Category Archives: Global Trade

If There Is One Constant in Global Business …

… it’s buyer-beware. And one can’t help but heed the truth when you read this recent article over on Forbes on India’s Restaurant Secrets. Quickly getting to the point, the article notes that:

“Today’s Special” can mean three things:

  • the restaurant is trying to get rid of old food,
  • the chef is experimenting with new food, or
  • there is a genuinely good ingredient that’s come in and the chef wants people to enjoy it.

There’s very little difference between this situation and the situation you are faced with when a supplier puts up a large stock of inventory for auction at low, low prices. Either:

  • the supplier is trying to get rid of obsolete inventory,
  • the supplier is trying to push a new, struggling, product line, (which will likely be discontinued in the near future) or
  • the supplier was so proud of a particular product that it got a little too enthusiastic in a production run and/or just wants to get the product out there (expecting that word of mouth will lead to many profitable sales in the future).

Go Global or Go Home

No, this isn’t a post about my favourite topic of outsourcing. Or even about international buying or selling. It’s a post about operations, and it’s for the vendors. Really.

Those who do global business follow the sun. That way they can offer 24/7 customer service, and do it during normal business hours. Most people don’t want to work twelve hour shifts or work all night, and most companies don’t want to pay overtime or the higher wages that workers in many markets would want for the privilege.

However, the leaders have realized that if you want to stand out from the crowd, that’s not enough. You also have to support your suppliers 24/7 and be ready to take action as soon as something goes wrong — even if that’s 2 am Friday morning. As a result, many companies have started putting people on the ground in a local time zone near their suppliers. And it’s these local people on the ground who are doing most of the work. And they themselves want to be supported.

As a result, today’s leading customers care a lot more about where your support team is than where your headquarters is, where you account managers are, or whether or not you’re best in class (because many of them only need good-enough solutions most of the time, as long as these solutions are there when they need them). So if you’re planning to expand your operations as a supply management software or services provider, forget the global sales offices. Smart customers don’t care. They care about whether or not you’re there to support them when they need it. And putting someone on the ground there with them goes along way towards negating that worry — as more and more vendors in the space are realizing, and doing. (In fact, I recently talked with one CXO who said “I’m not hiring anyone else local. I’m here, and since most of my customers aren’t, why would I need anyone else here? I can support the few customers I have here by myself. I’m going to hire the people where they are needed.”)

In other words, if you think you’re the next vendor to cross the ocean, or the continental divide and you aren’t planning on establishing a local presence, think again. You’ll just be wasting your time and money. Customers don’t just want differentiating technology anymore (as they have enough of that), they want differentiating service — and if you can’t provide it in this increasingly crowded space, you won’t survive. Sorry to burst your bubble, but that’s just the way it is. Have a nice day.

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Trade Optimization Hits Mark for CFO’s Top 2010 Concerns

Today’s guest post is from Matt Gersper, founder and president of Global Data Mining, who will be hosting a webinar on Trade Optimization on Thursday, July 15, 2010 from 2:00 pm to 3:00 pm, EDT.

New government regulations and ineffective supply chains are costing U.S. businesses millions of dollars in unnecessary fees and expenses, destroying company profits and eroding global competitiveness. Understanding risk factors associated with international business transactions can help companies estimate the financial impact these risks may have on their business and provide a framework for fixing the problems and restoring lost profits.

Draining the Supply Chain

For financial executives, the impact of supply chain risks, trade policies and regulations is a major concern. A recent study concluded international trade effectiveness and “hanging on” to the company’s hard-earned cash are top concerns for CFOs in 2010.

There are four main risk factors adding unnecessary costs to international transactions every day:

  1. Government regulations
  2. Delays in the supply chain
  3. Inadequate internal and external controls
  4. Inaccurate or obsolete information
 Top Internal and External Concerns for CFOs

A study by APQC and Global Data Mining revealed a typical U.S. bound international supply chain performs perfectly less than 10 percent of the time, internal controls for cross-border transactions are 200-times worse than a company’s accounting controls, and a McKinsey study estimates cross-border volume will be increasing seven-fold in the next 15 years. These conditions create chaos in many supply chains and cause delayed shipments while adding millions of dollars of unnecessary costs and creating unknown risks for companies.

Stop the Bleeding

Optimizing global trade effectiveness and improving supply chain speed can inject trillions of dollars into the national economy this decade. That translates into billions of dollars for states and millions of dollars annually for U.S. businesses.

It is time for business executives to quantify unnecessary trade costs, understand the significant financial opportunities available by optimizing global trade business processes, and take action to return these costs to the company’s bottom line.

According to an AberdeenGroup study of 233 enterprises, “A $1 billion company that imports a third of its goods can free between $10 million and $40 million in cash by better controlling its basic global trade processes“. The specific areas recommended for improvement are: trade agreement management, sourcing opportunities, foreign trade zone utilization, and supply chain finance strategies.

Independent analysis by Global Data Mining of more than $178 billion in U.S. imports has consistently supported the conclusions reached by the AberdeenGroup. Applying the Aberdeen metrics to the $1.9 trillion in annual U.S. imports would create an annual cash infusion into U.S. businesses of between $58 and $232 billion. Imagine the impact this would have on U.S. jobs and in strengthening the economy. In comparison, the total funds for the American Recovery and Reinvestment Act of 2009 awarded in 2009 was only $183 billion. And only $54 billion was actually paid out.

