insure that you apply the proper amount of postage (assuming you enter the proper dimensions of the packaged item and the proper weight and choose the proper shipping method, as the system looks up the rate from published rate tables). Now, some solutions from private industry will also produce the necessary documentation, given the necessary information, but then you are venturing into the territory of customs and trade documentation solutions. By definition, an electronic postage system does not produce customs documents. And you need to know how to answer the questions correctly (in what is typically a wizard-like interface) to get the right documentation.

In other words, if you integrate an electronic postage system with a trade and customs documentation system, you will simplify the trade process, as you will know how much you have to pay and what documents you need to include, but you will not demystify it. Many of these regulations are complex, with even more complex classifications for goods (for example, referencing HTS codes, a printer shipped with an installed cartridge is not the same as a printer shipped with an uninstalled cartridge). If you don’t understand the rules and regulations of where you are shipping, and the terminology used by the application, you will still be lost. There’s no magic demystification that occurs simply with the acquisition of such a solution.

However, if you understand the basics of international shipping, and the mandatory rules and regulations of the country you are shipping to, I do believe their claim that average shipping time can be reduced from 20 minutes to 2 if the software is in the hands of a professional in international shipping and logistics.

If you’re a small to mid-size business getting into the international direct-to-consumer shipping game, the white paper is definitely worth a read, but don’t get taken for a ride on the magic carpet. Simplification is not demystification, and you’ll have to learn a little to get a lot from this type of solution.