International trade entails numerous surprising cost items. A company pursuing business in the U.S. may have to pay extra costs equalling 10–20% of the product’s value in order to have it approved for sales in the American market. Extra costs can also arise from partnership agreements featuring poor terms and conditions, and the lack of control over the entirety of the business process. Even in successful business transactions, the revenue can be lost on process costs and authority requirements. According to a recent survey, the lack of knowledge and competence hinder companies’ success. You can complain about the required amount of red tape, but when it comes to ensuring sufficient knowledge, you are single-handedly in charge.
The recently released ICC Trade Barriers 2014 survey of business practices and barriers of trade reveals differences between business branches and products. Many companies list official formalities, such as customs procedures, technical licensing processes and value-added taxation, as impediments of trade. Efforts are being made to remove these barriers, for example, through the new WTO agreement and the ongoing trade partnership negotiations between the EU and USA. A rather surprising finding in the survey is that the lack of knowledge and competence within companies still causes delays and unnecessary costs in cross-border trade. Companies don’t master the trade processes and can’t see when they would be entitled to interfere with incorrect authority actions. For example, a brief reference to the American FOB term of delivery can end up expensive, as it deviates from the internationally recognised Incoterms FOB. A wrong type of documentary credit documents can even interrupt payments altogether.
Proper, efficient utilisation of trade procedures can save up to 50% in costs. In addition, it enhances the flow of information and improves customer service. The information governing the trade itself, as well as the pursuant transportation and payment events, must be available to both parties whenever it is needed and in a form that leaves no room for error or ambiguity in interpretation. In the company organisation, unified and skilled trade management starts with the sales force and extends to the secretary in charge of exports, but the final responsibility for margins and unnecessary costs caused by blunders is always with the top company management. Apart from relieving public bureaucracy, company-internal measures can be taken to boost productivity and competitiveness in international trade.
Chambers of Commerce offer companies practical information, training and tools to support trade process development, ranging from agreement and delivery term templates to certificates of origin. Ask your local Chamber of Commerce for more information!