Global Selling & Sourcing

Jack Cameron

Global Selling & Sourcing

• Today’s world is flatter than ever

• Major manufacturers have shifted to lower-cost off shore production

• Many North American companies are now focused globally for sales growth

• Distributors are also looking off-shore

• Slow boat from China replaced by ships larger and faster than aircraft carriers

Global Selling & Sourcing

Global Selling & Sourcing

Global Selling & Sourcing

Global Selling & Sourcing

• Facilitators:

Jeff Brekke, The Gates CorporationPresident – North America Automotive Aftermarket

Jeff Stauffer, Affinia Group Inc.Senior Vice President, Global Group Marketing

Global Selling

Jeff Brekke

CAN WE GROW BY SELLINGOUR PRODUTS GLOBALLY?

• IS GROWTH OUT THERE?

• RISKS/CHALLENGES

• EDUCATE/RESEARCH

• WHERE DO YOU NEED HELP?

Dubai

Shanghai

North America283.0M

Latin America42.0M

West Europe219.3M East Europe

59.1M

Africa/Middle East40.3M

Far East/Pacific 179.3M

Source: Freedonia Group

2007 = 823.0M2012 est = 910.0M

Vehicles on the Road2007

North America$38.1B

Latin America$8.4B

West Europe$49.7B East Europe

$4.3B

Africa/Middle East$7.3B

Far East/Pacific $36.2B

Source: Freedonia Group

2007 = $144.0B2012 est = $182.3B

Worldwide Auto Aftermarket Demand

$175 Aftermarket/Vehicle

India IndonesiaPhilippines

CHINA

Malaysia

Taiwan

Korea

Hong Kong

SingaporeJapan

Australia

Global Aftermarket DevelopmentEmbryonic Early Growth High Growth Mature

Source: ©2004 Technomic International China’s Automotive Aftermarket April 2004

Global Selling Risks/Challenges

• Stable Government• Economic Reform Actions• Trust of Foreign Investment• Member of World Trade Organization (WTO)

• Infrastructure• Over Reliance on Certain Sectors• Stream of Investment• Social Spending

Political

Economic

Sydney

Hong Kong

Global Selling Risks/Challenges

• Level of Government Bureaucracy• Skilled Labor Force• Corruption• Terrorist Activity

• Intellectual Property/Branding• Tax and Tariff Considerations• Foreign Exchange• Development of Banking System

Operational Security

Legal/Tax/Banking Moscow

Bangkok

Worldwide Risk Summary

North America

CIS

Middle East & North Africa

Europe

Latin American & Caribbean

Asia Pacific

Source: 2-1-08

Worldwide Risk Summary

Russia

India

China

Brazil

Source: 2-1-08

Research/Education

• Social Norms and Practices• Language Barriers/Communication Styles• Perceptions and Understanding of Americans• History of the People and their Government

Cultural Awareness

Research/Education

• Professional Service Provider Versus Do-It-Yourself

• Level of Used Vehicle Market• Car Parc Breakdown• Marketing and Buying Groups• Heavy Duty, Agricultural and Adjacent

Market Opportunities

Understanding the Market

Haoqing 6360E1 Palio 1.3EDX Siena 15 EDX Saima Baili HFJ6330A Zhongxing (Chiye)

Source: ©2004 Technomic International China’s Automotive Aftermarket April 2004

Help/Resources

Export SalesOpportunities and

Challenges

Norman Young

Overview

Multiple considerations when approaching a global selling strategy

1. Leadership Complexities

2. Organizational Design

3. Corporate Strategy

4. Line of Business

5. Technology

Leadership ComplexityLocalized

N. AmericaComplexity

Intersections

•“Mechanical”•Car Parc•Foot-Print•Product•Support

•Leadership:•Values•Diversity•Customers

Values CustNeeds

FootPrint

Diversity

Language

Geography

CarParc

WrittenWord

TargetMarket

Technology

Culture

A

AA

Leadership ComplexityMulti Regional

Values CustNeeds

FootPrint

Diversity

Language

Geography

CarParc

WrittenWord

TargetMarket

Technology

Culture

A

A

B

B

B

B

B

GlobalComplexity

Intersections

•“Mechanical”•Car Parc•Markets•Footprint•Geography•Written Word

•Leadership:•Culture•Language

Organizational Complexity

• Added Complexity:– Matrixed Organizations– Multiple Bosses– Legal Subsidiaries– Legacy Mergers– Regulatory Issues– Financial Models– Standards– Behavior

