Assessing a Company's International Preparedness
Recently, my colleague Lou Longo gave a presentation on globalization concepts and terminology, at the Manufacturing for Growth Meeting in Hawaii. The feedback was surprising. “I came in thinking there were a few items I didn’t know or understand,” one business owner said to us. “Now I realize it’s more like 30 items. It’s very unsettling.”
He then went on to ask if we offered international-readiness assessments. We told him that, yes, we do. The reaction was huge. It made us think—if this group of business owners was that bowled over by what they didn’t know, others likely are in that same position.To paraphrase Donald Rumsfeld, there are things we know that we know, things we know that we don’t know, but also things we don’t know we don’t know. It’s that last category that’s especially dangerous.
Certificates of Origin: Customer-oriented issues like certificates of origin can be problematic for many internationally active organizations. Very simply, businesses typically provide these certificates incorrectly and often don’t understand the rules behind how origin is determined, or the liability exposure they’re accepting.
Often, businesses sell an item that they’ve certified as U.S. content to a customer. The customer relies on that, but when he goes to export it, realizes that it’s actually content from a foreign country. This can result in significant duties and interest that are passed down from the customer to the business.
Export Licenses: Many organizations believe they can export anything out of the United States. This isn’t the case. The United States maintains a list of products and product categories (often technology- or weapons-related) that require an export license. There also are certain countries to which you cannot export, such as Iran; moreover, you cannot knowingly export to another country that plans to export to Iran.
Importer of Record: When it comes to exporting products, who is the importer of record? Phrased another way, who has the responsibility for duties, taxes and the legal importation of products when they cross borders? Many clients don’t understand the prevailing rules and, in some cases, lose money when they ship products to a foreign country only to find that the amount they owe exceeds their profit margin.
Regional Rationalization: Another item to be aware of is rationalization. Suppliers should evaluate their customers and their current and future needs by geographic region, and plan accordingly.
For example, automotive companies have been significantly decreasing the number of platforms they produce—Ford is shrinking its number of global platforms from 29 down to seven. Are you nimble enough to change your shipping strategy when your customer commonizes suppliers and products?
This kind of consolidation also is occurring in the medical-device and aerospace industries. Suppliers must consider these issues and develop a strategy. That doesn’t necessarily mean setting up a facility or plant in every location, but you will need a viable solution—a strategic alliance or joint venture, for example—to meet customer requirements in those markets. Further, it’s important to conduct this analysis regionally versus country-specific, since you may be able to cover a broader footprint from one location over another close to a specific customer.
Internal Controls: Clients don’t focus on their foreign operations as much as they should. This often leads to lax internal controls and weak documentation.
If we walk into a client and ask for copies of their foreign subsidiaries’ last two years of tax returns and all relevant licenses, odds are the organization can’t provide them. They rely on the foreign subsidiary to keep records—a terrible practice. It’s fine to trust your CFO, but CEOs need to verify reporting guidelines/deadlines and monitor them closely to confirm compliance. It’s not sufficient to solely rely on the CFO or subsidiary controller. This is the equivalent of putting all of your eggs in one basket. MFThe author thanks Lou Longo, a consulting partner with Plante Moran specializing in international business, for contributing to this article.
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