6 minute read 8 Jun 2020
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5 actions manufacturers can take now to sustain growth in global trade

Authors

Robert Smith

EY Americas US Global Trade and VAT Leader

Experienced at helping companies to manage their global indirect tax function in developing and developed markets.

Andrew Lee

EY Americas Tax Market Segment Leader – Advanced Manufacturing and Mobility

Senior client-service partner. Helps clients and EY teams maximize global tax effectiveness. Enjoys reading. Loves travelling with family to historically significant sites. Avid snow skier.

6 minute read 8 Jun 2020

Companies can find opportunities and rise to the challenges posed by the shifting global trade environment and the COVID-19 crisis.

As the backbone of the world economy, global trade is a function that now, more than ever, requires a strategic response from advanced manufacturing and mobility companies. The fast-changing trade environment already featured shifting regulatory requirements and emerging geopolitical trends, such as the wave of protectionist policies that were leading organizations to rethink global supply chains and manufacturing footprints to mitigate rising tariff costs. Then came COVID-19, which has further compounded all of those challenges.

Watch the two-part EY global trade webcast series on your desktop or mobile device. In chapter 1, EY leaders discuss today’s global trade landscape and challenges companies are facing, while in chapter 2, they discuss impacts of COVID-19 and strategies to implement now, in order to get ahead.

Impacts to global business from the pandemic are widespread, but a common denominator for companies are the challenges they face in their supply chain. Organizations are examining how diversified their sourcing model is and already calculating how to avoid a repeat of this sort of precarious moment — weighing how to find alternatives and build redundancies into the supply chain that can prevent it from being suddenly shut down by a shock felt elsewhere in the world.

As for geopolitics, the common pre-COVID-19 view in the recent past was that trade disruption would be a short-term problem. It’s becoming clear that may not be the case. Protectionism in some form may well be the new normal, as the US and countries in Europe and Asia focus on saving their economies, creating jobs and protecting their national interests. Together, the challenges underscore the need — for a nimble, creative and strategic global trade function. With that in mind, here are five actions that companies can take now to sustain growth amid the uncertainty.

Address global trade strategy from the executive level.

It is imperative that enterprises recognize global trade as a C-suite topic and have global trade experts at the decision-making table. Over the last two years, the idea of elevating the trade function has gained traction as organizations have dealt with high-stakes issues such as the China Section 301 tariffs, the US-Mexico-Canada Agreement negotiations and the COVID-19 response. By building an integrated, internal organization on trade – closely tied into supply chain strategy and an overall future manufacturing footprint – companies can start to form a comprehensive view on how shifting regulations and other market changes are impacting their business.

COVID-19 has underscored the importance of companies being able to sustain their supply chain and produce closer to the consumer. The global trade function must act strategically to optimize costs in the supply chain — whether that’s from using free trade zones, leveraging existing treaty networks, or developing other strategies on the importing of sub-assemblies and location of final production. Companies that relegate their trade function to a solely tactical role increasingly will find themselves left behind.

Understand the impact of dynamic regulations to develop a more proactive response.

A proactive trade strategy means doing the upfront work required to minimize duty spend — tackling tasks and identifying opportunities prior to importing products to arrive at the lowest legally accepted duty payments. This involves deploying strategic sourcing and may entail shifting manufacturing locations. The upfront work saves the valuable time and resources involved in looking back and claiming refunds for overpaid duties or costs that could have been avoided.

In addition, proactive companies take steps to articulate why they should be classified as essential in scenarios where non-essential businesses are ordered to close.

COVID-19 has put many companies in the unenviable position of starting an intensive administrative process to get approved as essential: documenting their activities, making their case and finding out from whom approvals are required.

The proactive company has that documentation in hand and will be prepared when the next crisis arises.

To get a clear view of the complex regulatory environment, companies must determine what they are equipped to manage in-house and what help they might need from outside providers that have the global footprint and wherewithal to track down answers quickly. The speed with which good information can be obtained is vital for making quick decisions that are best for the organization.

Gain greater visibility across the physical and financial supply chains to assess performance.

Only 6% of executives across a range of industries say they are “very confident” that their systems give complete, end-to-end visibility into supply chain operations, including cross-border trade.1 Advanced manufacturing and mobility companies can advance their agendas by taking a holistic approach to trade. This allows them to respond better to today’s challenges and determine the role their global trade functions will play in the new world they find themselves in. It involves contemplating trade from the very inception of a product — assessing the product so that it can be classified correctly under customs rules — through the point that the product is delivered to the customer. This further illustrates the need to have trade people integrated in the highest levels of the organization.

Javier Quijano, a senior manager in Ernst & Young LLP’s Global Trade practice, notes that for some companies, the current situation illustrates the vulnerability of supply chains that have been built up over decades without viable backup plans for a supply base closer to the customer. For instance, a US company that imports goods from Asia now finds itself confronted with the prospect of finding a secondary supplier — perhaps in Canada, Mexico or Central America — that could allow it to continue some form of operation.

Advanced manufacturing and mobility companies can advance their agendas by taking a holistic approach to trade. This allows them to respond better to today’s challenges and determine the role their global trade functions will play in the new world they find themselves in.

Build robust data management systems to obtain complete, trustworthy trade data.

Sound decision-making in a fluid environment hinges on having good data — the right data, accessible at the right time — and the capacity to understand it. A proactive trade operation is vigilant about creatively looking for ways to be more efficient. It is equipped with data that accurately conveys products’ landed cost, relevant transit times and border-crossing times, and whether the organization is properly utilizing free-trade agreements to maximize preferential duty treatments.

Gain a clear view of which disruptive technologies present opportunities to help achieve value and growth.

Forward-looking companies will have the ability to harness tools such as blockchain, artificial intelligence (AI) and machine learning (ML) and integrate them into a wider digital transformation. Blockchain can aid in product tracking, distribution, trade finance and tax planning. AI and ML can be employed in databases that correct tariff classifications for existing products and predict appropriate tariff classifications for new products. 

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    ¹ Poll of 5,000 respondents conducted April 2, 2020, during EY Thought Center webcast: Responding to COVID-19: What’s next for supply chains. 

Summary

Advanced manufacturing and mobility companies competing in an uncertain global trade environment can take several actions now to sustain growth and best position themselves for the future.

About this article

Authors

Robert Smith

EY Americas US Global Trade and VAT Leader

Experienced at helping companies to manage their global indirect tax function in developing and developed markets.

Andrew Lee

EY Americas Tax Market Segment Leader – Advanced Manufacturing and Mobility

Senior client-service partner. Helps clients and EY teams maximize global tax effectiveness. Enjoys reading. Loves travelling with family to historically significant sites. Avid snow skier.