Overseas Opportunities

As challenging as it is for companies to manage business within our own borders here in the United States, it is nothing compared to the complexities of conducting business internationally. This month, Consumer Goods Technology sat down with John Hafferty, vice president for Europe and Asia, UPS Supply Chain Solutions, who shared his perspective on international trade, sourcing and selling product overseas and how consumer goods companies should be taking advantage of the opportunities that a global economy presents.

In today's market, a growing number of companies are sourcing and selling products overseas.  What cultural barriers make global trade a complex issue?
Large global companies tend to place more reliance on performance, speed and responsiveness at the top of their list of expectations for suppliers, so the replacement of technology over face-to-face interaction is not only an acceptable transition but a preferred one. Technology provides information about shipments, orders and transactions, 24/7, and the data is instantaneous. But the lack of personal interaction with suppliers, and/or customers, may hurt performance. In many cultures, trust is built with face-to-face personal relationships. In Asia and Latin America, interaction needs to include time together in business and social settings.
The more time spent together, it is thought, the more expectations and mitigating circumstances are understood; and the better mutual decision-making can be made. Americans tend to want to rely on formal documents or legal contracts to cement performance criteria and clarify expectations. But this can be very off-putting in some cultures, where commitments are made by principals of "my word is my bond." To introduce contracts may actually insult customers or suppliers who see it as an affront to their personal integrity.

Additionally, these companies tend to expect that all business communications to be in their native language, which is usually English. Often non-English speakers are reluctant to admit their level of competency in English, especially verbal communications. So it's important to use local language when possible and when using English, accompany verbal communications with written documents to reinforce your key messages and also to give the recipient the opportunity to consult with someone later who is more proficient in translation.

There are an increasing number of compliance initiatives overseas. How can cg companies handle complex trade agreements and international regulations?
Because of the dynamic changes that are happening on the regulatory and security front, I would recommend that companies hook up with a global logistics integrator, like UPS, who offers trade consulting services, custom brokerage and manages the entire international trade process.

Mistakes can mean fines, long delays at borders and even jail. A proficient international trade specialist can handle documentation requirements that now extend far back to origin countries, including both paper and electronic information. Miscoding of information can severely hamper the speed for when goods get out of customs and back on the road. International trade specialists can also give advice about the placement of inventory and where to put order processing operations to minimize the local tax burden.

Finally, you should consider how the complexity of regulations and the risk of delay are affecting the reliability of your supply chain. Each company should have a contingency plan about how to meet customer requirements should an interruption occur. This might include increasing safety stocks in each region; or setting up a network of alternative suppliers within each region; or making sure that your technology systems are set up to alert you quickly if any goods are delayed at borders so that you can respond with an alternative plan.

International security is also a huge factor in global trade. What challenges do CG companies face and how can they manage their supply chain to accommodate the heightened importance? Border security is one of the drivers behind increasing information requirements from governments around the world. Customs officials want this information as soon as possible. For example, U.S. customs now requires the delivery of shipment information 24 hours BEFORE the goods leave its origin port.

Companies also need to look at participation in government programs like CT-PAT in the United States and PIP in Canada that can get your company in the "express lane" for customs clearance. Companies also need to develop long-term relationships with carriers so that they are considered "known shippers". Some urgent shipments are not allowed on passenger planes without that relationship.  

Getting products to market in a timely fashion is sometimes a challenge when dealing with U.S. customers and suppliers.  What tools can CG companies consider to help manage this process overseas?

We have two tools that might be of interest: Using UPS's Supplier Management service, we oversee a company's supplier by following the purchase order through production, delivery and payment. We have on-the-ground local employees who work directly with suppliers in their local language to ensure that the goods are delivered to the dock or airport on time, that the goods are put on the ship or airplane, that international documentation is properly prepared and sent to officials, and that the goods are delivered on time so that the supplier can get paid.

Our other service is UPS Trade Direct, which lets companies utilize ocean or air containers for economical long-distance delivery, but then the goods are broken into small packages so that they can speed to their destination within the Continental U.S. This saves time and skips intermediary stops at regional distribution centers. UPS Trade Direct is great during the peak season when you need to get goods direct to stores quickly.

Many companies have distribution centers in the United States. What steps can companies take to set up worldwide distribution facilities to enable timely order-fulfillment?

Many of our customers have decided to concentrate their resources on marketing and sales and outsource the distribution function so that they don't have to use their capital for warehouses and other assets. By utilizing a third-party logistics company with a multi-client distribution center, inventory and order fulfillment can be managed by outsiders. This solution also addresses one of the uncertainties that always accompanies entering a new market -- volumes and scalability. A multi-client distribution center means you pay for space you need and can add more as you go along.

Third-parties also already have the cultural, regulatory and operational knowledge to operate in their country and can be a great source of guidance to companies new to a region. They also may be able to advise the best place to locate inventory based on your targeted customer base and any tax considerations that might be beneficial. And they may give you good advice about environmental regulations on product components and disposal, packaging or handling restrictions for such goods as batteries or other items that might be locally considered hazardous.

Over the next few years, at what rate will the shift toward global sourcing increase?  What is the most important business process that cg companies need to address to manage this international business shift?

We see global sourcing not only increasing but shifting from market to market. That means that companies must build global supply chains that are flexible, resilient and able to respond to changing market conditions.

The supply chain needs to reflect both short-term and long-term business strategies, aimed not only at managing costs but also supporting superior customer service. With global sourcing cutting the cost-of-goods, service may be the ultimate competitive differentiator. This includes not only order accuracy and timely delivery but also post-sales service such as easy returns or repairs, warranty service, product quality and direct to store or consumer delivery channels. All of these must be part of a supply chain plan.