Global Operations Prefer Outsourcing Trade Management, Study Finds

Even if your business isn’t a mammoth multinational, chances are you conduct or expect to conduct some form of trade with a foreign country. But managing the process all by yourself is fraught with risk, according to a new report from ARC Advisory Group. Based on in-depth surveys of eight major U.S. companies, the report concludes that global trade management is not a core competency for most firms and that outsourcing the process typically works better.

The report cites World Trade Organization statistics that the value of global trade more than doubled from 1993 to 2003, from $7.4 trillion to $14.8 trillion. A variety of factors fueled this growth, including overseas sourcing of raw materials, a plethora of preferential trade agreements, manufacturing outsourcing, and mergers and acquisitions. All this activity, however, has led to international transactions becoming incredibly complex. A cross-border shipment typically involves accurately completing and filing about 35 documents; interfacing with about 25 parties, including customs agencies, carriers, freight forwarders, brokers, and banks; and complying with over 600 laws and 500 trade agreements that are constantly changing.

Although the survey respondents said that outsourcing global trade management had worked for them, the ARC researchers point out that the first step that any company doing business overseas must take is to measure the link between financial performance and global trade management, as well as the associated risks. Based on the resulting data, operations managers can decide whether to outsource the process. The following yardsticks will provide a sound baseline:

1. Percentage of revenues and profits derived from imports and exports 2. Percentage of revenues and profits derived from controlled or licensed products 3. Percentage of revenues and profits derived from “risky” countries or regions 4. Percentage of cash-to-cash cycle linked to trade activities 5. Percentage of vendors, manufacturing capacity, and customers in foreign countries

Other factors and measurements to consider include the following:

Product Classifications 1. Number of products classified per year 2. Number of products with multiple classifications (e.g., by country) 3. Time and labor cost per classification 4. Classification accuracy

Import Entries and Exports 1. Number of import entries and exports per year 2. Number of importing/exporting locations 3. Number of brokers under management 4. Time and labor cost per entry/export 5. Documentation completeness and accuracy 6. Electronic filings (as % of total filings) 7. Customs holds (as % of total entries)

Denied Party Screenings 1. Number of screenings per year 2. Number of alerts per year 3. Time and labor cost per screening/alert resolution

Trade Programs 1. Number of trade programs 2. Number of qualifications and solicitations per year, per program 3. Time and labor cost per qualification/solicitation 4. Percentage of “first time through” merchandise (duties saved by qualifying goods prior to entry)

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