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November 06, 2019
How to Stay Competitive in the Changing Landscape of Tariffs and Trade
Futurize your business by adapting your supply chain
In today’s rapidly changing trade landscape, there is a great deal of uncertainty. As tariffs raise prices and reduce economic growth, some longstanding international supplier relationships are becoming unsustainable. If your business model depends on cross-border sales or purchases, it may benefit from seeking new trading strategies or partners. This article offers suggestions for contingency planning to help you make the most of your supply chain today and tomorrow.
Optimize the cost and value of imports If the U.S. announcement that it intends to raise tariffs to 25% on $300 billion worth of Chinese products, plus automobiles and parts will significantly affect your business sourcing, (or you’ve already been impacted by established tariffs), these strategies can help you keep import costs low—so you can protect business profits.
Find new markets for imports Consult with your industry association or local economic development council or attend conferences to gain native knowledge about new trade opportunities. Ask where businesses like yours have had success sourcing for their supply chain, then explore those options. Consider attending an international trade show to access a global network of suppliers for your goods. This can be a meaningful way to establish relationships and get a first-hand experience of essential source materials.
Get hands-on with logistics Tim Rasmussen, Vice President, International Banking Group at Umpqua Bank, advises that companies buying from distributors investigate any price increases to understand: if the goods purchased are of foreign origin what are the raw cost, mark-up, and tariff costs. “Depending on the cost differential, you might be better served finding a new distributor or establishing a new direct source overseas yourself—especially if this import is a big piece of your business,” says Rasmussen. “If quality is a concern, as often it is, you can engage a third-party survey company to certify that everything is according to spec or send someone from your team overseas to manage the relationship. Partnering with a customs house broker or freight forwarder can support logistics such as customs paperwork and help navigate the nuances of tariffs.”
Improve your cost-to-profit ratios What should you do when it’s not possible to reduce the cost of raw materials or find new trading partners? “[Small businesses are often] dealing with the supply chain asking for higher costs that cannot be quickly passed on to customers. It means more time thinking about pricing, renegotiating and managing cash flow," says Lyneir Richardson, executive director of the Center for Urban Entrepreneurship & Economic Development at Rutgers Business School. He advises they consider these adaptation strategies:
- Focus on profit margin Know what costs can be absorbed and which must be covered to preserve your profit margin. Explore ways to reduce expenses or renegotiate trade agreements to offset tariff-related cost increases.
- Make smart pricing decisions When supply costs increase, it may be necessary to raise prices. But this can limit revenue and challenge customer loyalty. Smart pricing decisions start with deep insight about your market and customers. Learn how your pricing compares to the industry average, how much customers value your offering, and what kind of price increases they would likely tolerate.
- Keep only essential inventory When costs and trade relationships are unpredictable, it is especially important to manage inventory efficiently. Buy and replenish stock that moves—and eliminate the rest. This can help maximize your cash flow and minimize cost increases.
Find new markets for exports If your business exports are affected by tariffs and you are seeking more favorable markets and prices, the U.S. Department of Commerce’s International Trade Administration can help you find alternatives at export.gov. A few offerings you don’t want to miss:
US Export Assistance Centers The Commercial Service has a network of export and industry specialists located in more than 100 U.S. cities and over 80 countries worldwide who provide counseling and a variety of products and services to assist small and midsized U.S. businesses export their products and services. Learn how to contact a trade specialist near you.
Gold Key Service Once you have identified potential export markets, the Gold Key Service can help arrange up to five pre-screened appointments to establish relationships with potential overseas agents, distributors, sales representatives, business partners and other local entities in-country for a nominal fee.
Secure your global financial transactions When establishing new, international trade relationships, building trust and reducing risk are always key concerns. Importers benefit from purchasing on an open-accounts basis, whereas exporters typically prefer to be paid in advance. Every business wants a reliable supply chain. A bank partner with international business expertise can ensure that your global financial transactions are secure with products and protections like these:
Letter of credit Importers purchasing with a letter of credit benefit from nuanced support tailored to your business goals. The right bank can help you craft the letter of credit. You will want to work with your logistics partner to make sure that the documents required under the letter of credit allow for easy clearance of the goods through customs. When applying for a letter of credit, you define the price of the goods, shipping dates, and length of time the letter of credit is available to your supplier.
Exporters want prompt payment after shipping goods and the assurance that the issuing bank will pay, rather than relying on the buyer to pay. The right bank can be an advocate for your letters of credit and provide quick turnaround and support for your transactions.
Documentary collections Whether importing or exporting, streamline your international collection process and lower your risk with a bank that can manage your documents and payments.
Credit insurance If you are selling on an open account basis domestically or internationally, you can buy credit insurance to insure your receivables for up to 90% coverage on the dollar. This can be a valuable protection in the early stages of a trade relationship until trust is established.
Futurize your business by being prepared and flexible In times when the economic landscape can change in a tweet, it takes creativity and flexibility to stay competitive long-term. Keep the odds in your favor by forecasting in your business plan (and evaluating regularly), diversifying your receivables, being as responsive as possible to market forces, and stocking up now on any essential goods or materials whose price you expect tariffs to impact. When your business is prepared to weather the winds of change, you can stay strong and nimble in any political climate as the international trade landscape continues to evolve.