Globalization and Supply Chain Management as a topic that should be mastered
In a world that has become a global village through technology and the economy the term ‘supply chain’ might sound like something you hear in executive meetings but much more than that. This is the life wire of organizations of all kinds big and small, it is an integral part of organizations. You can imagine it as the fabric that connects all the components of a fabric that is necessary for the production and supply of a certain product and or services right from the supplier to the consumer. And just like any lifeline, if powerful it sustains everything; if weak then everything will collapse. But if it weakens, all of it can turn into a fiasco.
A Word About the Current Global Supply Chain Context Explaining Why Supply Chain Efficiency Matters More Than Ever
Supply chain management is not just an arithmetic of numbers; it is a science that is worth exploring. It is about coordination, it is about harmony, it is about developing a system where the products being made, the processes developing them, and the people who use them move in a well-coordinated and well-timed harmony. Let’s imagine it as an orchestra, without which the instruments that should produce such a musical piece remain ineffective. A single note missed here and there is enough to set the whole performance off. Likewise, a mistake in the supply chain can lead to a slowdown, increased costs, and possibly let down the clients.
Let’s take a simple, real-world example: an international event company organizing a grand event in Seoul. The stakes are high. Every detail, from the stage setup to the catering, needs to be perfect. If there’s a hiccup in the supply chain, like a shipment delay, the entire event could be at risk. And with that, the company’s hard-earned reputation might also take a hit. It’s this high-wire act that makes supply chain management both thrilling and challenging.
The Tech Revolution: A Born Global for Supply Chains
This is a world that was once supported by technology and is now one transformed by technology. It will come as a surprise to many that what used to be uncoordinated processes often involving the use of paper-based tools are today rapidly evolving into integrated, automated, and efficient supply chains. Picture being able to have a full identification of all of the incoming and outgoing shipments with the ability to accurately identify the location of each singular item and the estimated time of delivery. Such levels of visibility were not achievable a few years back, but with AI, blockchain, and IoT (Internet of Things), it is predicated as standard practice.
Think about AI. And it is not only used by great technology start-ups anymore. In supply chains, the machine can use AI-driven analytics for demand forecast with an accuracy of stunning zero overproduction, and stockouts., on the other hand, blockchain provides that level of transparency which used to be just the near impossible dream. It provides an unaltered electronic database of the transaction that a buyer can be assured is what he or she paid for. But as for IoT, such goods in transit are always closely being supervised, hence, you will be notified the instant there is a hitch. It is not innovation in the trivial sense – it is innovation that helps to overcome existing issues and create new benefits.
Positions have been taken, and strategies planned innovative and strategic, while responding to and manipulating global developments and trends.
If there is one lesson that the COVID-19 pandemic has brought, it is that anyone’s supply chains are rather weak. These lockdowns and restriction measures made many companies’ vulnerabilities come to life, and they had no idea they existed. The important thing to remember though is that with any difficulty there is innovation and improvement to be gained. Strategies have been forced to adapt due to the circumstances, finding new ways to become more adjustable.
This often implies a diversification of the supplier base, local procurement, or even more volatile approaches which can be easily changed. Knowing the potential market when it comes to expansion is also important, according to the Jane et al study. It is much more than using the appropriate materials and equipment when your company is hosting an event in Seoul, for example. It is also about choosing the right event venues in Seoul, knowing the laws and isolation or legal requirements, and getting to know the customs. This is the kind of integrated thinking that makes all the difference between successful business enterprises and the rest..
Global Strategies with A Lucky Charm of Speed and Vision
If there’s one lesson the COVID-19 pandemic has taught us, The Road Ahead: The supply chained connectedness has become complex and it requires supply chain resilience to enhance itself for integrated development.
As to the future perspectives, it can be stated that the key focus will be on supply chain resilience. The world is full of uncertainty and will remain so and only those businesses that are ready to respond to the changes, to look at the problems from the angle of the opportunity, will emerge as the winning entities. It is the ability to ensure that you are on the readiness level that will enable you to handle the events that you never expected.
When businesses remain competitive, on the international level, they are forced to optimize flexibility, creativity, and customer orientation. The management of a supply chain is no longer a matter of being ahead of a competitor; it has become a matter of survival. As a result, you can avoid being overtaken by events and remain ahead of the competition in your field; your supply chain set-up is then able to give your business not only a marginal chance of survival in an increasingly uncertain world but also a likelihood of success.
Conclusion
Indeed, supply chain management is not just a business function; It is the life of your business – its rhythm. And as the world advances further, individuals who grasp the subtlety of mastering machinery and human brains coupled with flexibility will be the ones who will be in charge. Being innovative, proactive to the challenges, and have a close relationship with both the global and local markets position your business for a strong and pro-active supply chain that will enhance the growth of your business. And, such efficient management is planning and controlling of the supply chain that would indeed provide you the competitive edge in the global business system.
Once upon a time, the world embraced a bold vision of ever-greater integration and interdependence. Unfettered globalization was the ordained future – a planetary scale economy humming with multi-continental supply chains and seamless flows of goods, capital, and labor across seemingly porous borders. But that utopian dream is fading fast. The sun is setting on the era of hyper-globalization as we know it.
Geopolitics, climate change and an aging population has triggered a reimagining about who and how we do business and its subsequent impact on supply chains. We believe that this generational change rewiring supply chains is likely to be reformed through “friend-shoring” (such as India and Vietnam) as well as near-shoring (as in Mexico and Turkey’s case) and reshoring for goods that are deemed to be most critical for long term sovereignty.
With change comes opportunity and we believe that in the coming years, the next generation of technology startups will be key to enabling this seismic shift. Our deep subject matter expertise and networks will put us in pole position to take advantage of this change and place ourselves ahead of others who have yet to fully appreciate the magnitude and scale of the opportunities being presented. As a reminder, we started work on this topic in early 2021 and published a major piece in 2022 found here.
How Did We Get Here?
