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AAFA Conference: International Expansion/Navigating Foreign Trade Barriers

The map of world trade is being hurriedly redrawn by a bevy of massive regional trade agreements, potentially redefining the rules that govern international commerce. Future changes could usher in tectonic shifts in global free trade, collectively harmonizing regulatory regimes, streamlining supply chains, consolidating regional industries and  eliminating gratuitous barriers to international competition. A strong grasp of the obstacles to trade, and the instruments available to circumvent them, has never been more necessary.

A recent panel at a major American Apparel & Footwear Association (AAFA) conference addressed precisely these issues. The event, entitled “2014 International Sourcing, Customs & Logistics Integration Conference,” ran from April 7-9. The moderated discussion, “International Expansion/Navigating Foreign Trade Barriers,” explored the sometimes impenetrable world of political-economics, deciphering it to properly identify both its pitfalls and its opportunities.

Bryan Wolfe, Vice President of International Trade, Ann Inc., moderated the dialogue. The participants included Jerry Cook, Vice President, Government and Trade Relations, Hanesbrands, Inc.; Quinn O’Rourke, Customs and Logistics Manager, Lacrosse Footwear; and Mark Fegley, Senior Vice President, Supply Chain, Deckers Outdoor Corporation.

Wolfe opened up the discussion with a series of questions for the participants. He asked: Why is international expansion so important? How do we manage it? And how do we properly understand compliance from the perspective of globalization?

O’Rourke pointed out that international expansion permits Lacrosse to achieve higher volumes at reasonable prices, especially given their focus on innovation. And with the international arena in constant flux, he said, it’s imperative to keep abreast of the opportunities embedded within existing free trade agreements to minimize labor costs, find business climates that gel well with one’s core competencies and shorten lead times. In particular, O’Rourke mentioned the advantages, particularly for Vietnam, that would follow the conclusion of the Trans-Pacific Partnership (TPP).

O’Rourke also recommended that retailers investigate all the industry groups and trade associations available to them, potentially a deep mine of helpful resources.

Fegley pegged integration as the cornerstone of Deckers’ strategy: supply chain harmonization, he said, is a central component to mastering the complexities of international trade. He said the scene used to be relatively simple; everyone traced the same shipping path, moving product from South China through distribution centers to the U.S. and Europe. But now then global trade become more diffuse, with manufacturing spread more widely across the world, and the demand for speed and customization reaching a fevered pitch.

Fegley’s primary advice was to quickly recognize that no one company, or sourcing department, can possess all core competencies, making it necessary to forge strategic partnerships. The key is to collaborate with companies that specialize in your weaknesses rather than attempt to perfect skills foreign to you.

Cook also emphasized the creeping convolution of international trade. He used something as simple as socks of an example of the inscrutability of trade: one pair gets shipped all over the world, made in one place, dyed in another, fashioned out of yarn from yet somewhere else! Cook observed that this makes pinpointing the country of origin a difficult investigative task and potentially a costly one, given all the duties one could incur. He also held up a pair of boxer shorts to illustrate the same point; the rules governing what even counts as boxers are dizzyingly entangled. For example, a closure with a button indicates, according to the prevailing regime of interpretation, that a garment could be conceivably worn outside, making them shorts rather than boxers.

Cook’s point was that maximizing profitability requires a deep and current knowledge of these ever-changing niceties. There are too many ways to lose money in international trade–and too many ways to neglectfully miss opportunities to make it–to leave such matters to guesswork and hypothesis.

Wolfe argued that the only reliable way to understand all the new international landscape–he used El Salvador as an example–is to shift the tired focus on first costs to total costs, capturing a more synoptic appraisal of the circumstance. This more comprehensive analysis would include all the pertinent variables: the politics of the region, free trade agreements, infrastructure, labor laws, etc.

Cook agreed that a sweeping, integrated strategy is non-negligible. Also, he spoke to the indispensability of local knowledge which means training in-country teams to understand the cultural idiosyncrasies of a supplier country. He spoke of the terrible experiences Hansbrands had in Jamaica, ultimately compelling it to pull out of the country. He also spoke of the problems posed by drug cartels and organized crime in South America, and the heavy responsibility involved remaining vigilant of ubiquitous corruption. At the end of the day, Cook said, a company is responsible before the law for its own customs. He also reminded the audience that a company is only allotted twenty-four to seventy-two hours to prepare for a customs audit.

Ivan Kenneally, Editor-in-Chief of the Sourcing Journal, asked the panelists a question: “The principal problem in trying to understand the evolving world of trade isn’t merely that there are so many variables, but that most of them must fall outside of the expertise any sourcing executive or logistics officer can reasonably be expected to have. For example, the ultimate conclusion of the TPP hinges on Japanese beef tariffs. Do retailers and brand need a beef expert?”

O’Rourke responded that the best information has a way of rising to the top and the industry, as a whole, is remarkably collaborative when circumstances demand it. Cultivating the right partnerships, keeping the lines of communication adequately open, and talking to the relevant experts on a daily basis all fill in the knowledge gaps every company experiences.

Cook said that no company could achieve expertise in every aspect of international trade and, so, the real challenge is to know your product and brand, and take your bearings by that sense of identity. Also, he said the industry suffers from a problem of “smallness,” by which he meant a needlessly crabbed perspective, a kind of business myopia. All the potential for great success exists, said Cook, and the U.S. is well positioned to capitalize on all these opportunities, largely because of its excellent infrastructure and reliable access to electricity.

 

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