"The trade business is evolving faster today than at any point in its history," Peter Tijou, vice president of product management with financial services firm J.P. Morgan's Global Trade Services group, wrote earlier this month.

Even before the recent recessionary circumstances in which companies everywhere have found themselves, organizations throughout the world have been feeling the effects of today's burgeoning global trade, a heightened regulatory climate and intense corporate interest in managing global risks and containing costs.

In recent years, significant changes have been taking place in the way global companies handle trade compliance: global trade compliance is now being transformed from an often-neglected function, to being the focus of strategic corporate-wide initiatives.

In a 2007 Aberdeen Group benchmarking report on global trade management, for instance, both "supply chain costing" and "trade compliance" ranked among the highest priorities for companies in the retail and consumer industries. Another Aberdeen report, released last April, found that 74 percent of all companies (and 94 percent of those distinguished as "best in class") were in the process of improving their global trade compliance practices, with an additional 21 percent at the time planning to begin improvements.

In fact, increasingly more companies have been viewing corporate trade management as a high-priority function that can help protect against organization risk and even drive value.

To combat new pressures created by the rapidly changing global trade environment and to keep up with a vast new scope of responsibilities, companies are evolving their trade management function, audit and tax advisory firm KPMG LLP has concluded in findings announced this month.

Today, strategic planning initiatives are being driven primarily by the goal of achieving duty savings, while supply chain restructuring and expected import growth were also cited by participants as reasons for cost-savings plans, KPMG notes in its new report, titled Effectively Managing Global Trade: A Rising Priority. The financial stakes alone are high: penalties for export violations in the United States increased from $11,000 in 2002 to $50,000 in 2006 and $250,000 in 2007, for example.

"Historically, the trade function focused on the customs clearance of imported and exported goods," says the new KPMG report. "Trade executives now describe a transition of trade from a non-core function on the sidelines of corporate awareness to a maturing function that protects against organizational risks and strategically drives value.

"This means that leaders in the field now see trade management as a competitive factor worthy of investment," the report continues.

Last year KPMG sponsored a forum of 17 trade executives from some of the world's leading companies to gather their insights on effective global trade management. Participants represented a cross-section of industries from U.S. and foreign-owned global companies, including retail, health care, automotive and telecommunications — with import volumes ranging from $50 million to more than $3 billion (U.S. dollars).

Forum participants agreed that companies are altering their organizational structures to accommodate an expanding trade function, finding new and better ways to manage global trade risk and achieve costs savings, and keeping an eye on the regulatory horizon.

"Going global has created a compelling need for a strategic approach to trade," Andrew Siciliano, a partner in KPMG's Trade and Customs Services practice, said in a statement. "Our forum revealed that the globalization of the marketplace has reshaped the supply chain across global markets, driving increased trade, shifts in sourcing and more business risks."

Effectively Managing Global Trade: A Rising Priority provides insights into what companies are doing now to respond to global trade challenges. Among the keys to success, according to the KPMG report, are these:

• Obtain commitment from management: Secure and maintain high-level sponsorship through education and training, and keep leadership as well as other departments informed of trade risks and what can be done to mitigate them.
• Create the right global infrastructure: Determine whether resources are sufficient for the complexity of the issues the company faces; centralize oversight; empower and use local entities; collaborate on security; determine where the trade function should reside based on the company's business model; and consolidate service providers, including customs brokers.
• Develop sound processes and internal controls that cut across multiple areas: Execute and maintain export and import processes and controls cross-functionally; and standardize 80 percent to 86 percent of your risk management processes.
• Effectively use tools and tech to manage risks and opportunities: Analyze global trade data to identify and assess risks, prioritize strategic initiatives, facilitate internal reviews and testing, find weaknesses; use technology solutions to automate iterative import and export control processes; develop a simple and effective communication tool; and self-file import and export transactions.
• Assess and monitor risks and opportunities: Drive the risk approach from the top down; use a multi-layered approach to managing risk and opportunity; develop uniform self-audit tools; use a separate related-party pricing study for customs to support arm's length; measure and communicate risk; plan strategically and present a good case for return on investment; establish a sound, management-approved methodology for tracking savings; and determine the appropriate implementation approach.
• Stay current, and adapt to change: Share best practices with peers; pursue continuing education and involvement in trade organizations; address the legal complexity of exports to embargoed countries; and prepare for the 10+2 Importer Security Filing.

"Enhanced process visibility, better access to trade regulations data, centralized trade compliance organization, executive management support, streamlined processes and the introduction of certain technologies all contribute to improved performance," Aberdeen said in a recent statement. "As a result, 'best-in-class' companies ... are twice as likely as 'industry average' companies to have decreased the number of supply chain disruptions due to trade compliance errors over the past year."

Are these findings in line with your own experience? What, if anything, is your organization doing to effectively manage trade business in an increasingly risky environment?

Resources

Effectively Managing Global Trade: A Rising Priority
KPMG LLP, Jan. 7, 2009

Trade Risk Management a Rising Priority as More Companies Expand Globally
KPMG LLP, Jan. 7, 2009

Global Trade Compliance Priorities in 2008
by Viktoriya Sadlovska
Aberdeen Group, March 2008

Global Trade Compliance in the Corporate Spotlight
Aberdeen Group / Reuters, April 2008

Global Trade Management Strategies: Surviving Growing Complexities in 2007
by Viktoriya Sadlovska
Aberdeen Group, May 2007

The New Global Trade Universe
by Peter Tijou
J.P. Morgan Global Trade Services newsletter, December 2008