Geopolitics
Arguably globalization peaked during President Barack Obama’s tenure, when the US pursued a liberal trade policy aimed at expanding global trade and economic integration. This period was characterized by efforts to negotiate comprehensive trade agreements that sought to lower tariffs, liberalize regulations, and set global standards on various issues including labor and the environment.
President Donald Trump’s trade policy marked a stark departure from the approach of his predecessors. Trump adopted a protectionist stance, emphasizing “America First” and criticizing existing trade agreements as being unfair to the US. His administration imposed tariffs on a wide range of imports, notably from China, and renegotiated the North American Free Trade Agreement (NAFTA), resulting in the US-Mexico-Canada Agreement (USMCA).
Trump’s aggressive trade policies aimed to protect American industries from foreign competition and reduce the US trade deficit, but they also raised costs for American consumers and strained relations with trading partners.
President Joe Biden’s trade policy represents a blend of continuity and change. While Biden has not fully reversed Trump’s protectionist measures, his administration has sought to recalibrate US trade policy to address contemporary challenges such as climate change (through the CHIPS Act and IRA), labor rights, and the strategic competition with China.
Biden has embraced protectionism from a different angle, focusing on “buy American” regulations and subsidies for domestic production in strategic sectors like semiconductors, electric vehicles, and green energy (read our Q3 and Q4 2022 commentaries on the IRA and hydrogen respectively). However, it is worth noting that the administration has not sought to re-negotiate or significantly lower tariffs imposed by the Trump administration. This approach reflects a broader consensus within the US that has become more skeptical of unfettered free trade and more concerned with ensuring that trade policies support domestic economic and strategic interests.
The trajectory of US trade policy from the Obama administration through the Trump presidency and into the Biden era reflects a broader re-evaluation of globalization and its impacts. The shift from peak globalization to protectionism, and the current complex blend under Biden, underscores the evolving nature of global trade dynamics and the challenges of balancing open markets with protecting domestic interests.
Climate change
The earth has always undergone significant climatic changes – from glacial periods (ice ages) to interglacial periods (warm periods). However, with >100 years of human activity, this temperature cycle is accelerating. Global temperatures have been increasing 3x faster since the yearly 80s, compared to the 19th century.
Climate change is amplifying the frequency and severity of extreme weather events (as can be seen below) in the US and across the globe. From intensifying storms and hurricanes to exacerbating floods and droughts, the impacts of a warming climate are widespread and accelerating.
Billion-Dollar Disaster Events in the US (CPI Adjusted)
Source: NOAA
In the US, 3.2M Americans have moved due to mounting flood risk. This phenomenon is known as “climate abandonment,” where local populations decline due to risks linked to climate change. Similarly climate change is having a direct impact globally on population displacement and refugee flows that feeds into greater geopolitical tensions (as above). Since 2008, over 376M people have been displaced due to such natural disasters, with a record 32.6M in 2022 alone.
Refugee migration caused by climate change will fuel nationalist sentiments as environmental conditions worsen. Nationalist politicians may exploit these tensions, framing climate refugees as threats to national security and economic stability, as seen in the surge of nationalist politics in Western nations.
Labor participation
America is experiencing a significant surge in retirement, with over 4.1M Americans retiring each year through 2027. This represents a substantial increase from the previous decade, where average daily retirements was around 10,000. Now, the daily retirement rate has risen to over 11,200, marking a historic shift in the country’s demographic landscape.
Alongside this, the US labor force is expected to see weak job growth and a decline in labor force participation over the next 10 years. The Bureau of Labor Statistics projects that the US will add only 4.7M jobs through to 2032 which is a significant slowdown compared to the 19.4M added in the previous 10-year period from 2012 to 2022.
Furthermore, the labor force participation rate is projected to fall from 62.8% currently to 60.4% by 2032, a drop of nearly 3 percentage points. This decline is attributed mainly to the aging of the population and a slower growth in the working-age population.
US Labor Force Participation Rate: 1948–2024
Source: U.S. Bureau of Labor Statistics Data
Approximately 900,000 baby boomers are expected to retire and stop working over the next 3 years, which is 50% higher than the previous 10-year average. This tightening of the labor market will cause significant institutional knowledge to be lost and many industries are expected to experience major labor shortages putting increased pressure on inflation – which can only be offset through greater automation.
Indicators of Change
When we originally flagged reshoring in our quarterly opinion piece just over two years ago, for parties not close to the industry, there was very limited evidence that the shift was underway. In the intervening period, there has been increasing amounts of public data to support this generational shift.
Outlined below is some of the growing evidence that we have noted in the intervening period:
The CHIPS Act and IRA have significantly spurred reshoring and foreign direct investment in semiconductors and batteries (as below), dominating the reshoring landscape. Yet, signs are emerging that the momentum of these large-scale projects is waning, with labor shortages and other challenges contributing to the deceleration.
Recent Reshoring Projects
Source: Stifel (2024)
Mexico has emerged as a leading destination for nearshoring due to its geographical proximity to the United States, shared border, and the benefits of the USMCA. Mexico’s industrial production has seen significant foreign direct investment to the tune of $36B, with a substantial portion of its output in the coming years destined for the US market. In 2023, Mexico also surpassed China as the US’s largest trading partner, indicating a growing preference for nearshoring to Mexico. However, there still remain doubts around the political stability of Mexico which is essential to solving key concerns around infrastructure and national security.
Total Monthly Exports to the United States ($B)
Source: US Census Bureau
In Q4 2023, UPS saw a significant increase in its average daily export volume in the Americas region with nearly a 12% rise. This was primarily driven by customers in Mexico and Canada utilizing its cross-border ground services. Compare this to the change in export volume from Asia, which dropped by nearly 9%.
India has also emerged as an alternative to China in global supply chains, often referred to as the “China + 1” strategy. This shift is attributed to India’s cost advantages and favorable demographics. Apple’s decision to diversify its supply chain into India is expected to spur the development of a local tech-manufacturing supply chain in the country. Initially, Chinese and Taiwanese companies may lead this shift, but the expectation is that they will eventually give way to local Indian firms.
Apple’s iPhone Shipments in China
Source: Bloomberg, CAICT data.
