5

Global Personnel Deployment and Structure

Managing an import and export strategy is difficult enough without personnel issues, but they are inevitable. This chapter presents a review of how to maximize your personnel resources, attract quality personnel, and use developing seasoned international executives with global skill sets to your best advantage.

SUCCESSFUL INTERNATIONAL SALES: FUTURE MANAGERS WILL REQUIRE NUMEROUS SKILL SETS

The global sales executives of the twenty-first century will require a vast arsenal of skill sets to make them the top in their fields. They will need to speak three to four languages and have a graduate degree in international marketing from an Ivy League school. In addition, they will need fifteen to twenty years of experience in all phases of global operations, cutting edge negotiation skills, an understanding of the diversity of cultural and ethnic backgrounds in more than sixteen countries, and the ability to function without sleep. They will also need to be widely traveled, be experts in currency exchange rates, have a superhero understanding of all legal issues in any one of the importing countries, be mega-salespeople in the intimate marketing needs of all the global markets you sell in, be willing to get up at all hours to coordinate sales activity in the Near and Far East, be inconvenienced during travel on three-week overseas adventures, and so forth.

That is all an exaggeration, but the reality is that they may be called upon in any one of the areas at any time with the expectation that they will rise to the occasion and be all knowing and all showing.

International business is complicated, and the international sales executive is the engine of the operations train, which leads to successful global trade. This means that to be successful, the international sales executive must possess an array of skill sets, numerous talents, and varied resources.

Patience and Commitment

Most of the world works on a “relationship basis” first. This means that customers must want to buy from an individual who they have a relationship with before they buy from the company. This requires persistence and patience. Sales in the United States can be developed from a cold call and closed on the first visit. This does not happen in most overseas markets. The process of developing the relationship over several meetings, over several months to years may be required to create the opportunity.

Commitment is one of the keys to success. The process takes time, traveling is costly, and all the related peripheral issues have cost and time associated with the process: sending samples, product registration data, answering questions, going back and forth in international communications, and global courier services all take a toll. Only the executive who is committed and patient will survive this process.

The senior executive of the future in global trade must have an array of skill sets!

Some of the necessary skill sets to master global trade are as follows:

International negotiation

Foreign cultures

Logistics

Global sourcing

Foreign marketing

Political risk

Insurance and risk management

Contract management

View of global economics

E-commerce international skill sets

Customs regulations

Trade compliance management

Export licensing

Foreign corrupt practices act

Anti-bribery regulations

Warehousing and distribution

Procurement and foreign vendor management

DEVELOPING RESOURCES AND NETWORKING CHANNELS

Global sales are complicated, diverse, and extensive, and no one can go it alone. There is no way one person could know all the cultural, political, logistical, and economic issues in all the countries they deal with. Complicating the issue is the fact that the situation is fluid and can change at any moment (the trade embargoes now in place in countries like North Korea, Sudan, Myanmar, and Cuba and the renewed terrorist activity in the Middle East and other places in Europe and the United States has clearly caused instability and insecurity to influence how global supply chains operate).

Developing relationships with quality service providers, like bankers, attorneys, freight forwarders, air and ocean carriers, accountants, consultants, and trade associations, with expertise in world trade, can be of support and assistance to global development efforts.

UNDERSTANDING THE LANDED COST

The terms of sale determine the extent of the costs associated with a foreign transaction. For example, a free on board (FOB) plant sale minimizes costs and liabilities compared to a cost, insurance, freight (CIF) sale, where the exporter bears most costs and liabilities associated with the transaction to the port of entry.

However, irrespective of the terms of sale, the international executive needs to know that the importer (your customer) has numerous expenses associated with the transaction to complete the entire supply chain process.

Inland freight and handling, air or ocean freight, import licensing and product registrations, warehousing/storage, freight insurance, customs clearance, value-added taxes (VAT), duty and taxes, and inland cartage are a few of the overall costs that the importer needs to calculate into the landed cost to determine the competitive pricing to the end user.

Anything that the international salesman can do to affect any of these areas reduces the landed cost, thereby making the importer more competitive. This then becomes a competitive advantage for everyone.

UNDERSTANDING LANDED COST IN GLOBAL TRADE

The goal of most international businesses is to be competitive in the scope of their global trade activities. Service providers and carriers who support the management and partner with their client’s global supply chains can impact their client’s landed costs.