Externally or Internally Sourced Sales Team

• Considerations:– Relationships with

Customers– Metric Control– Delineation of Activities

• Level 1 to Level 4

– Value to the Company– Difficulty of the

business Value Proposition

– Management Alignment

Corporate Strategy

Analyzing the Corporate StrategyR

esou

rces

Businesses

Vision

Role of corporate office Structure, Systems, and Procedures

Goals & Objectives

5 Tests of Corporate Strategy

Vision As sense of purpose Sustainable

Internal Consistency Goals & objective that support strategy Structure, systems and procedures that fit

External Environment Barrier to entry Global competition Scale of market and competitors

Builds and Exploits Corporate Advantage Understand what the corporate advantage is an invests

Feasibility Does the market appear favorable Share holders & stakeholders commitment Reasonable?

Source: “Corporate Strategy: A Conceptual Framework”, Collis & Montgomery, HBS, 1991

Line of BusinessPRIMARY NEED

Comply with GovernmentRegulations

CompetitivePrice

DependentRelationship

JIT Delivery

ACTIVITY FITS I. Creative & Customized

Products

II. High QualityProducts

III.Wide Geographic

ManufacturingCoverage

IV. SuperiorCustomer

Satisfaction

V. PrintingExpertise

ACTIVITIES

REQUIRED NEEDS SECONDARY NEED

1. ISO 9002 Certification 2. Delivery Options 3. Customer Service Representatives 4. Computerized Phone System 5. Regional Sales Teams 6. Computer Label Design 7. Supplier Alliances 8. Regional Manufacturing Plants 9. Sourcing 10. Quote Processing 11. Web Design 12. Computer Graphics Sample Design 13. Local Pricing Grids 14. Regional Pricing Grids 15. Multiple Option Print Machines 16. Web Site 17. Low Cost Manufacturing 18. Skilled Tradespeople 19. Home-grown Software 20. Integrated Off-the-Shelf Software 21. Web Ordering 22. Marketing Promotions 23. Marketing Programs 24. Computerized Color Control 25. Digital Proofs 26. UV / Flexo Printing 27. Films 28. Embossing 29. Hot Foil Stamping 30. On-line UPC Verification 31. Electron Beam Printing 32. Waterless Offset 33. Pre-press Design & Fit 34. Digital Plate-making Technology 35. Computerized Job Tracking 36. Web Tracking Availability 37. Art Development 38. CRM System 39. Quality Inspection 40. Estimating 41. Project Management 42. Materials Management 43.

Accounting 44. Cost Management

6, 11, 12, 22, 37 1, 6, 7, 12, 15, 18, 24, 25, 26, 27, 28, 29, 31, 32, 33, 34, 37, 39

3, 5, 8, 13, 14, 22, 23

2, 3, 4, 10, 16, 21, 35, 36, 38

12,15, 17, 18, 24, 25, 26, 27, 28, 29, 31, 32, 33, 34

VI. EffectiveBusiness

InformationSystem

4, 10, 16, 19, 20, 21, 30, 35, 36, 38

Reliability Quality

Fast Response One-Stop Shopping

VII. CentralizedBack-officeOperations

3, 9, 11, 40, 41, 42, 43, 44

II, VI VII

I, II, II, IV, V II, IV

IV, VI, VIIIII, IV, VI, VII I, III, IV, V

I, II, III, IV, V

Tools of LeadershipTechnology

Communication – Communication - Communication

• Remote Meetings (With Video)• Sharing and Collaboration Tools• “Webinar” Sessions• Management Tools

Organizing Globally

• “Every company has two organizational structures: the formal one is written on the charts, the other is the everyday relationships of the men and women in the organization”

• Harold Green

Global Sourcing

Jeff Stauffer

Global SourcingEVERYBODY’S DOIN’ IT!

Least Likely People to Quote

“Globalization is not something we can hold off or turn off…it is the economic equivalent of a force of nature -- like wind or water.”

-Bill Clinton

“It has been said that arguing against globalization is like arguing against the laws of gravity.”