Mexico and India are not the only winners of this shift. The following graph shows various beneficiaries of the move away from manufacturing in China, with ASEAN countries (Association of Southeast Asian Nations) leading the way in gains from “friendshoring.” Businesses have started to favor nations that are geographically close to their operations in China yet share similar values, exhibit positive demographic patterns, and have undergone beneficial policy changes. Given that US imports of goods amounted to $3.2Tr in 2022, a 5% reduction in China’s market share could translate to an extra $165B in trade for these other countries.
Impact of Supply Chain Reorganization
Source: Global X ETFs, US Census Bureau.
Finally, a recent survey conducted by the Reshoring Institute found that nearly 70% of respondents prefer American-made products, and more than 83% are willing to pay up to 20% more for domestically made items, which might help to offset the additional labor costs associated with bringing production onshore.
What Does This Mean for Dynamo?
The opportunities that arise from this generational shift are segmented between technology, sector, and geography.
Technology Led
Robotics and related technologies will be increasingly important depending upon the location. This is particularly relevant when reshoring specific supply chains back in the US – which is most relevant for technologies deemed to be critical for national security/sovereignty – whether that is semiconductors, pharma, batteries, hydrogen, or other alternative energies or cleantech (as outlined further below).
Robotic technologies are most applicable when replacing labor because it is either too expensive or not readily available. It’s worth noting that China became the world’s manufacturing floor by “willing” industrial automation into its major factories. For now robots and automation technologies are less important for reshoring efforts in Mexico or India, as the labor costs remain below that of China (as below). Example Dynamo investments include PlusOne Robotics (Fund I), Gatik (Fund I), Tangram Vision (Fund II) and Paintjet (Fund II).
Average Salaries of Production Workers/Machine Operators
Source: The Reshoring Institute (2022)
Supplier discovery and procurement are important as new supply chains emerge in new markets. As production comes online either as a greenfield or brownfield site (being moved from another location), it is critical to identify local suppliers with the appropriate facilities and capabilities to support them. We think there are unique data assets that can emerge from PO management, and visibility that could lend itself to providing a step change in procurement.
Quality assurance is the missing piece of the jigsaw when it comes to procurement. It is typically straightforward during a procurement process to determine pricing and availability but understanding quality is very difficult to ascertain. With new supply chains, a lack of QA could be a very expensive mistake. It is worth highlighting Factored Quality (in Fund II) which is addressing this opportunity within the consumer goods segment.
Traceability will also become increasingly important. With the geopolitical shadow overhanging where and how products are made, understanding the provenance of a product will determine whether it falls within the scope of trade agreements, as well as have implications on tariffs and regulations. For example, the composition and production location of an EV and/or battery have a massive impact on whether they can attract subsidies from the IRA.
Customs management and regulations should not be overlooked. Just because products might be produced in a “free trade zone” does not mean that they are not subject to customs control or regulation. Alongside this, a critical element of reforming supply chains is cross border tariff optimization. Where something is produced and the form it takes as it enters the country will attract different tariffs and duties and can therefore have a material impact on the final build cost of a product.
Reskilling and training will be a key requirement with the establishment of new production facilities typically in the locations where comparable manufacturing has not historically existed. These roles are typically skilled and are unlikely to be replaced in the medium term with robots or robotic technologies. As Erik Nieves at Plus One Robotics mentions, “robots work but people rule” when it comes to activities requiring high context, awareness, and dexterity.
Recycling materials will become increasingly important for scarce and critical commodities that originate from locations with vulnerable supply chains – whether that is rare earths from China or cobalt from the Republic of Congo to name but two examples. Equally, this might lead to the creation of new composites and materials that are not reliant on such rare materials. Note that these often require special handling when managing the logistics.
Cyber security of key supply chain infrastructure, assets, and operations will be essential as geopolitical tensions increase. It is worth noting that increasing cyber attacks on supply chains will help to accelerate the replacement of decades old systems that are hard to maintain. For example, Maersk (2017) who was hit by a ransomware attack that disrupted its operations globally and resulted in an estimated $300M in damages. Other corporates facing these threats of late include FedEx and Expeditors.
Sector Led
Alongside technology led opportunities, industries that are deemed to be critical to the US (and EU) sovereignty will see significant investment (and subsidies/support) from governments. These opportunities will include some of those described above as well as advanced manufacturing and national defense.
Semiconductors are a cornerstone to public policy and are deemed of national importance. In light of the political uncertainty around Taiwan, Western governments have responded by investing heavily in bringing a lot of this production capability onshore in the US, Europe and Japan. The CHIPS and Science Act, signed into law in August 2022, appropriated $52.7B in financial incentives to expand domestic semiconductor manufacturing capacities across the supply chain, including for fabrication, advanced packaging, and suppliers of semiconductor equipment and materials. The Semiconductor Industry Association reports that the CHIPS Act has already sparked over $350B in private investments for US semiconductor production, including the construction of 34 new chip fabs and expansion of 21 existing fabs.
Alternative energy has also attracted significant subsidies and support. As can be seen below, the shift to decarbonize the global economy is exceptionally reliant upon China who has a dominant influence across all the major energy supply chains.
China Extends Dominance of Clean Tech Supply Chains
Source BloombergNEF
The IRA is allocating nearly $400B to strengthen the US clean energy sector. Since the IRA was signed into law, more than $240B in alternative energy investments have been announced. These investments are expected to add 163 gigawatts of clean generation capacity, nearly doubling total nationwide clean power generation. To date, Dynamo has invested in Ionobell and Celadyne which are related to novel battery anode and hydrogen electrolyzer technologies respectively.
Geographic Led
While there are many geographic locations globally that are likely to benefit substantially from the various changes described above – we remain particularly focused on those located in North America, specifically Mexico which has benefited substantially from a massive influx of investment capital around manufacturing. While similar opportunities exist in Canada, these are more focused on industrial commodities that are requisite in batteries, electrolyzers, et al.
As supply chains are rewritten, both Mexico and Canada are likely to be the main beneficiaries that Dynamo are likely to invest into. To date, we have invested in both of these markets – and in Mexico this includes Skydrop (Fund I) and Solvento (Fund II).