Big Brother

The new Importer Security Filing regulation, commonly referred to as 10+2, gives the U.S. government additional powers to confiscate a company’s cash . Customs and Border Protection’s (CBP) recent publication, “Trade Strategy for Fiscal Years 2009-2013,” should be a wakeup call for every CFO. Astonishingly, the CBP report lists “Enforce U.S. Trade Laws and Collect Accurate Revenue” as its number two strategic goal ahead of “Advance National and Economic Security.”

In Q3-10, CBP will begin to issue fines for non-compliance and there will likely be more frequent holds on shipments for non-compliance. An important study by the National Association of Manufacturers estimates the ISF regulation will create a permanent 2.8 day delay in supply chain speed. If the entire nation suffers the 2.8 day delay, it would be the equivalent of a $27 billion to $43 billion tax on U.S businesses, using the Purdue University Study cost model for supply chain delays.

“To put the cost in perspective, it is virtually the equivalent of doubling the import tariffs that manufacturers now pay to bring products and components into the United States“.

John Engler, president National Association of Manufacturers

To make matters worse, a recent study by PricewaterhouseCoopers found that supply chain disruptions destroy shareholder value and corporate profitability. The study showed the market is quick to punish companies that report supply chain disruptions. On average, affected companies’ share prices dropped nine percent below the benchmark group during the two-day announcement period.

Conclusion

Poor controls, government interference and regulations, supply chain disruptions and bad information negatively impact the bottom line. Companies cannot effectively compete on the global stage with outrageous supply chain costs, fines and market-based penalties of this magnitude. Financial executives must stop the money drain by identifying hidden and unnecessary costs and then take action to optimize business processes and return those costs to the company’s bottom-line.

Thanks, Matt!

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If You’re a MultiNational, Why Would You Use a Domestic 3PL?

After reading a recent article in the new SCMR that contained a 3PL update which noted that analysts suggest global/domestic lines may be blurring, all I can do is ask why would a multinational use a domestic 3PL in 2010? A modern multinational is in-sourcing, out-sourcing, near-sourcing, far-sourcing, high-value sourcing, and low-cost-country sourcing … and moving products back and forth all over the globe. What possible logic would there be for using a domestic 3PL? If you’re outsourcing your logistics to a 3PL, then you’re outsourcing to use the full capabilities of the 3PL, not just to manage product as it comes into or leaves your country.

You could use a domestic 3PL to manage your product nationally and then a global 3PL to mange your product globally if you really wanted to, but, in doing so, you’re creating complexity, cost, and sowing the seeds of future disruption. If two 3PLs have to coordinate with every international transaction, that’s unnecessary complexity. If you’re using two 3PLs, that’s twice the 3PL fees. And if you do a lot of international shipments, that’s a lot of handoffs and a lot of chances for something to go terribly wrong.

Plus, with the greatest growth coming in China and India, chances are that your domestic market will be less and less important as time goes on. So why would you, as a multinational, use a domestic 3PL? If you have a good reason, let me know!

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There’s Opportunity in Global R&D …

… but there’s also risk as well. In fact, I’d say the risk is as big as the opportunity presented in this Global Services article on the “globalization of R&D and Product Development” which claims that there is a tremendous opportunity for growth based on the fact that only 5% of current R&D spend is based on outsourced partnerships.

While it is true that the average small to mid-sized software product company will continue to be faced with cost pressures and increased revenue expectations, that headcount in other economies like China, India, Poland, and Russia are considerably cheaper, and that a few of these countries are as likely to produce as least as many software geniuses as North America, it’s also true that there are disadvantages and risks to outsourcing. The first is market risk. Does the outsourced R&D provider’s team truly understand the market needs? The second is education. The educational systems in these countries traditionally pump out some of the world’s greatest mathematicians, but mathematicians (and pure mathematicians in particular) are often the world’s worst coders. They can come up with the most brilliant algorithms on the planet, and maybe even code an initial version of them, but good luck integrating and maintaining their code as part of your code base — because no one but them will be able to understand it, ever.

Then there’s the ever-present culture risk. Will your North American or Western European or Australian team be able to work with them to produce great results, or will they continually misunderstand each other? Then there’s the performance risk. You might get the hardest, best trained worker, or you might get the ultimate slacker who’s there because his father, brother, or uncle is in management or has a strong say over who is hired. Arun Krishnan of Cutting Chai didn’t address outsourcing and how to threaten your outsourced employees, by telling them “I will single out every one of you and kill you”, in Hindi in his first “Learn Hindi from Bollywood Movies” podcast just to be humorous. If you’re unlucky with your hires, you really will want to yell that!

Finally, there’s the cost risk. The only way to insure success is to build a relationship and understanding with the outsourced team, work closely with them, and manage the integrated team on a regular basis. This will require regular trips to their location to find the team, train the team, and manage the team, and then multiple trips for your employees who will have to take turns visiting each location to build the camaraderie required for them to truly work as a team. Early on, this will likely cost a lot more than you budget for.

Now, I’m not against the globalization of R&D, and, especially if you’re a multi-national, I think it’s a great idea, but it has to be done right, and you have to move slow at first. Otherwise, like many companies that don’t properly plan and rush right in, you’ll see nothing for your efforts but huge losses.

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