-Kofi Annan

Global Sourcing“The Good, The Bad, And The Ugly”

Global Sourcing“BEEN THERE, DONE THAT”

Global Sourcing Topics

• Sourcing/Relationship Selection Process

• Intellectual Property Protection

• Quality Control Logistics

• Labeling and Country of Origin Issues

• Customs Compliance and Currency Valuations

• “Customer Acceptance” of LCC Products

• Data and Communication Exchange

Global Sourcing

It’s a REALITY!!

Global Sourcing

• Terry Shively: Affinia Group – VP Strategic Market Development – “Skunk Works Captain”

• Bob Moore: Bob Moore & Partners– Owner – “Chief Cook, Bottle Washer, etc.

• Jim Ryan: Gates Corporation– Manager International Logistics Compliance and Supply Chain

Security– “I Think You Get the Picture….”

DISTINGUISHED PANEL

Affinia Group Inc.

Global Sourcing

Agenda:

The Lure of Easy Money

China’s Automotive Exports

“Bumps” in the Road

“Guanxi”

Do the Math

Needs – Wants – Must Haves

The Lure of Easy Money

China’s Automotive Exports

“Bumps” in the Road

“Guanxi”

Do the Math

Needs – Wants – Must Haves

The Lure of Easy Money

•Mexico•China•Turkey•India

•Mexico•China•Turkey•India

•Taiwan

•Indonesia

•Vietnam

•Taiwan

•Indonesia

•Vietnam

•Poland

•Ukraine

•Thailand

•Poland

•Ukraine

•Thailand

How Quickly Things Can Change!

• Dog Food• Tooth Paste• Children’s

Toys• Tires• Baby Bibs

• Dog Food• Tooth Paste• Children’s

Toys• Tires• Baby Bibs

What Do Customers Think Now?What Do Customers Think Now?

• Seafood

• Lawn Trimmers• Remote-Control Airplanes

• Tower Fans

• Seafood

• Lawn Trimmers• Remote-Control Airplanes

• Tower Fans

The World Really is Flat!

• Technology

• Process

• Data

• Technology

• Process

• Data

• Communication

• Capabilities

• Engineering

• Communication

• Capabilities

• Engineering

“Think Globally - Act Locally” “Think Globally - Act Locally”

“Bumps” in the Road

• Supplier Selection Process & SQA

• Product Quality and Consistency

• Intellectual Property Protection

• Liability

• Supplier Selection Process & SQA

• Product Quality and Consistency

• Intellectual Property Protection

• Liability

Finding a Reliable Supplier

• U.S. – China Business Council

• American Chambers of Commerce “In Country”

• Dept. of Commerce Foreign Commercial Service

• “Qualifying an Off Shore Supplier Should Be No Different Than Doing So in North America”

• U.S. – China Business Council

• American Chambers of Commerce “In Country”

• Dept. of Commerce Foreign Commercial Service

• “Qualifying an Off Shore Supplier Should Be No Different Than Doing So in North America”

Product Quality & Consistency

Hire a Qualified Inspection Service to Do “On-Site” Inspections….Before Exporting

How Do They Help?

• Quality Issues

• Intellectual Property Protection

• Alertness to Potential Problems

• Production/Process Documentation

Hire a Qualified Inspection Service to Do “On-Site” Inspections….Before Exporting

How Do They Help?

• Quality Issues

• Intellectual Property Protection

• Alertness to Potential Problems

• Production/Process Documentation

Liability

• Liability Insurance Not Always Available

• “You” Can Be Held Responsible

• “Importer of Record”

• Know the Laws and Protect Yourself

• Liability Insurance Not Always Available

• “You” Can Be Held Responsible

• “Importer of Record”

• Know the Laws and Protect Yourself

Quanxi

• It’s All About Relationships

• Involves Interaction at All Levels

• Develops “Some” Trust

• Leads to a Firm Agreement

• It’s All About Relationships

• Involves Interaction at All Levels

• Develops “Some” Trust

• Leads to a Firm Agreement

LCC Sourcing

LCC Sourcing

Consider:• Freight / Container / Losses

• Handling / Forwarding

• Duties / Taxes / Draw Backs

• Increased Inventory Investment

• Manufacturing Technology

“Cheaper Isn’t Always Cheaper”

Consider:• Freight / Container / Losses

• Handling / Forwarding

• Duties / Taxes / Draw Backs

• Increased Inventory Investment

• Manufacturing Technology

“Cheaper Isn’t Always Cheaper”

Successful LCC Sourcing

• 35% Savings

• Alternative Approved “Global” Sources

• Create “Global Sourcing Experts”

• Do your Homework!