This is not to overlook the domestic opportunities in the USA with the revival of reshoring manufacturing of critical supply chains, particularly those which are considered to have national importance.
The winds of change are giving way into multi-billion, if not, trillion-dollar type opportunities. We haven’t seen such a shift in supply chains since the Second Industrial Revolution (1870-1914) in the US that birthed generational businesses and wealth to boot. We’re excited by what the future affords and believe there’s been no better time to be venturing in supply chain.
Author Bio
Santosh Sankar, co-founder and managing partner of Dynamo Ventures, a venture capital firm investing in pre-seed and seed-stage supply chain startups. Dynamo’s notable portfolio companies include Stord in warehousing and fulfillment, Gatik who is the leader in middle-mile autonomous transportation, and Solvento who is the preeminent provider of financial operations software and credit to the Mexican trucking industry. Sankar is also host of the Future of Supply Chain podcast and has been listed on Forbes 30 Under 30 for Venture Capital in 2017 and Forbes 30 Under 30 “Big Money” list. He was also bestowed with the Alumni Achievement Award from Pennsylvania State University (2024), and a fellow of the prestigious Kauffman Fellows Program.
In today’s interconnected world, businesses are no longer confined to their local markets. With advancements in technology, improved communication, and a more globalized economy, companies are increasingly expanding their operations across international borders. Doing business globally presents a multitude of opportunities, but it also comes with its own unique set of challenges and complexities. In this blog post, we will explore the strategies and key considerations for companies engaged in global business ventures and the importance of proper documentation in this context.
The Global Business Landscape
Globalization has opened up a vast world of opportunities for companies. Expanding into international markets allows businesses to tap into new customer bases, diversify their revenue streams, and gain a competitive edge. However, succeeding in the global arena requires careful planning and a deep understanding of the markets being entered.
Key Strategies for Companies Doing Business Globally
Market Research and Adaptation
Before entering a foreign market, conducting thorough market research is essential. Understanding the local culture, consumer behavior, regulations, and competition is crucial. Companies need to adapt their products, services, and marketing strategies to meet the specific needs and preferences of the target market.
Compliance with International Regulations
Compliance with international trade regulations and local laws is non-negotiable. Companies must be aware of import/export regulations, tariffs, tax laws, and customs requirements. Maintaining a strong legal and regulatory team is essential to navigating this complex landscape.
Establishing Local Partnerships
Collaborating with local partners can provide invaluable insights and connections. It can also help companies overcome language barriers, navigate cultural nuances, and establish a solid presence in a new market. Joint ventures, partnerships, and strategic alliances are common strategies in this regard.
Effective Supply Chain Management
Managing a global supply chain requires precision. Companies must ensure the smooth flow of goods and services across international borders. This includes considerations such as logistics, customs clearance, and transportation.
The Role of Documentation In the realm of global business, effective document translations are a critical component of successful international operations. Accurate and culturally sensitive translation of legal agreements, contracts, marketing materials, and other essential documents is imperative for clear communication and compliance with local regulations. Document translation services, often provided by professional translation agencies or in-house experts, bridge language gaps and ensure that vital information is conveyed accurately to partners, clients, and authorities in the target market. These services are an integral part of the global business toolkit, facilitating seamless cross-border transactions and fostering understanding in the diverse tapestry of international commerce.
Accurate and comprehensive documentation is a cornerstone of global business. It serves several critical purposes:
Legal Compliance
Proper documentation ensures that a company complies with international and local laws. This includes documentation related to import/export licenses, permits, and customs declarations.
Risk Mitigation
Thorough documentation can help mitigate the risks associated with international transactions. It provides a clear record of agreements, payments, and obligations, reducing the potential for disputes and legal complications.
Financial Accountability
Accurate financial documentation is crucial for tracking expenses, revenues, and tax liabilities across international borders. This is essential for financial transparency and regulatory compliance.
Effective Communication
Documentation is a tool for effective communication within a global business. It helps convey expectations, requirements, and agreements clearly to all parties involved, regardless of language or location.
Final Words
In conclusion, companies venturing into global markets must approach the endeavor with a well-thought-out strategy that encompasses market research, legal compliance, local partnerships, and efficient supply chain management. Documentation plays a central role in ensuring that these strategies are executed effectively. In the global business landscape, success hinges on a combination of market insight, legal diligence, and a commitment to proper documentation. With these elements in place, companies can thrive in a world of endless possibilities and challenges.
The world is a smaller place than it was 20 years ago.
As the internet gets faster and businesses increasingly rely on the web, international markets are proving to be a new source of both customers and goods. Globalization is here, and it wouldn’t work without supply chains.
Different areas of the world are more suited to producing certain goods and services. Customer help centers have long since outsourced to India or Mexico, specialty foods from Latin America
and the Mediterranean are in high demand, and tech companies are in need of microelectronics from every corner of the globe.
Covid-19 taught us that supply chains are integral to a global market and losing them harms multiple industries in numerous ways. In a world where cost effectiveness was king, just-in-time supply chains didn’t provide enough surplus to keep these industries running smoothly. These supply chains were long in development, whether it was for cheaper manufacturing or high skill part fabrication.
Every global industry took note, and supply chain management is changing. Risk management and surplus demand are now more important than cost efficiency, and many companies are using expat services to put their own employees at supply chain sources to ensure they are working as expected. The global supply is changing, and globalization is impacting supply chains like never before. Here are the pros and cons.
New Customers and Increased Competition
The global market offers companies the options to find new customers and further the growth of their company. Every product has an audience, and even products that may not be popular in one region will be in high demand in another. Globalization offers companies new customers to market to, but it also comes with a catch: more competition. Yet just like you are looking for new customer bases, new regions already have companies that know their audience, and are after yours. If you’re confident in your product or service, moving to a new area can provide a strong boost in sales, but know that there are players already there that have their eye on the prize.
