What are the keys to a successful global distribution strategy?
The first key to developing a successful global distribution strategy is to acknowledge the strong forces pushing the business world towards true globalization � from international sourcing and procurement to global fulfillment. They mean that no company can afford to ignore the international audience. According to international consulting firm McKenzie and Company, 80% of manufactured goods will be sold across international borders by 2020, compared to around 20% today.
The second key is recognizing the incredible level of detail involved. In fact, Forrester Research reported 85% of companies surveyed could not fill orders internationally because of the complexity of shipping across borders. Forrester has also stated that global shipments require an average of 27 parties to complete. Every country has its own unique set of tariffs, duties, classification codes and restrictions associated with cross-border shipments. Regulations change constantly, are published in dozens of languages and are often ambiguous.
The final key to successful global distribution is to make it systematic. Corporations can benefit from the expertise of freight forwarders, third-party logistics providers and, most importantly, the latest technological solutions that establish automated, real-time logistics systems for cross-border trade. While technology can�t eliminate all of the regulations and details associated with cross-border trade, it does the next best thing, which is to make them manageable. By eliminating the uncertainty associated with cross-border transactions, buyers as well as suppliers can make informed fulfillment and procurement decisions before committing to an order, and companies can rest assured that products will reach their destinations.
What are the most common mistakes companies make when shipping goods across borders, and how can they be avoided?
The biggest mistake anyone can make is to be uninformed. Without the knowledge needed to expedite shipments, people make easily avoidable mistakes. For example, many shippers make up numbers or guess about requirements on export documentation, not realizing that certain product descriptions raise red flags for customs. For example, a company could describe a good as �aircraft parts and avionics� without attaching an accompanying explanation. Aircraft parts can be an alert to customs because so many different airline parts have defense implications. Once customs stops the shipment, the company is burdened with proving that the goods don�t actually require a license, which can significantly delay or could even prevent the shipment.
Another mistake companies make is to assume that third-party logistics providers are wholly responsible for export documentation. If a third-party provider such as a freight forwarder or non-vessel operating common carrier is late with the documents for your shipment or provides erroneous explanation, you are reported as the exporter. To prevent this, companies need to use electronic processes whenever possible to reduce the risk of mistakes and also have a system implemented to measure efficacy of third-party providers.
Finally, companies often don�t realize the potential that export and logistics have to provide large cost savings or, conversely, large cost burdens. Any decision about export, no matter how small, is likely to be financially significant.
What are the key components of an International Trade Logistics (ITL) system, and what do they do?
Forrester Research has uncovered a very startling statistic: 85% of US Web sites cannot support non-US addresses or work out international shipping costs or exchange rates, causing many companies to reject more than half of their non-US Web orders. International Trade Logistics (ITL) software can alleviate the situation.
In selecting software for your company, make sure that it incorporates the following functions:
� Regulatory compliance: A system that will determine whether or not a shipment is legal for import or export and whether the purchaser can legally receive the goods. This information is necessary to clear customs quickly and reduce excess inventory carrying costs for both exports and imports.
� Documentation: A system that automatically completes necessary documents for export and import such as the Shippers Export Declaration required for all US exports worth over $2,500.
� Materials compliance: For more highly regulated goods such as pharmaceuticals, chemicals or even some high-tech goods, a system that determines safe shipping methods automatically completes complex documents such as the Materials Safety Data Sheet (MSDS) and flags any necessary additional documentation.
� Landed cost calculation: A system that determines all costs associated with an international sale from door to door including sea, air and land shipping, taxes, tariffs and other costs. This calculation should be made before the sale is made to prevent unhappy surprises for both parties. This is the most important function of all.
What role does my ITL system�s content play in the shipment of goods across international borders?
Here�s an analogy: You are a tourist, lost in an unknown place. Would you ask a child for directions? No, because even if the child knew the way, he would not be able to communicate it properly. Would you ask a fellow traveler? No, for without knowledge of the nearby streets he has nothing to communicate. Similarly, an ITL system, providing directions for efficient international trade, has two critical features: a rich database of the international laws, rules and regulations surrounding global commerce and a robust set of algorithms that draw on that content. For an ITL system, weaknesses in either area � algorithms or content � can lead to wasted money, lost opportunities or even legal violations. Strong content is required to help your company find the cheapest, most efficient legal method to ship from X to Y.