• 35% Savings

• Alternative Approved “Global” Sources

• Create “Global Sourcing Experts”

• Do your Homework!

Needs – Wants – Must Haves

• Alibaba.com

• Guanxi

• QOS/Testing/Engineering

• Certifications

• Agreement

• Contract & Contract Review

• Alibaba.com

• Guanxi

• QOS/Testing/Engineering

• Certifications

• Agreement

• Contract & Contract Review

Take Aways……• Establish Relationships

• Do the Math

• Have Alternative Sources

• Have, Hire or Develop the Expertise

• Establish Relationships

• Do the Math

• Have Alternative Sources

• Have, Hire or Develop the Expertise

Global Sourcing & SellingBob Moore

President

Bob Moore & Partners

Globalization - Lessons Learned

• Globalization is here, now & having a significant impact

• Globalization is much more than just “cheap Chinese imports” (LCC products)

• It is altering aftermarket roles & attitudes

• Brand marketers must react

Technicians Accept • The Old Paradigm

– “Made in America” mattered

• The New Paradigm– Country of origin doesn’t matter – Auto Aftermarket is a global business– Quality parts can & do come from anywhere – Driven by the attitudes of customers

Techs On “Country of Origin”• Understand automotive OE business is global &

the aftermarket parts industry is following suit

• Believe that where a product is made is of no consequence

• See no inferred links between domestically manufactured product & quality; quality can come from ANY nation

• Techs consider themselves “good Americans” & prefer to buy domestic, but…

Expanding DisoriginationHow Globalization is Altering

Aftermarket Roles

Market Influence – 1970’s

Installer Reseller Manufacturer

Low

Moderate

High Installers had preferred brands & sought out suppliers who carried

them

Manufacturers created product/brand value and

chose distribution

Market Influence– 2000’s

Installer Reseller Manufacturer

Low

Moderate

High

Resellers assert their control on the buying relationship with

installers & dictate what brands are offered

The Triple Threat to Manufacturers• Intellectual Property Hijackers

– LCC “pirating” part numbers, UPC, images & more– Channel partners “borrowing” manufacturers data

• Proprietary eCats– Take “ownership” of manufacturer data– Marginally protect data – Accept data from pirates

• Erosion of National Brands– Reseller increasing their ability to disoriginate– Marginalizing manufacturers brand relationships with

service technicians

What is “Disorigination?”• Derived from the 1990’s internet term,

“disintermediate” meaning to take steps out of the middle of the supply chain

• Disoriginate refers to the WD going around the traditional originator (the manufacturer) and purchasing directly from an LCC source

• In the “disorigination” model, the WD must assume some of the services traditionally provided by the supplier

Altered Roles – Branding

• OPP Private Brands:– NAPA– CARQUEST– Advance– O’Reilly– Autozone– CSK– Alliance– Everyone Else

• Premium Private Brands:– NAPA– CARQUEST– Advance– Autozone

Altered Roles – Ancillary Services

• National Redistribution:– NAPA– CARQUEST– Advance– Autozone– Federated– ADN– Pronto

• Training/Shop Systems– NAPA– CARQUEST– Advance– O’Reilly– Autozone– Pronto

Altered Roles – Data Services

• Cataloging:– NAPA– CARQUEST– Advance– Autozone– CSK

• PIM Solutions:– NAPA– CARQUEST– Advance– Autozone– O’Reilly

If Resellers Are Able To:– LCC Source– Have Viable Brands (both OPP& premium)

– Manage Product Information

– Operate their own Electronic Catalog

– Package & Distribute Products

– Conduct Training & Marketing Programs

What exactly do they need with you?

Manufacturers Must React to Protect their Brands in this

New Global Reality

Four Levels of Adaptation

1. Denial2. Coping3. Adapting4. Creating

Not at Level 3 or above? You’re not in the game.

