In addition to the imperfections of the physical world, the global design and supply chain executive charged with keeping products flowing internationally must deal with a wide range of economic and political risks, including export and import compliance requirements that are in constant flux.
In order to keep product flowing internationally, the global supply chain manager must address a variety of risks. For instance, export and import compliance are increasingly important as countries constantly evaluate how to achieve sometimes conflicting goals, including how to compete globally while at the same time protecting strategic interests such as the safety and security of residents.
Security and product safety are top concerns for U.S. importers this year due to a recent history of contaminations that have caused illness and death, forcing product recalls and new supplier recruitment.
On the flip side, U.S. exporters are experiencing increased regulatory enforcement while at the same time facing the challenges of selling their product into markets where the relatively strong dollar could hamper sales.
Beyond regulatory and security risk, the occasional trade war often breaks out as a result of national political forces. Some select U.S. exporters have been blind-sided by the fiscal 2009 spending bill signed by president Obama on March 11, 2009. One of the provisions of the bill was to eliminate the controversial pilot truck program with Mexico that allowed 107 trucks from 27 Mexican carriers full access to the U.S. road network.
As per requirements outlined in the North American Free Trade Agreement (NAFTA) signed in 1994, Mexican trucks should have had access to some U.S. corridors in 1995 with full access by 2000. After years of political opposition in the U.S. led by various groups, disputes and negotiations with Mexico (including a NAFTA ruling in favor of Mexico in 2001), and another change in political administration, a pilot program was initiated in 2007.
After President Obama signed the spending bill with an earmark aimed at Mexican trucking, Mexico swiftly put in place retaliatory tariffs across 90 products ranging from onions and potatoes to red wine, deodorant, and telephone handsets. Mexico targeted over 40 states, many with strong Democratic congressional opposition to the pilot truck program, to drive home its complaint.
So how do U.S. businesses--many of them small and medium-sized that rely on exports to Mexico with pricing dependent on being duty free under NAFTA--now deal with tariff rates ranging from 10 to 45 percent? How could they have prepared for this risk? What about companies in Mexico relying on importing these products into local stores?
Other political and economic risks that companies are facing with uncertain time horizons include the environment and sustainability. The Carbon Disclosure Project surveyed 500 of the largest corporations worldwide and 80 percent of them identified climate change as a commercial risk. Interestingly, 82 percent of the same respondents identified climate change as a commercial opportunity.
How the current U.S. administration and Congress roll out a potential carbon cap-and-trade program will undoubtedly impact the way businesses and their supply chains operate in the future. Legislation to change corporate taxes on U.S. multinationals operating overseas could likewise directly change the value chain network of many companies. How is your company planning for these types of events now?