Establishing landed costs for the products that a company handles can be difficult and convoluted. All businesses that import or export need to understand what the total cost of goods is for what they are buying or selling. To accurately calculate the landed cost, all factors beyond the obvious primary price must be considered. Calculating landed cost is critical in understanding what a product actually costs and therefore what is can be sold for.

This impacts margin considerations, which are one of the most important aspects of managing a business in a competitive marketplace. Thinking globally, reducing costs are the mantra of growth, profits, and survival.

Landed Cost Definition

Landed cost is the total cost of a product once it has arrived at the buyer’s door. This list of components that are needed to determine landed costs include the original price of the item (converted to U.S. dollars), all customs brokerage and handling charges, complete freight and shipping costs, customs duties, tariffs, taxes, insurance, packaging costs, and surcharges. Not all these components are present in every shipment, but all that are must be considered part of the landed cost.

Purchase price of goods – variable depending on unit price and quantity (converted to U.S. dollars)

Buying agents—variable depending on level of service

Consolidation—securing LCL shipments into larger shipments and coordinating freight from several suppliers

Transportation—variable depending on choice of mode, carrier, freight rate negotiation and surcharges

Duty—variable percentage of the value customs put on your goods—typically origin and HTS code factored

Tax (goods and services tax or value added tax)—dollar variable percentage of (customs value of cost of goods + freight + insurance + customs duty)

Insurance charges, typically referred to as cargo insurance

Customs clearance, ISF, etc.

Storage and deconsolidation

Inland freight—from inbound gateway to destination

Demurrage—if applicable when potential delays occur

The calculation and model for landed cost must be customized to the variables in every supply chain. As a generic model, for imports on the left, the following table can be utilized, recognizing that specific nuances in each supply chain might modify how this list would appear.

The choice of INCOTERM will be a major factor in how costs, responsibilities, and risks are distributed between the seller and the buyer.

It is critical that both parties when agreeing to the use of an INCOTERM understand the risks and costs they are assuming in the transaction.

Importers into the United States by ocean freight typically buy FOB outbound gateway. In China, this might be written as FOB Shanghai.

This means that the buyer will assume all risks and costs once the goods are placed on board the ocean-going vessel in the port of export from overseas. The key words being risks and costs.

The risks are straightforward. They are principally physical loss or damage from an external cause during transit. Sinking, fire, stranding, and water damage are a few of the risks covered.

Marine insurance, when thoroughly written, offers “all risk” “warehouse to warehouse” coverage for the buyer at specific terms and a rate of premium to be agreed on.

Marine insurance can be considered a “necessary evil” but certainly is prized when loss or damage occurs. However, it adds cost to the transaction.

Marine insurance is another line item in the list outlined previously that impacts landed costs. The buyer must take a few steps to impact landed costs:

Utilize comprehensive freight forwarders, customhouse brokers, and professional service providers that have expertise and can lend value in the global supply chain.

Pay attention to the choice of INCOTERM. Many choices give you control over various aspects of the supply chain where you can impact cost.

Review each line item in the landed cost model to determine where costs can be reduced.

Examples would be the HTS number. Is it correct? Is there a more correct option that would lower duties and taxes?

Another example is freight costs. Can a more competitive freight option be offered with less-expensive rates?

Mode of transportation will impact landed costs. Many times, airfreight is utilized when ocean freight could be a less-expensive option.

This means better demand planning and coordination between purchasing/sales/sourcing and the logistics department handling the transportation choices.

Included in this area is control over the suppliers with setting more realistic expectations, tighter control over order status and communications, contractual obligations, and penalties for nonperformance.

Reducing the opportunity for demurrage costs can be severe and expensive. This typically happens when a tight reign over the logistics process and all sorts of contingencies are managed proactively.

Inland freight expenses can be included in the ocean freight, where there is an opportunity to leverage the larger ocean freight spend to obtain a better inland freight cost.

Utilization of technology and reducing “paper” in the transaction can reduce ISF, customs clearance, and handling charges when automation replaces repetitive human handling of import and export documentation.

When freight does not have to be consolidated or deconsolidated and can be shipped in units direct from suppler to point of end use, this will also reduce costs.

Negotiating away with surcharges such as PSS, GRIs, and BAF will also impact landed costs favorably.

Leveraging your spend with a minimum number of service providers and carriers will place a focus on a smaller group of “partners” that will maximize the opportunity to obtain a better deal.

You may not want to place your “eggs all in one basket,” but a new theory is that if you do, then watch that basket carefully or at least reduce the number of baskets you work with.

