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New global supply chains: How technology can break boundaries and integrate global trade
Pablo Gopp, Solutions Specialist, Thomson Reuters Latin America
The twin phenomena of globalization and digital transformation are affecting us all. Every day, we are faithful witnesses to many examples of how technological evolution allows us to reduce distances and simplify processes — in short, evolve.
However, this digital transformation does not move at the same speed in all areas of life, much less in all global trade activities.
If we look back, the global trade volume has nearly tripled in the last 20 years according to the World Bank. The volume of trade is up 272% between 2000 and 2020, reaching a value of almost $18 trillion (USD) in 2020. Countries and trade routes that barely existed before are now some of the biggest players in the market today.
In addition, global trade allows us to be efficient in reaching more markets today. The free-trade agreements or the authorized economic operator programs are clear examples of this. At the same time, though, it should be noted that access to these benefits to enhance trade also comes with the enhanced need for compliance with complex requirements.
From a corporate point of view, global companies increasingly need to take a holistic view of their operations. But what happens when the way of operating is different in each country? Regulations, communication channels with authorities, and even foreign policy can vary.
Compliance is yet another element that has been added to the supply chain. Historically, global trade managers had to meet two requirements: being on time and at the lowest cost. Today, global trade areas must run their operations on time, with the lowest cost, and be in compliance. For this reason, many companies are creating Centers of Excellence or Trade Management Compliance to take ownership of certain activities that were commonly outsourced to their logistics partners, such as the tariff schedule classification.
These are already complex issues to be resolved and the collateral effect of the pandemic adds even more complexity. This includes the container crisis that can make it more profitable in the short term to develop a local partnership than to maintain a global supplier — and turning to operating with fixed stocks, instead of just-in-time logistics. Companies that are more predictive and flexible to these changes will be able to take greater advantage of these dynamics.
As another consequence of the pandemic, many countries are looking for additional sources of revenue at a time where their pandemic-related expenses are skyrocketing. One way that countries are trying to gain additional funds during these challenging times is to accelerate their audits. Auditors are increasingly using more sophisticated tools for their audits as there is clear evidence that additional investment in technology is more than outweighed by the additional funds collected through the audits.
So, given all these changes, what is the role and value of technology in international trade?
Typically — perhaps since it is one of the most heterogeneous areas on a country-by-country basis with a global firm — international trade departments are often overlooked when it comes to investment in new technology. Given the trends in international trade driven by rapid growth and the pandemic, companies need to reconsider this approach. The risks associated with international trade for global companies include extra costs, shipment delays, and even the idling of operations.
Currently, the level of penetration of global trade management solutions within large companies is low and does not exceed 40%. This means that more than half of large companies with global supply chains are putting their operations at risk by allowing, in one way or another, some raw materials or component parts of a global product to pass several times through individual spreadsheets, increasing the risk of human error and rework.
Incorporating technology in global trade activities can reduce many of the risks, such as:
- Adding process traceability through integrations with Enterprise Resource Planning (ERP) and with logistics partners platforms
- Measuring the viability of a global transaction with market research and comparatives
- Monitoring business partners to ensure operations with the correct players
- Automating the validation of compliance costs and times
- Managing Free Trade Agreement (FTA) to ensure origin determination
- Simplifying compliance and control of continuous improvement and risks with Authorized Economic Operator (AEO) program management
- Viewing local information and standardizing reports for a global scope with dashboards
- Streamlining intercompany operations to automate information sharing between platforms
Global trade has no doubt undergone a total transformation in a very short period and everything suggests that these changes will continue. If global trade offices do not evolve at the same speed and invest in technology, the risks of non-compliance, extra costs, and lost opportunities will be difficult to mitigate.