A global perspective on GTM

Study by KPMG and Thomson Reuters shows U.S. ahead in GTM and compliance process automation.    Attitudes toward global trade management and the technologies that address it vary widely by individual function, and by geographic region, according to new research by Thomson Reuters and KPMG.

   The two companies this year partnered on a study, the 2015 Global Trade Management Survey, of nearly 450 trade professionals in 11 countries to see where global perspective on areas like product classification, use of free trade agreements, and system integration converge or diverge across markets.

   The report explored these topics through the lens of how companies view trade-related resource usage and risk, and the challenges related to managing trade and usage of global trade management technologies.

   Of the 11 countries where KPMG and Thomson Reuters gathered responses—the United States, Mexico, Colombia, Brazil, Peru, Chile, Argentina, India, China, South Korea, and Japan—71 percent of respondents were from Brazil or the United States, with another 8 percent from India. Among sectors surveyed, the automotive (15 percent), electronics (10 percent) and chemicals (8 percent) industries were the most heavily represented.

   More than 80 percent of respondents were responsible for both import and export trade compliance, while 36 percent were in charge of compliance on a global basis, another 34 percent for multiple countries, and the remaining 30 percent for a single country.

   The study found that about a third of organizations use a global trade management system for their worldwide operations. GTM system usage is highest in the United States at 46 percent, followed by Latin America at 37 percent, East Asia at 21 percent, and India at 16 percent. 

   KPMG noted the primary reason companies fail to use a GTM system at all is a lack of support or budget for such systems within their organizations. Companies that use a GTM system, but in a limited fashion, cited the same reasons for not leveraging those systems more fully. This jives with American Shipper research into GTM technology usage patterns, with respondents generally citing a lack of budget and executive support as reasons for failing to invest in GTM solutions.

   The KPMG and Thomson Reuters report found that another barrier to GTM system usage is the presence of multiple ERP systems and the perception that current manual processes satisfy the companies’ global trade management needs.

   U.S respondents to the survey cited a lack of “bandwidth to support implementation” of a GTM system, and said lack of internal support is particularly problematic. Respondents in East Asia noted a reliance on manual processes, as well.

   Globally, there is an attitude that effective GTM implementation is reliant on integration with a company’s ERP system. Sixty-three percent of global respondents said integrating a trade tool with their ERP is very important, while another 24 percent said it’s important. That perspective on ERP integration importance hardly varied across the regions surveyed, suggesting this is a problem that spans the global trade arena.

   “We are witnessing a significant increase in companies that historically managed global trade in a decentralized manner move towards creating centers of excellence to support their business in areas like FTA solicitation and qualification, Harmonized Tariff Schedule (HTS) classification, audit defense and regulatory advisory support,” said Doug Zuvich, KPMG’s senior global lead partner for trade and customs.

   Zuvich said “creating a blend of centralized and decentralized global trade management that allows for the creation of efficiencies and value with maintaining business autonomy” is a path forward for many large enterprises.

   The report also found that importers and exporters struggle mightily with product description and classification.

   “Ambiguity in product description and different classifications are the biggest challenges while performing product classification globally,” the report said.

   Importers and exporters largely rely on their own staff for product classification, with 58 percent of global respondents saying they use an internal specialist for tariff classification on their goods. Another 23 percent use a customs broker, while 10 percent use an external consultant.

   “Despite an increasing focus in automating trade processes, classification continues to be a manual, challenging task for most organizations,” said Keith Haurie, vice president of business development at Thomson Reuters’ ONESOURCE Global Trade. “Industry studies suggest that as many as 20 to 30 percent of product classifications are incorrect, leading to supply chain delays, overpayment of duties, risk of penalties, and an increased likelihood of customs audits.”

   Meanwhile, companies often fail to fully leverage the opportunities available to them, like use of FTAs, over fears of process compliance costs and penalties. The report found most organizations globally use between one and two FTAs, with a global average of 2.3. The average is slightly higher in the United States, at 2.7, with a higher proportion of organizations using three to five FTAs.

   “Even large companies tend to underutilize FTAs,” said Hoon Sung, head of FTA at ONESOURCE Global Trade. “Sometimes this is driven by lack of knowledge, but more often by concerns about the difficulty of compliance and fear of penalties. With more FTAs coming on stream every year, not using FTAs is going to mean a major competitive disadvantage.”

   The number of companies that said they fully utilize all the FTAs available to them is only 30 percent globally, though higher in the United States (41 percent) and East Asia (36 percent). The lowest utilization of FTAs came from respondents in India at 19 percent.

   The biggest challenges globally in using FTAs are complex rules of origin, followed by the task of obtaining origin documentation. In the United States, the biggest issues are origin documentation and changes to bills of material and sourcing origins. Respondents in India, Latin America and East Asia said a lack of expertise was an additional challenge.

   “Seventy-nine percent of respondents cited either complexity with rules of origin or difficulties gathering documentation as one of the primary roadblocks,” the ONESOURCE report said. “But 59 percent said their companies miss available FTAs because they lack the internal expertise to identify them or the personnel to manage their compliance. And only 26 percent of respondents said full FTA utilization does not pay for itself.

   “These respondents know identifying and leveraging FTAs are an investment, not an expense. FTA usage is particularly complicated in Asia because there are so many overlapping FTAs in that region. Six Asian countries are party to 10 or more FTAs, and 12 are party to at least five. Asia is also home to a great deal of intraregional trade, with the ‘China Plus One’ strategy in full force among multinationals. Shipments from one Asian country to another—for example, sending batteries made in China to India to put in cars—may be covered by more than one FTA. And Asian FTAs have particularly complicated and varying rules of origin,” the report explained.

   Trade professionals, meanwhile, use an array of information sources to stay updated on trade compliance and regulatory requirements, including customs brokers, government websites, external consultants, trade publications, and freight forwarders. In the United States, respondents cited government websites and publishing companies as their primary sources, while India respondents rely most on external consultants.

   Perhaps the most interesting aspect of the KPMG/Thomson Reuters report is perspective gleaned from trade professionals on where time and resources are used to tackle compliance processes, as well as where risk lies.

   The processes that respondents said drain the most time and create the most perceived risk are manual ones that could be automated.

   “Import documentation and licensing and customs broker management are the two activities that respondents said take up most of their time and resources,” the report said. “Overall, the prime operational activities of import and export compliance are a significant time drain. That there is a positive correlation between risk and resource allocation makes sense. The responses show that global trade specialists are spending the most time on the activities that are perceived to have the highest risk.”

   Finally, the report foundmost companies that don’t use a GTM system haven’t sought out information about such systems.

   “Just 40 percent of respondents said they had formally sought more information about [GTM systems] during the past year, with 64 percent of respondents from the United States having done so compared to 28 percent of respondents from elsewhere,” the report said.

   “Trade specialists are very challenged when assessing the likelihood of getting funding for an IT project. Simply showing efficiencies is not usually enough to gain priority over other projects that show tangible [return on investment]. Among respondents who don’t use GTM technology, 41 percent said they have never looked into it and know little about it. The survey showed budgetary limitations, with 30 percent of those respondents saying there is no support,” the report added.