Develop a “partnership” mentality with all your service providers and carriers. Favor tenured relationships and work as a “team” in your supply chain. Loyalty and a working mindset will have true rewards in lieu of short-term benefits.

Another huge area that is impacting landed costs is the utilization of numerous programs available, such as but not limited to NAFTA and other free trade agreements, foreign trade zones, and bonded warehouses, which can substantially lower and impact the cost of buying, selling, and shipping goods globally.

Just understand that studying “landed cost” and all of the variables and then applying some sound cost-reduction principles can make your supply chain operate significantly more competitively.

CREATIVE MARKETING SKILLS

Global competition comes from many sources, including domestic companies and an array of sources from all four corners of the globe. Marketing is another key to maintaining or achieving a competitive edge. The following are some creative marketing ideas:

1. Using free or foreign trade zones to position products in local markets immediately ready for entry and delivery to the importing country but not subject to duty and taxes until the order is processed. Reducing delivery time and differing entry costs can be a great advantage.

2. Offering credit terms can be a significant convenience. Selling on an open account, even at a higher price, can be a valuable tool in the marketing approach and, backed by export receivable insurance, can reduce overall exposure and provide entry into markets with current financial problems, like those that exist in Africa, South America, and certain Asian countries.

3. Offering local country support in sales and marketing on behalf of the importer to the customer base can be very critical.

Running product seminars and sales campaigns, making time to go on sales calls, and so on, can be invaluable to developing local knowledge, leading to more orders. This may mean producing a varied cadre of approaches, strategies, and plans tailored to the nuances of the culture, the economy, the logistics, and the politics of the market.

THE POWER OF NETWORKING IN INTERNATIONAL TRADE

One of the great advantages of membership and participation in the various export trade associations is the ability to interface with professionals who offer a wealth of information on international business.

One of the greatest challenges in international business is dealing with the array of exposures that are encountered compared to domestic sales. Forces of nature, customs authorities, political risks, currency adjustment factors, shipping logistics, legal, and insurance are but a few of the issues to be negotiated in the arena of international trade.

Each discipline requires expertise. It would be almost impossible for any individual to develop an expertise in all of the disciplines. The better option is to develop a basic understanding of all areas and then align yourself with one or two experts in the field who you can call on once the specific need develops. These could be lawyers, air and ocean carriers, custom brokers, insurance brokers, accountants, freight forwarders, bankers, or other importers/exporters.

Networking in international business involves an investment in time, money, and resources. Successful people in international trade invest at least 5 percent of their time networking. International trade associations are great sources of networking. Every major city and gateway has associations involved in exporting, like but not limited to the District Export Council, World Trade Club, the National Institute for World Trade (NIWT.org), National Association of Export Companies (NEXCO), and the Small Business Exporters Association (SBEA), which are all excellent options for international business networking.

Payback may not always be immediate. The need for a contact or resource may not occur for two years after a contact is made. Those who need council or assistance often call a consultant they met two or three years earlier.

The ability to get answers quickly can make you a hero, close the deal, and/or reduce some of the risks. Networking affords ease of access to timely resources and responses, which often can mean the difference between getting the order or not. Power networking or maximizing resources can reduce liabilities and increase the opportunities for profit. Responsible and timely advice on international trade can mitigate all of the inherent problems of global business.

International networking has other benefits. It provides the opportunity to meet interesting people who are world travelers and good social partners and friends. Many of the networking organizations sponsor social functions like lunches, dinners, golf outings, seminars, and cocktail parties.

There is also a matter of altruism. By networking, we can contribute to everyone’s advantage, and in return you will receive the benefit of everyone else’s contributions.

MATURED EXPORT DEPARTMENTS: REVIEW AND ANALYSIS

Many corporations experience difficult learning curves before structuring the export sales and operating units successfully. Some operate for more than twenty or thirty years without the proper structure.

Improper structure might not mean nonprofitability, but it does affect cost-effectiveness negatively, which leads to less than adequate results or a bottom line that could be better!

The starting point of a good export operation is a commitment from senior management. This is supported by an individual who is strong in international sales and operations and takes ownership of the entire export supply chain. The person will have direct responsibility for or significant influence over all aspects of sales, marketing, production, inventory management, and logistics.

The individual will control the export supply chain like links in a chain, having control over all of the aspects that make the chain strong. Not having control opens the door for possible weak links, making the entire supply chain ineffective.

You can sell it right and pack it right, but if it does not get there on time, it may be of little value!

You can do the right marketing and logistics, but if you do not get paid, all was for naught!