Adapting

• Get Global – there is no alternative

• Leverage what you have that LCC’s don’t:– Application engineering, R&D, Quality

Assurance, SAE testing, etc.– Data services, Cataloging, Product

Management, Category Management– Long Grey Tail & New Numbers

Adapting

• Must Defend your Intellectual Property– Part numbers– UPCs – Digitally watermarked images– Traplines– Aggressive legal responses with violators– Address issue of eCats taking “ownership” of

your data

Creating• Look for Collaboration Opportunities

– Supply Chain – both up & down

• Compete in “Time” – Technology tools - faster, smarter, better

• CPFR, Data Sync, Category Management, VMI• Requires accurate, standardized data

– Speed to market • New parts for new apps• Catalog and product data

Creating• Look past “channel partners” & develop

branding relationships with “customers”– Installer “apps”

• New pricing initiatives – Scalable, saleable services

Let’s Talk About ItBob Moore

President

Bob Moore & Partners

Trade Compliance and Security in Global Sourcing

Jim Ryan, Gates Corporation

Overview of topics• Customs Compliance and Reasonable Care

• Security Issues (“9-11”)

• Country of Origin Marking

• Labeling – To be “Made in.. or Assembled in..”

• Customs Valuation• Tariff Classification• Special Programs and Free Trade Agreements• Recordkeeping• INCOTERMS not UCC Terms

Customs ComplianceReasonable Care - Pre- Customs “Mod Act”

• Importer was responsible for providing accurate information to Customs– Commercial description of goods– Price paid plus add-ons and deductions

• Customs was responsible for classification and appraisement (valuation) of merchandise

Customs Compliance Reasonable Care - Post-Customs “MOD ACT”

• Importer is now responsible for the classification and valuation of merchandise and providing other information needed by Customs

• Importer must use “reasonable care” in carrying out these responsibilities

Reasonable Care• Sources of information and guidance

– Importer (internal communications)• Purchase orders (description and terms)• Legal department (royalties)• Shipping (freight terms)• Accounting (insurance, payments, adjustments,

rebates)• Advertising (samples, “free” materials)• Research and development (assists)

Reasonable Care• Sources of information and guidance

– Manufacturer or supplier• Invoice• Credits or adjustments • Substitution of goods or sources• Lab analysis

– Experts• Attorney• Customs broker/consultant • Documented advice

Reasonable Care

• Sources of information - U.S. Government

– Customs rulings

– Publications

– Official websites

– Customs offices and attachés

Reasonable Care Important Sources of Information

U.S. Customs and Boarder Protection - www.cbp.gov

Bureau of Alcohol, Tobacco & Firearms - www.atf.treas.gov

U.S. International Trade Commission - www.usitc.gov

U.S. Trade Representative - www.ustr.gov

U.S. Patent & Trademark Office - www.uspto.gov

Department of Commerce - www.doc.gov

Bureau of Industry and Security - www.bis.gov

Reasonable Care• General Rule

– ALL merchandise brought into the U.S., regardless of the method of importation (mail, baggage, courier, cargo) AND whether dutiable or not, whether for personal use, repair, sample, gift or sale, MUST be declared to Customs.

• ie – samples in your suitcase

– The type of declaration will vary with the type of importation and may involve an oral or written “declaration” or a formal or informal “entry.”

Penalties and Enforcement• Civil Penalties

– 19 U.S.C. § 1497 – Failure to declare • Forfeiture of undeclared item PLUS penalty equal to its value

– 19 U.S.C. § 1592 – Fraud & Negligence • Entry with false data

– 19 U.S.C. § 1509(g) Recordkeeping violations• If the failure to produce a required entry record was willful, a

penalty up to $100,000 or 75% of the value, whichever is less may be imposed.

– 18 U.S.C. § 545• Knowing and willful violations with intent to defraud the U.S.

