The hidden costs of broken supply chains
With tariffs so low, what's holding up cross-border trade?
October-December 2013
By: Jean-Pierre Fellenbok , Mark Gottfredson

Border regulations that affect efficiency also vary widely: an express delivery company estimates that inspection rates on its shipments range from 2 percent in the Netherlands to roughly 10 percent in Mexico. A pharmaceutical company that has won “trusted trader” status in both China and Canada finds that Canada’s streamlined system gets goods on their way quickly while China’s cumbersome procedures cost the company six times as much due to delays and related expenses.

When it comes to business environment, developing countries can often promise as many barriers as opportunities. As the consumer goods company doing business in Africa has found, security concerns and efforts to cope with a highly disruptive sociopolitical environment often create a cascade of costs that can upset even the most carefully considered investments. Conditions are more stable in China, but one large semiconductor manufacturer reports that it constantly wrestles with various rules that are vague and inconsistent. Struggling to comply with them can often lead to confusion and delays.

For every company and industry, the supply chain challenge is different. But all share the need to recognize potential barriers where they are most likely to be encountered and to develop a full understanding of how they will impact business. A reliable assessment of what it truly costs to operate in a given market is the necessary foundation for the next step in evaluating foreign investment: comparing alternatives and deciding which best suit a company’s long-term strategy and business objectives.

Global trade has increased sharply during the past 30 years, and the opening of markets long considered inaccessible has created rich opportunities for companies of all sizes in every industry. But the companies that get it right are the ones that can best identify and analyze the real cost of capturing those opportunities and avoid the mistake of going in unprepared.

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