Expanded Sources and Increase Supply Chain Complexity
When you make a product or offer a service in a globalized world, you often rely on suppliers abroad or labor from other countries. If you run a ride share service, you need to connect with locals to operate your ventures. If you’re building a new smart device, you need a company who knows the intricacies of creating miniature screens. If you’re in the manufacturing business and you need steel parts, it’s often cheaper to build the part at the source of the steel instead of shipping the raw materials.
Globalization and international supply chains make this possible, albeit complex. If you can manage to plan out multiple supply chains, you can make the best product at the cheapest price, but know that breakdowns happen, and it’s best to plan ahead.
Better Opportunities and More Legal Issues
There are more people in the world than there are in your country, so when your company or business goes global, your opportunities do too. Whether you’re looking for experts in a certain field, or a new supplier with greater access to a needed material, the chances of you finding a great source at a lower price increase drastically. Looking internationally also serves as a way to increase your perspective and talent pool.
Just know that when you start to operate in other countries, you will by necessity have to understand their legal system. Every country is unique and progresses at different speeds and in different directions, and dodging legal issues can become difficult and costly. It’s best to hire legal advice to avoid this.
Diverse Demands and Complicated Demographics
Some regions have access to goods that simply are not available in your region. While most of the world has enjoyed imported goods for decades, demand is increasing while buying power isn’t. Having a well established supply chain can slowly lower costs while providing diverse interests with diverse options at a more competitive price.
Knowing what your new customers want, however, is not as straightforward. Data collection is more important than ever before if you want to get the right product to the right people, but local
experts are usually needed in order to understand foreign populations. Make sure to do plenty of data collection before investing in an international venture that may not turn a profit.
Conclusion
The world is a diverse place of many different people wanting different things. Do you bring the same service to distant shores, or design something else for a new customer base? Globalization is changing the way we do business and how we supply the businesses we already have. The risk is always present, but the opportunities available in foreign markets and with foreign suppliers are massive. They cannot be ignored in a connected world.
Since 2020, the world’s economy has been facing the largest issue of the last decade, COVID-19. Many companies were and still are struggling with this situation (lockdowns, restrictions, etc.), and others are taking advantage of it (e.g. food and health industries, online markets, e-commerce). Currently, the world population and enterprises are trying to deal with the situation while living with uncertainty.
I recently supervised a team of researchers from SKEMA Business School in Lille, France, to examine the coronavirus pandemic’s impact on globalization and maritime transport. The findings were more optimistic than we anticipated.
“The COVID-19 crisis accelerated an expansion of e-commerce towards new firms, customers and types of products,” according to the Organization for Economic Co-operation and Development (OECD). “This has provided customers with access to a significant variety of products from the convenience and safety of their homes and has enabled firms to continue operation despite contact restrictions and other confinement measures.”
Local and international products were shipped around the world; globalization is here.
In Maritime transport sector, demand exceeds supply
The maritime transport sector did not struggle during the lockdown. It was better than ever. However, during the last six months, the transport sector has been facing global issues; container shortages, increases in freight prices and the delay of ships (port congestion).
Currently, the demand for a container is larger than the supply. Most of the containers are docked in Asia and southeast Asia and are used only for long-distance between China and the U.S. & the EU. This is because this is the most profitable route. This directly affects the availability of the containers.
On the other side, lockdowns in the EU and U.S. have resulted in less manpower at ports. At the same time, there is more export from China to the EU and U.S. Shipping companies maximize their profit by accepting only one-way transport from Asia to the EU and U.S. Consequently, there are a lack of returns and container shortages in Asia. What are maritime shipping firms doing to address these issues and how do they see operations in the future?
To answer these questions, we conducted several detailed interviews with global maritime shipping firms and customers. This is what they said:
They need to manage safety stock better.
They need to build long-term contracts with transporters.
They need to have good relationships (trust) with suppliers and transporters.
They need to implement Lean Six Sigma management to improve efficiency and improve the process.
Some large firms are taking an expanded approach. Amazon, for example, is purchasing its own containers and leasing dedicated ships. Ships filled with large blue containers with the “smile” on the side are appearing globally.
A bright future following a dim pandemic
Tragically, COVID has impacted the world, but the feedback in our research is surprisingly either neutral or positive, which was very unexpected. The concept of globalization and maritime shipping have not suffered as much as we thought, and have either remained the same or improved during this crisis. Global maritime shipping firms and customers are implementing improved management practices (Lean Six Sigma); building better relationships; and “rethinking” the future and seeing opportunities. Building back better is the way they see it, and the future is bright.
Author’s Bio
Dr. Kevin McCormack teaches Operations and Supply Chain Management at Northwood University. He wrote the above piece to summarize a research project he supervised. The team’s researchers were Georges-Alexandre Courquin and Sacha Rebaudo, of SKEMA Business School in Lille, France.
Transportation activity has expanded considerably in recent years with the globalization of trade. However, in the face of accelerating flows of goods and passengers, supply chain players have had to review their supply strategies, especially in terms of demand and regulatory standards. In this context, multimodal transport is a sensible solution to meet consumer needs and solve the problem of network saturation. With new methods that move lines internationally and stimulate innovation in the field of logistics and transportation, we won’t complain!
The new challenges of international transport
The supply chain today is subject to multiple factors to be considered to propose the right transportation solutions. But what are the points that must be respected to meet the needs of consumers around the world?
New consumption patterns
Consumer trends observed around the world have a very significant impact on logistics services: diversity of consumption habits according to countries and areas of residence, changes in customer expectations at the point of sale, and new delivery requirements.
The end of the “one size fits all” era
Contrary to what we had thought in the past, globalization is no longer synonymous with standardization. The era of “one size fits all” is over. Consumption patterns vary greatly from one country to another: it would be dangerous to ignore them.
Export companies must be able to meet local requirements as precisely as possible. The key to international success now lies in the customization of the offer.
Variable customer profiles according to culture
To be successful at the international level, brands must deal with different consumption patterns according to cultural habits. Regional specificities must be considered in companies’ commercial strategies.