How is content gathered and maintained? How is it delivered? What sets some content apart from others?
Every country has its own unique set of tariffs, duties, classification codes and restrictions associated with cross-border shipments. To create ITL systems, companies tackle the fine print of US customs regulations and then correlate them with similar regulations and guidelines from foreign countries. It�s an exercise similar to slicing and dicing the US tax code, multiplied for each trading partner.
Content can be delivered in a document or as a yes or no answer to a compliance question, as a cost calculation or as a required sticker that notifies handlers of the contents. Content can be delivered in real-time, whether using the Internet or installed enterprise software. What sets some systems apart is the ability to compile, access and manage every detail of international customs rules, regulations, tariffs and taxes. If content is managed correctly, then if country A decides to charge a 50% tariff on your product when delivered by ship but not when delivered by courier, your company knows in time to change the shipping method. In other words, the level of detail in the content determines the accuracy of your system, which in turn mitigates risk and can create significant cost savings.
How does my ITL system affect my international procurement decisions? What areas must it cover?
It takes an incredible level of content detail for you to be able to rest assured that your company is maximizing its savings in landed costs. Here are some examples:
1. Harmonized Tariff Codes: Eight-digit classification codes for goods have, to a certain extent, been unified internationally, so a company can use the same number for sending a car to the US as to Spain. However, some countries add extra digits to further clarify the nature of the goods. Since this number forms the basis for duty and taxes, it is important that a landed cost system accommodate the extra digits. Clearly, eight is not enough. For example, when sending a data CD to Argentina, the eight-digit number, which classifies it as a CD, indicates a duty/tax of 18.5% � an accurate 11-digit number marks it as a data CD instead of music and reduces the duty/tax to almost zero.
2. Duty preferences: Governments control trade relationships with other countries in part through duty preference programs such as NAFTA in the US. Any system that doesn�t account for these preference programs can cause missed opportunities that add up to 45% to the cost.
3. Country- and industry-specific content: The number of countries covered by a system can determine whether a company can trade in a particular market. Also, while no product is immune from international shipping hassles, products in highly regulated industries such as chemical, high-tech and pharmaceutical products require special attention to documentation and regulations.
4. Varied cost charges: There are a myriad of other charges that can have enormous effect on the landed cost of any shipment. Costs vary based on the carrier used for the shipment, commercial fees including port, insurance, warehousing, customs broker and freight forwarder fees, tariff-based fees such as environment and courier charges, exchange rate and even more abstract inventory carrying costs such as the cost of capital and transit time. While compiling and maintaining these costs can be a gargantuan task for any service, details such as these are the meat of any successful system.
What is unique about chemicals or hazardous materials that would require special global commerce consideration?
International shipping regulations require that chemicals and other regulated goods be accompanied by various documentation, especially the Material Safety Data Sheet (MSDS). The MSDS is the second-most produced document worldwide, next to invoices. Every manufacturer or assembler is required to complete an MSDS marking the contents of the good and appropriate handling. This document travels with the product throughout its lifecycle, and companies must be able to show MSDSs for all hazardous products they use.
As companies expand globally, MSDS and hazardous material regulatory expertise is more difficult to acquire. Even member nations within the European Union have different rules and regulations. Because an MSDS can be the only way for an end-user or the government to know whether a product is in compliance with local rules for regulated goods, the document�s contents can be complex. Furthermore, it must be completed in the native language of its destination country as well as all countries through which the shipment travels.
What�s the ITL�s role in my company�s overall global strategy?
A complete ITL solution provides innumerable benefits to a company selling or buying across borders and can open up enormous opportunities for domestic organizations looking to expand. By understanding the real costs as a transaction evolves, buyers and sellers are in a much stronger position to take advantage of the global marketplace.
Most importantly, an ITL system is a tool that provides exponentially greater benefits as your company expands. Global customers are inescapable realities for almost any company in a world where borders are fading fast for making transactions, even as they stand firm in the face of moving physical goods. As numerous analysts have stated, corporations already realize that shipping goods internationally exposes a company to risks such as delays, returns and angry customers. However, organizations that minimize that risk with a thorough, uniform ITL system and become comfortable with a global outlook can also see their customer bases � and profits � rise dramatically.
Bruce Johnson is president and CEO of ClearCross. For more information, visitwww.clearcross.com.
What are the keys to a successful global distribution strategy?