– Smuggling and Clandestine importation• 5 years and/or $250,000 for individuals, $500,000 for companies

and organizations

U.S. CUSTOMSU.S. CUSTOMSU.S. CUSTOMS TRADITIONTRADITIONTRADITIONSERVICESERVICESERVICEHONORHONORHONOR

Planning Ahead - Security Issues“9-11” Issues

– Secure supply chain

– C-TPAT participation• Canada has PIP• Mexico – BASC or C-TPAT• Europe has AEO

– Benefits • Prevents disasters• Helps companies develop better practices

– Other security elements - Advance cargo information• CSI• 24 Hour rule

Country of Origin Marking• U.S. Customs Marking Requirements

– How do we mark and declare goods

– Unless Customs grants an exception, all foreign-origin merchandise imported into the U.S. must be marked with its country of origin

– Marking must be conspicuous, legible and permanent so that the consumer can make informed decisions

Country of Origin Marking• How to determine origin

– Traditional “Substantial Transformation” Test• Simple assembly usually does not change origin

• In order for further processing to affect the origin of the article it must result in an article with a new name, character or use

• In other words, assembly in the US does not guarantee a US origin

– FTA origin rules and NAFTA Marking Rules

Labeling• FTC Origin Marking Requirements – post import

restrictions for goods sold in the U.S.

– “Made in USA”

• Unqualified Claims – “All or Virtually All” U.S. content standard – California statutes can take precedent over federal rules

• Qualified Claims– “Made in USA with U.S. and Foreign Parts” or “Assembled in

USA”

Why is Marking and Labeling Important?

A MAJOR CAMERA EQUIPMENT

MANUFACTURER AGREED TO PAY

FOR VIOLATING COUNTRY OF ORIGIN MARKING LAW!!

$20 MILLION

www.usdoj.gov/opa/1999/November/537civ.htm

One Part of Valuation - Assists

• An “assist” is any of the following if supplied directly or indirectly, and free or at reduced cost, by the buyer for use in connection with the production or sale for export to the U.S.:

– Materials incorporated in the imported product– Tools, dies, molds, etc. used in production– Merchandise consumed in production– Engineering, development, artwork, design work, and

plans and sketches that are undertaken outside the U.S. that are necessary for the production of the imported merchandise

Assists

“Court Fines Ford Motor Company Over $20 million For Failure To Declare Assists And Supplemental Payments”

Newsletter from the Law Offices Of George R. Tuttle

August 1, 2005

http://www.tuttlelaw.com/newsletters/court_fines_ford_motor_co.html

Classification

• Harmonized Commodity Description and Coding System (the “Harmonized System” or the “HS”)

• Intended to be a modern structure for product classification common to all participating countries

• Developed in the early 1970’s by the major trading countries

Special Programs andFree Trade Agreements

• NAFTA• Generalized System of Preferences (“GSP”)

– renewed in the Trade Act of 2002 until December 31, 2006, and subsequently renewed again

• Caribbean Basin Initiative (“CBI”)• Andean Trade Preference Act (“ATPA”)

– Renewed in the Trade Act of 2002 until December 31, 2006 with some extended benefits under the “Andean Trade Promotion and Drug Eradication Act.”

Special Programs andFree Trade Agreements

• U.S.-Israel Free Trade Agreement• U.S.-Jordan Free Trade Agreement• Other FTAs• Compact of Free Association

– Marshall Is., F.S. of Micronesia, Palau• Caribbean Basin Trade Partnership Act

“CBTPA”• African Growth and Opportunity Act “AGOA”

Recordkeeping

• “Mod Act” expands importers recordkeeping responsibilities

• Establishes list of records that must be kept -- “the (a)(1)(A) list” -- and produced when demanded by U.S. Customs– If the failure to produce an (a)(1)(A) record was willful,

a penalty up to $100,000 or 75% of the value, whichever is less may be imposed.

– If the failure was negligent, a penalty of $10,000 or 40% of value, whichever is less may be imposed.

Recordkeeping

• In addition to those documents identified on the (a)(1)(A) list are those documents held in the ordinary course of business.

• Offices which typically produce and maintain such documents include accounting, purchasing, manufacturing, engineering, research and development, shipping and receiving, and logistics

• Standard time frame is 5 years – can be 10 years

INCOTERMS not UCC Terms

Know your trading terms• Who is paying for origin fees• Is the shipper making money on freight terms• Does your company need marine insurance• Know the terms• EXW, FCA, FOB, CFR, CPT, DDU, DDP, etc• Know when title passes

– INCOTERMS do not specify title passing

Q & A

Discussion