You can have the best product at the right price, but if the packing does not hold up and the freight is damaged, there will be a dissatisfied customer and no future orders!

The point is, everything must be working correctly for the export supply chain to produce consistently high returns. The best chance at managing is to give the entire process to one owner. The owner may delegate many of the day-to-day responsibilities, but at the end of the day, the responsibility rests with that person.

Another characteristic of a quality export operation is continuous staff education and training. Exporting is a fluid circumstance. The more growth and development, all the time, the better off you are.

A special characteristic of quality export operations is that of taking the high ground. Exporting leaves a lot of room to cut corners, take shortcuts, and be a little “shaky.” And since 2001, with the Bureau of Industry and Security (BIS), Department of Transportation (DOT), U.S. Food and Drug Administration (USFDA), U.S. Department of Agriculture (USDA), State Department, Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), and more in our faces, the high ground is a better place to be.

And it is in those circumstances that I have observed the best import/export operations.

ATTRACTING QUALITY PERSONNEL

As we enter the new millennium, attracting quality personnel with international experience may be the greatest challenge. Corporations with successful export programs are doing their best to hold onto existing staff. “Golden handcuffs” for senior executives and incentives for middle management tied into competitive compensation packages are the steps keeping most personnel loyal.

Following are several things a company can do to make it more attractive than its competitors:

Offer compensation packages with tax-free incentives.

Offer overseas trips with families in tow, particularly in the summer months.

Offer significant compensation time to balance out the long overseas trips.

Rotate personnel into different markets to prevent burnout and/or stagnation.

Maintain high standards for continuing education, allotting proper time for responsible attendance.

Encourage employees to learn several foreign languages.

Develop compensation packages that offer incentives for profit sharing.

Provide “ownership” of specific markets, products, or trade lanes, affording employees liberal freedoms and empowerment practices.

Develop clear paths for growth, promotion, and advancement.

Keep employees in the loop with timely responsible communication, so they know what is going on.

Adopt a direct, straightforward, no-nonsense approach to performance and overall responsibilities.

Implementing all or some of these recommendations, combined with the specific nuances of your business, not only will maintain existing international personnel but will attract other professionals as the word spreads about your career programs in export trade.

The International Import/Export Compliance Manager

Corporations are finding their way to support a new management position with the primary responsibility of keeping the company compliant in its global supply chain.

I like to use the term point position for customs. What I mean is that no matter how big the corporation, no matter how many different operating entities are engaged in global trade, there should be one person, maybe supported by a committee, who will be the only person to “talk” to Customs or other governmental agents and decipher information provided by and to authorities.

The last thing a company under the magnifying glass wants is to have nonqualified personnel talking to Customs and providing information without it being screened or edited for accuracy and content. While a company must cooperate with authorities and provide answers to inquiries, the way this information is disseminated could be a critical aspect of the ultimate disposition of the matter being challenged.

A company would always want to put its best foot forward, and by being centralized, one person in control assists in meeting this standard operating procedure (SOP).

Customs also prefers a “point” person so that they do not have to chase down a lot of varied individuals to obtain answers to inquiries.

The compliance officer of the new millennium will typically come out of a supply chain responsibility, like traffic management, inventory control, or logistics. There is no “best” place. Personnel with legal or regulatory backgrounds will also present viable options. The key qualities are

Understanding the relationship among logistics, transportation, and security/compliance regulations

Ability to articulate and communicate well

Ability to muster expansive resources

Knowledge of how best to use technology

Comprehension of the product and the supply chains used

Ability to deal with “fiefdoms” and “political barriers” within corporations

Working in an atmosphere where the responsibilities exceed the authorities

As corporations have compliance officers engagedwith the Occupational Safety and Health Administration (OSHA), FDA, and hazardous materials, they will have them in their supply chains, as well.

The organization niwt.org works in educating companies in export trade compliance responsibilities.

KEY SKILL SETS OF THE GLOBAL SUPPLY MANAGER OF THE NEW MILLENNIUM

The global supply chain represents a huge challenge for corporate executives. While all international executives require a new demand for capabilities and expertise, the global supply chain has special needs.

These challenges of the new millennium create a requirement for supply chain personnel to have significantly enhanced skill sets. Purchasing, sales, import, export, customer service, manufacturing, operations, and finance are a few of the internal verticals that are placed with these new demands.