Although it is shared in Europe and the United States, the e-commerce trend is taking shape, for example, in totally different ways in different countries, especially when it comes to services. In China, companies are confronted with the needs of two main categories of consumers: city dwellers, who want quality and services, and rural dwellers, who buy products in bulk at low prices.
In the promising African market, professionals expect a lot from the implementation of banking services and infrastructures to catch up. As for the Middle East and North Africa group, they are ideally located at the crossroads of international highways. On the other hand, the political and social changes currently taking place in Libya, Syria and Yemen bode well for the future.
Increasing urbanization and demand diversification
Sociologically, the global trend is towards urbanization. According to a UN study published in May 2018 in New York, the world’s population living in urban areas is expected to increase from 55% in 2018 to 70% in 2050. Therefore, consumer expectations and needs are inevitably changing. Customers now prefer smaller stores, which in turn also have less storage space, and are demanding more and more services such as home delivery or click and collect.
While convenience shopping is becoming increasingly common online, customers also want a different experience at the point of sale. As a result, brands that once focused on low prices and self-service must now question everything. They must also adapt to a growing middle class whose needs, homogeneous in terms of basic offerings and services provided, are diversifying into products that offer better margins.
One of the main challenges of global transportation is undoubtedly the issue of delivery times. A major problem for Supply Chain players, penalized by infrastructure capacity problems and difficulties in finding labor.
Transport infrastructure capacity: a major challenge
Regardless of the mode of transport they use, all carriers face network congestion problems. Therefore, new solutions remain to be invented to develop transport modes, especially in terms of capacity.
Globalization and its limitations
Shipping, which covers more than 90% of world trade, is still the cheapest mode of transport today. But it is less and less responsive to the challenges of today’s trade. The consequences? A capacity crisis causing many delays with unavoidable negative impacts.
And the increase in the capacity of container ships does not change this, as it also limits the possibilities of accommodating cargo ships in ports. There are few infrastructures capable of accommodating large vessels and with sufficient resources to load and unload them.
Always cost-effective and flexible, road transport is the essential option for door-to-door deliveries. But the shortage of truck drivers in Europe and North America is limiting its development.
Rail transport is also reaching its limits, with heterogeneous infrastructures in Europe generating a high rate of damage. In fact, a global trade route war is currently being waged, with significant financial investments.
How to overcome the problem of road transport?
Different approaches are being explored to address the problems encountered in road transportation.
Investing in autonomous vehicles
Autonomous vehicles are undoubtedly the future of transportation, provided that regulations are changed and that this new mode of transportation is accepted by the population. Although the technology is almost ready, there are still some bottlenecks. As proof: in the absence of benefiting from a regulatory framework for non-polluting vehicles, Deret electric trucks were recently blocked at the entrance to Paris during the first days of alternating traffic.
Evolution of rail transport
The railroad began its offensive with the commissioning of a new rail route between China and the Netherlands. The first train carrying cargo containers arrived at the port of Rotterdam in 2015. It took only 18 days to complete the journey, compared to 44 days by sea.
The problems of punctuality and tracking have yet to be solved, but the rail industries are testing new technologies to reduce these risks. Like the partnership between IDEO (a subsidiary of ID Logistics) and Lille-based start-up Everysens to produce connected wagons integrating IoT sensors on behalf of Danone Eaux.
Consider alternative solutions
Other interesting solutions have been developed to address specific issues. Take Steve Jobs, for example, who invested $50 million in buying air cargo space to ensure delivery of his new translucent blue iMacs by Christmas.
The revolution is underway. International companies cannot ignore it: to think globally, they must empower themselves to act locally, according to the context and characteristics of the market.
Multimodal transport: A response adapted to consumer needs?
Global trade also means international sourcing, distance from production sites and mass flows of goods. These are all challenges in terms of logistics. To meet these needs, actors in the supply chain are increasingly using multimodal transport, which has many advantages.
A bit of history
A small leap in time. In the 1960s, the advent of the container was a real revolution in transportation. Thanks to this invention, it was possible to transport goods all over the world without breaking the cargo. This could be done by sea, air, rail, road or water. In this context, multimodal transport was able to take off.
Today, although globalization and the large production centers located in Asia have accelerated the development of maritime transport of goods, alternative means of transport are still necessary to reach the end consumer. Thus, today, transport is mainly overseas (by ship or plane), but road transport is essential when approaching ports and for home deliveries.
So, it is not only maritime freight transport that has benefited from internationalization: road transport and other available means have managed to develop in its wake. But in addition to the complementarity between maritime and road transport, other forms of multimodality have emerged. Take the example of Switzerland and Austria, which have developed rail highways to transport complete road units by train to improve regularity and limit pollution.
The advantages of multimodal transport
As an alternative to 100% road transport of goods, multimodal transport combines at least two different modes of transport, from the departure of production units to their arrival as close as possible to the final consumer. The transfer takes place without load breakage since the same loading unit (the container) remains the same for the entire duration of the transport of the goods.
Its many advantages justify the enthusiasm it generates in the supply chain:
1. Improved delivery times.
2. Increased security of the goods.
3. Optimization of costs related to the transport of consumer goods.
4. Improved load capacity, which is higher than that of road transport.
5. Greater respect for the environment.
Reconciling urban logistics and quality of life
Last mile delivery, which represents about 20% of freight transport costs, is the current challenge for logistics professionals. New organizational schemes that respond to the commercial strategies of brands and meet the urban and ecological policies implemented in the territories have not yet been found. Multimodal transport could once again play a key role in this area. Proof of this is the multiplication of multimodal transport experiences and the structuring of shared logistics platforms in urban areas.
Some examples of multimodal procurement
Several brands have already taken the next step by focusing on new multimodal transport solutions. Monoprix, for example, has chosen to combine rail and road freight transport for its supplies within Paris.
From the departure of the warehouses to a logistics platform based in Bercy, goods are first transported by rail. The products are then transported as close as possible to consumers by road: gas-powered trucks are used to supply the points of sale, in addition to electric vehicles for home deliveries.
Thanks to a partnership with XPO Logistics, Ports of Paris and Voies Navigables de France, the Franprix brand (Casino group) has entered the urban waterway shipping market.
