MATERIALS MANAGEMENT AND PURCHASING) (14303; OPMT 3660-001, Summer 2015)     Team: Members: Wade, Jennifer (2015). Strategic Growth: Global Trade Com Tool for Success, Supply Chain Management Review. Article Summarized by: Mohammed Aldaham

Key Question: Global Trade Compliance – Supply Chain Hassle or Strategic Growth Opportunity?

[1] Global Trade Compliance Global Expansion : Shipment of goods to foreign countries is subject to compliance of trade regulation in host country Non compliance : Penalty, operational hassle, time delay, Impact on profitability Compliance as strategic growth opportunity In the contemporary globalized world, expansion of business through global trade is the lifeline of growth. However the road to trade growth is fraught with various supply chain challenges and global trade compliance is one of the significant challenges. Companies face various problems due to noncompliance which may be due to wrong interpretation of local laws, faulty or incomplete documentation or ignorance of law. In any case noncompliance leads to various issues like penalties, productivity impact, time delay, litigations, etc. However exploiting this challenge as a strategic advantage by developing an expertise over compliance will lead a company to have a competitive edge over its competitors.  

[2] Trade Compliance: Global Trends Huge growth in Imports world wide post economic crisis Increase in various regional trade agreements : Helps exploit new market opportunities, decrease in cost, etc. Ease of doing trade : Positive improvements word wide Increasing significance on enforcement of trade regulations woldwide Dynamic nature of Import trade : Improvements in import time in certain countries as against increase in certain countries The various trends in the global trade worldwide are dynamic, volatile and filled with both challenges and opportunities. Imports by countries has drastically improved post economic crisis. In 2013 BRICS countries imported 83 per cent more than what they imported four years earlier. In the same year, developing countries imported 74 per cent more than what they imported four years earlier. However regulations and trade per se depends on the infrastructure and capabilities of each country and differs country to country. Brazil’s average import times dropped from 3.9 days in 2010 to 2.0 days in 2012, while India’s imports moved through in 3.0 days in 2012 compared to 5.3 days just two years earlier. By contrast, import times are stretching out elsewhere: In that 2010-2012 period, China imports went from 2.6 days to 4.0 days and Russia’s lengthened from 2.9 days to 3.0 days. Regional trade agreements between countries or regions foster trade between these countries by reform in trade regulation and improvement in ease of doing business. An expertise and up to date knowledge of these agreements will help exploit them for business growth and hidden cost advantages.

[3] Trade Compliance : Challenges Country Specific : Regulation, procedures, enforcement competence and infrastructure differ country to country Risk Management & Compliance Team : Lack of proactive measures and thoroughness of knowledge Dynamic trends in global trade and trade agreements between countries The challenges for any company doing global trade with trade compliance are huge. Firstly the regulations, procedures, requirements, documentation, capabilities, infrastructure, etc. differ country to country and the requirements, specifically documentation, are very specific. Further these regulations are complex, long and differ in interpretation due to local legal framework. Hence it is very difficult, particulary for smaller organization, to develop inhouse expertise on trade compliance. Further the trade compliance team and supply chain operations team work in silo leading to further confusion. Further the various dynamics of global trends in global trade, as explained earlier, further complicate compliance of global trade regulations.

[4] Non Compliance : Impact Monetary Impact : Penalties, warehousing cost pending customs clearance, impact on profitability Productivity Impact : Delay in supply chain timeline, additional man hours to resolve issues, loss of competitive edge Reputational Impact : Litigations as liability, Unfavorable perception among host country regulators and business partners While it is complex to comply with global trade regulations, no regulator in any country will agree to non-compliance. The impact of non-compliance varies depending on the nature of non-compliance and the country. The impact could be penalties ranging from insignificant amounts to large fines, additional warehousing cost due to delay in compliance or on account of non-compliance not resolved, litigations, government actions, etc. The delay also leads to loss of productivity on account of time delay in delivering product, unproductive man hours in resolving the issue, loss of competitive advantage and finally impact on profitability. The litigations and government actions have the possibility to impact reputations of companies.

[5] Compliance : Strategic Advantage Global Trade Compliance is a challenging activity world wide Developing in house expertise in trade compliance: Competitive Advantage & Opportunities for global expansion Expertise Advantage: Exploit regional or country specific trade agreements for business growth Compliance with global trade regulations is a complex activity and very challenging. However exploiting this challenge as a strategic advantage by developing an expertise over compliance is the better way to manage this challenge. A company which can develop this expertise gains a competitive edge, over its competitors, which is not easy to emulate and offers the company a robust growth opportunity. Further this expertise also provides capability to identify and exploit hidden growth opportunities in regional trade agreement or local trade regulations. However it is not easy to develop this expertise and once the expertise is obtained it becomes a strategic advantage. .  

[6] HOW : Compliance as Strategic Advantage Integration of trade compliance specialist team with the supply chain operations team Develop in house expertise on trade compliance among legal team or obtain third party resource as consultant Investment in resources, training and other measures to improve compliance expertise Implement high standards for proactive and careful actions : documentation, paperwork, etc. Generally the trade compliance team and supply chain operations team for global trade work in silo and interact on a need to know basis. However it is important to note that for a effective compliance, it is critical that both teams are integrated and work with foresight of operational plan to have a more coherent approach. Further an expertise on global trade regulations has to be created in house either by having the local legal team develop this expertise or identify and obtain services of external expert on trade compliance through contracts. The company should identify the importance of investing in resources by way of internal trainings, education, finding suitable resources, etc to develop expertise in trade compliance and regulations. Further it should set high standards for various operational aspects of compliance like documentation, identifying appropriate regulation, etc.

[7] Conclusion The challenges of trade regulations are easy to deter companies to stop their global expansion These challenges also provide an opportunity to make compliance a competitive advantage Developing expertise to manage trade compliance effectively is the way to develop strategic advantage Expertise with foresight and thoroughness leads to a strong business growth and competence to exploit hidden opportunities in trade compliance The challenges of trade regulations compliance are easy to deter companies to stop their global expansion by impacting their profitability and productivity. However these challenges also provide an opportunity to make compliance a competitive advantage. Companies by developing expertise to manage trade compliance effectively exploit growth opportunities and cost advantages. Further this expertise leads to foresight and thoroughness making it competent to exploit hidden opportunities in trade compliance