Some of the areas that require special attention are the following:

Greater knowledge of international cultures, traditions, and business acumen

Legal considerations in foreign markets

Managing the regulatory responsibilities with government agencies, such as but not limited to Customs and Border and Protection, Departments of State, Treasury and Commerce, Food and Drug Administration, and Bureau of Alcohol, Tobacco, Firearms and Explosives

Trade compliance responsibilities in the United States and in the other various countries you operate in

Managing supply chain, logistics, and warehousing/distribution functions on a global scale

Financial considerations, such as but not limited to currency convertibility, methods of payment and collection, and receivable and payable management

Purchasing vendor management and global sourcing considerations on a global scale

Risk management principals domestically and internationally

Human resource variables and employee responsibilities in the various states in the United States and in the numerous countries where you have owned or controlled facilities

Vast access to an array of resources for information flow, intelligence, and market data on at least six, maybe seven, continents

Utilization of government capabilities that can assist in building and managing business development all over the world

Key relationships with critical service providers in the following areas:

Banking and finance

Freight forwarding and customhouse

International attorneys

Global consulting expertise

Insurance brokers with global reach

Technology capabilities that allow access to state-of-the-art and futuristic solutions that make supply chains run more cost effectively

It is critical for executives of the new millennium to exude a confidence level in all of these areas. While they may not be considered experts in all the areas, they need to have a fundamental working knowledge. On a 1 to 10 scale, they need to be at least 7 to 8 in all areas.

Access to staff who may be a 10 or external support mechanisms is also a viable option, bringing their substantive understanding to a 10.

These skill set areas are key indicators of a top-performing valued international supply chain executive.

They are now the expectations from corporate boards of directors and senior management that their hired supply chain management team needs these skill sets and capabilities to execute their purchasing, sourcing, logistics, import, export, trade compliance, and supply chain responsibilities.

Additionally, international executives need to do the following:

Recognize the importance of continuous improvement through education and training

Build teams with varied expertise in all of these areas to strengthen corporate initiatives

Become culturally sensitive in all aspects and in the execution of operational responsibilities

Create relationships so that they can manage up, down, out, and in—within the organizational structures—allowing connectivity with all vested stakeholders

Develop multiple resources in every aspect of the global supply chain that we have outlined

Make the connection and the value of participating in industry events, seminars, conferences, and so on, where networking and information flow can be of real significance and importance to performance and career

Effectively delegate and mentor staff with loads of encouragement to follow all of these professional development strategies

Utilize the most up-to-date media and technology innovations to support all of the management responsibilities and create best-practice tactics

FIGURE 5-1.

Acknowledge that businesses thrive when they grow, improve, and develop cost effectively

Manage with the knowledge that value-add is as critical a factor as price in any purchasing decision

Utilize government programs and resources to leverage opportunities, minimize risks, and create savings

MANAGING CONSULTANTS IN THE GLOBAL SUPPLY CHAIN

Consultants can bring great value to the benefit of companies engaged in global trade, importing, exporting, and running their supply chains.

Consultants supplement the needs of international trade personnel and can provide great value in building a global organization.

Having managed these relationships for more than 30 years, I can conclude on the following recommendations to assure the most effective working relationships.

1.Chose the consultants carefully. Make sure they have a very defined expertise in the area you are seeking help with.

Too often some consulting firms are generalized agencies and offer an array of services and capabilities but in fact are not “specialists” in the area you require.

More specifically this refers to international trade and global supply chains, where expertise is far and few between.

2.Make sure you check references thoroughly.

3.Clearly define all expectations and deliverables.

4.Benchmark the pricing to make sure you are not paying too much or too little.

5.Obtain a statement of work, outlining all agreements, understandings, timelines, and pricing. Also, how will payments be made? Milestones?

6.Set timely quarterly business reports (QBRs) to make sure the consultants are performing and delivering on all expectations that were agreed to.

CONCLUDING REMARKS

The better we manage our corporate export infrastructure, the better we can export. The quality of our export business is directly related to the quality of the personnel we hire. This staff will require numerous skill sets in global business. We will have to find experienced staff, or we will need to train them. In any case, the entire personnel and deployment issue will need to be managed.

However, no matter how much training and education is provided, the staff of international businesses will never know it all, partially because global trade is always changing. What it takes to clear and deliver freight in Laredo today might be different tomorrow. Resources are needed to keep advised of current events in global trade and to find answers to the numerous questions that challenge us every day while managing our export affairs. This chapter provided many suggestions for good management based on the author’s experience with hundreds of export companies.

Developing the skill sets will be key to allowing the international sales executive to navigate to the destinations of successful global trade.