Urban centers are multiplying
Logistics is not lagging in terms of multimodal sourcing: several initiatives underway in Lille, Saint-Etienne and Paris show a strong will to offer innovative solutions.
A multimodal urban distribution center opened in the port of Lille in 2015, for example, makes it possible to consolidate upstream transport and group deliveries in the city center. In the same spirit, the Saint-Etienne metropolitan area is a laboratory for urban delivery with the pooling of its goods distribution platform, transported to the city by a fleet of electric vehicles.
In Paris, the Chapelle International project is also proving to be a bold challenge in terms of urban logistics. Its objective: to reintroduce rail transport in the capital by building a 45,000 m2 logistics hotel on a former railway wasteland located at the Porte de la Chapelle in the 18th arrondissement.
Faced with the many challenges posed by the globalization of trade, multimodal transport now seems to be a solution of choice. Experiments are multiplying in this field, each one more innovative than the other. It remains to find the right level of regulation and innovative capacity for supply chain players to effectively implement the change.
Generix Group North America provides a series of solutions within our Supply Chain Hub product suite to create efficiencies across an entire supply chain. From Warehouse Management Systems (WMS) and Transportation Management Systems (TMS) to Manufacturing Execution Systems (MES) and more, software platforms can deliver a wide range of benefits that ultimately flow to the warehouse operator’s bottom line. Our solutions are in use around the world and our experience is second-to-none. We invite you to contact us to learn more.
This article originally appeared here. Republished with permission.
While the U.S. may have the largest third-party logistics market of any nation, there’s plenty of global opportunity to capitalize on. Companies that can break into international markets could reap considerable rewards.
The rise of e-commerce and other internet-based businesses has made the world more interconnected than ever. Consequently, there’s a rising demand for fleets that operate between borders. Smaller, up-and-coming economies with less saturated markets pose an enticing growth opportunity, too.
While expanding into overseas markets can be highly profitable, it’s also often challenging. These six strategies can help companies overcome these challenges to win international business.
1. Research Ideal Markets
One of the biggest mistakes a company can make is expanding into new territory without researching first. Different countries come with different legal restrictions, economic considerations, and market atmospheres. Companies must understand these before choosing where to start their international growth strategy.
For example, Germany has the world’s highest-performing logistics market, which would make it seem like the ideal place for expansion. But since it’s also home to DHL, which holds 39% of the global market share, it may be hard to succeed there. Preliminary market research would’ve revealed that, informing more effective expansion.
Businesses should research the local markets in different countries to find the most profitable area to expand into. That includes looking at tax considerations, competition, and customer needs. Without considering all of these factors, globalization initiatives will likely cost more than they bring in.
2. Understand the Local Culture
Similarly, after deciding on the ideal market, businesses should understand any cultural differences they’ll encounter. Tapping into the local culture can make marketing initiatives more effective and help impress potential clients. Alternatively, if businesses don’t understand these differences, they may accidentally offend or disinterest customers and partners.
Understanding cultural divides can make or break a company’s success, especially when meeting potential international partners. For example, while it’s a rule of thumb in the U.S. to show up five to 10 minutes before a meeting, it may be longer or shorter in other countries. Not understanding that could hinder a meeting’s productivity.
Other countries may have differently structured workweeks and holidays that could affect business, too. The United Arab Emirates, for example, observes the weekend on Friday and Saturday, not Saturday and Sunday. Knowing this before going in can determine whether a business thrives internationally or struggles to get its footing.
3. Partner With Regional Businesses
Another crucial strategy for expanding internationally is partnering with overseas businesses. Companies based in the area will already have the cultural and legal knowledge needed to navigate the local market environment. They will also already have consumer and business connections, giving U.S. companies a foot in the door.
An important step in this strategy is to meet these potential partners in-person as much as possible. Taking the time and money to fly out to meet them shows a willingness to invest in their company. This can give businesses a leg up on any other competitors for the partnership.
Without a local partner, it can be challenging to succeed in a foreign market. Companies will have to establish their brand name, build a customer base, and navigate potentially complicated legal considerations. Foreign partners can cover all of these factors early, letting businesses get off the ground sooner.
4. Adapt Your Marketing Strategies
Since every country has its own culture and values, effective marketing materials are rarely universal. As such, logistics companies trying to expand into overseas markets must adapt their marketing strategies. Research and international partners can reveal local customers’ habits and preferences, informing more effective ads and promotions.
Large restaurant chains serve as excellent examples for adapting international marketing strategies. In France, McDonald’s offers a free illustrated book with every Happy Meal purchased on the first Wednesday of the month. This doesn’t make much sense in the U.S., but children in France don’t go to school on Wednesdays, making this an effective strategy.
Promotions that work in the states may not be as appealing overseas. Similarly, other countries may have holidays, customs, or trends that present unique marketing opportunities that wouldn’t succeed in America. If companies want to be as successful as possible overseas, they must adapt.
5. Localize Your Website
It’s hard to overstate the importance of having an appealing website in today’s market. In many countries, the number of internet users has doubled in the last three years, and websites often serve as customers’ first impressions of a business. While this may be true across borders, what constitutes an ideal website may not be as consistent.
Businesses must localize their sites to fit global audiences. The most obvious step in this process is translating all of the text, but that’s not all localization entails. There are also various cultural connotations and preferences about design and business practices to consider.
Some colors may be appealing in the U.S. but carry a negative connotation in other cultures. While English reads from left to right, not all languages do, so websites in some countries may need to be mirrored to account for this. Turning to contacts in these countries or localization firms can help account for these differences.
6. Capitalize on Local Resources
Many globalization strategies involve taking steps to navigate unique challenges in overseas markets. While these are crucial, the most effective international expansion efforts also look for other areas’ unique benefits. Every country has unique resources to offer, so businesses should take advantage of these opportunities.
One example of a company implementing this strategy is the grocery store chain H-E-B. When H-E-B went international, it bought blueberries from Chile and Peru, giving it access to fresh blueberries year-round. Capitalizing on these warmer climates helped the company expand its offerings, pushing revenue higher.
