A friendly platform for International Trade Article Published at Brazil Modal e GLOBAL Magazine on January 2003 (826 words)

Author: Sergio Jose Arruda, 50, economist, MBA from the University of Florida (Gainesville, FL

USA) with a long career in International Trade, at the British Tobacco Company as Finance Manager, Export Controller and Logistics and Procurement Manager. In 1999 he joined the Lobraus Group as the International Operations Director based in Miami and since January 2002 he is the International Sales Director covering the Miami-Hong Kong- Sao Paulo regions.

In my previous article published on October 2002 - A new role for the Trading Companies - I emphasized the differences between the exporters expectations and the importers ones as bellow: What the Exporter wants: Pre-payments or Cash in Advance Large Orders (FCL- Full Container Load) Risk Transfer ex-works

What the Importer wants: Credit or Pay-on-use Just-In-Time deliveries (quantity and planning) Risk Transfer upon delivery (DDP)

timing adjusted to production

To fulfill both expectations, it is required to have a local presence in the export market, meaning the market where the products are sold, but what is the cost that the exporters are able to pay to accomplish this task? Among the biggest inhibitors to the growth of the role of the small and medium corporations in the international trade scene, the cost of building an international infrastructure to support the export business is certainly the biggest. Recent studies have tried to demonstrate that the relative cost of this infrastructure, that includes the establishment of a network of subsidiaries and distribution centers in the target markets worldwide is decreasing, but it is still a consensus that in absolute terms it is the biggest obstacle to becoming an exporter! But to what extent these costs can be avoided?

High

Insource

Insource / Oursource

Outsource Outsource
Low (Commodity)

Low

High Finished Product

For a Corporation with large experience in the international markets, where exports represent a significant amount of the Total Revenues or Total Profits (X / Total) the cost of developing the required infrastructure and carrying this overhead is part of the business. The same rationale applies to the commodities business, where the costs of the logistics cycle is a large amount of the Total Acquisition Cost of the material, and the savings opportunities justify the direct management of the export infrastructure.

X / Total

On the other hand, in cases where the amount of the export business is not significant as in the launching phase and where the logistics costs are not an important amount of the total landed costs, outsourcing is the most effective strategy, both on terms of costs and timeframe, to put the necessary infrastructure in place. Outsourcing transforms fixed costs in variable costs, avoiding excessive overheads to the Organization. To select third party whose infrastructure or platform will be used to serve the export business there are important requirements to be fulfilled: Corporate Structure: which includes operations in both sides of the business, ensuring a local presence for the full support and comprehension of the trading rules and the cultural aspects involved; Door-to-door capacity: through either 3Pl or 4PL services, working as one-stopshop to all the logistics services required from the door of the exporter to the door of the importer; DDP Sales (delivered duty paid): as part of the door-to-door service including the customs brokerage service and the financial capacity to pay for all the landing costs and duties at the destination markets. The continuous update in the legal and fiscal issues complement this requirement; Warehousing and Inventory Management capacity: that will enable the exporter to operate as a local player, ensuring competitiveness both in terms of lead times, continuity and safety of supply and local distribution and deliveries. The VMI techniques (Vendor Managed Inventories) complement this processes that includes Just in-Time deliveries where applicable; Full Visibility throughout the process: through state-of-the-art Telecom and IT support, with real-time information on tracking of shipments and inventory control.

Total $ Value

In this sense, through third party qualified to provide the necessary infrastructure or platform to an exports operation, the fixed costs can be avoided, and the exporter acquires the necessary competitive advantages to set up a business in the target market, to compete with the local industries, focusing on the marketing and commercial aspects of its business (which is the focus of my next article) and leaving the logistics side of the business to a professional provider (3PL or 4PL). This is part of the new role of the Third party Logistics Operators, that qualify for the International Trade: to acquire the necessary competences to supply an integrated package of services to set up a friendly platform so that the small and medium size corporations can compete against the major players, the multinationals and global gigantic Corporations, for the international markets. This is the road that Lobraus Group has chosen to offer a global platform to support international trade, through its logistics hubs in Miami, Uruguay, Hong Kong and Brazil (and shortly in Mexico and Spain) and the ITO (International Trade Operations) that integrates shipments tracking and inventory and warehouse management, with a true VMI perspective. We supply full service support with a friendly platform, and ensure full visibility throughout the international supply chain.