Businesses should look for what resources different areas have, such as relaxed tax codes or cheap transportation markets. Taking advantage of these instead of keeping business models the same across all countries will maximize international success.
Make the Most of International Expansion
As the world becomes more interconnected, global expansion becomes an increasingly enticing strategy. Companies that can capitalize on it early will see the most success in the future. These six strategies provide a roadmap for doing so.
Winning international business can be a challenge, but it also presents several opportunities. If businesses can act on these steps, they can expand into foreign markets more effectively. They can then enjoy all international business has to offer.
The Ever Given’s blockage of the Suez Canal, which accommodates 30% of the word’s daily container freight shipments, has been yet another reminder of how unforeseeable and remote events can dramatically disrupt one’s business. Although the canal’s blockage lasted only a few days, its effect on supply chains was global. The traffic jam it caused worsened Asia’s shipping container shortage, further delaying the export of consumer goods; spoiled countless goods sitting in transit; and temporarily exacerbated a global semiconductor shortage affecting countless manufacturing industries. Unsurprisingly, because the Suez Canal is a critical route between Europe and Asia, the hardest-hit businesses were those whose supply chains terminate in or pass through Europe.
Coming off the heels of a global pandemic, this latest disruption has many wondering how to shore up their supply chains to protect against the next unexpected event. Doing so, however, is an exhausting prospect—particularly as industries globalize, supply chains become more far-flung, and markets become more interconnected. Counterintuitively, the best way to bolster against unforeseen exterior events is not to plan for every event, but instead to take stock of what your business needs to survive. In the end, those plans that reflect and harmonize with a business’s needs are those most likely to offer protection during uncertain times.
I. Spend energy creating stability rather than predicting catastrophe.
Globalization-induced regional production specialization (for example, raw materials for semiconductors coming from Japan and Mexico and chips being made in the US and China) has increased the number of links in businesses’ supply chains, thereby increasing the likelihood of a weak link. It is easy to imagine any number of events that may cripple one’s supply chain, and recent history is filled with novel examples: a low yield potato crop creates a potato shortage, a clothing strike decreases the availability of certain clotheslines, a power grid failure halts the production of semiconductors, and a culinary demand for a local grain makes the grain unsuitable for livestock feed, just to name a few.
In one sense, recognizing the risk of the unforeseeable has had its benefits. For example, businesses have begun to hold the ostensibly pro forma provisions found in their contracts—like force majeure provisions in sales contracts and virus exclusions in insurance policies—in greater regard. Unfortunately, however, as we have become more fearful of novel risks, these risks tend to dominate risk management deliberations more than they perhaps should. As the Suez Canal incident, COVID-19, and any number of freak incidents have taught us, the events that cause the most disruptions are ultimately those that are hardest to predict (and therefore prepare for). Thus, while companies must always prepare for the worst, management should not overly focus on what might go wrong at the expense of ensuring what must occur to survive.
II. Know yourself; know your tools.
An “I’ll have what she’s having” approach to protecting your supply chain is a recipe for failure. It ignores differences that create competitive advantages and it offers little protection in times of industry-wide disruption, in which industry norms are per se insufficient. The best risk management programs are born from a profound understanding of one’s business, including the central pillars of its operations and its competitive success. When it comes to supply chains, profiling risk requires more than merely asking where your widgets come from, although it certainly includes that. A prudent risk profile should conceive of all critical ingredients necessary to ensure your business’s continued success. For example, in the context of a dine-in restaurant chain, one should consider all that is needed to provide the desired customer experience, like air conditioning for those restaurants in warm climates.
There are any number of tools available to protect one’s business against risk. Staples include prophylactic due diligence, contract terms and conditions, insurance, and, where necessary, litigation. These tools are quite versatile, but it is important to avoid putting the cart in front of the horse. They are a means to an end and should be evaluated in light of your business’s specific and tangible needs rather than as a blanket of hypothetical protection.
A. Due diligence
As Ben Franklin famously observed, “an ounce of prevention is worth a pound of cure.” In that regard, due diligence is the keystone of any risk management plan. Due diligence is not so much a solution to risk, but rather a diagnostic tool to help determine the best risk mitigation strategy. For example, due diligence gives one the insight needed to restructure one’s supply lines to avoid chokepoints, tailor one’s insurance coverage to target serious risks or decide whether a risk is best left unmitigated (which it sometimes is). When performing due diligence analysis, not only should a business’s specific needs direct the investigation, they should also dictate the solution.
Take, for example, a car manufacturer’s need for airbags. One could attempt to mitigate the risk of a supply shortage by keeping a stash of extra airbags on hand. But as increasingly common “just-in-time” auto manufacturing practices suggest, doing so brings with it increased overhead costs from procuring and managing excess inventory. One may instead consider insuring one’s airbag supply (a practice discussed below) but at the cost of a premium. Likewise, one may consider diversifying suppliers to ensure any one supplier’s failure will not stop production, understanding that this would do nothing to protect against an industry-wide shortage. The correct solution for any given auto manufacturer depends upon countless variables, some of which are common among manufacturers, and some of which are unique to each specific manufacture’s needs and goals. All variables, however, flow from a first principle—one needs airbags to make cars. In that sense, due diligence can be described as the final step in understanding how your business works.
B. Insurance—Contingent business interruption
Among the armamentarium of insurance products available to protect one’s business, in the supply chain context, contingent business interruption insurance (CBII) is king. Whereas traditional business interruption coverage only covers interruptions due to physical losses occurring on the insured’s premises, CBII policies protect supply chains, often covering disruptions caused by distant natural disasters, industrial accidents, labor disputes, public health emergencies, damage to infrastructure, and sometimes even disruptions cases by upstream production errors or supplier insolvency.
When disruptions occur, CBII policies typically provide coverage for lost income, extra expenses (costs to end the interruption), and additional funds expended to mitigate the risk of further losses. CBII policies, however, are not a silver bullet against supply chain losses. CBII policies frequently limit the extent and duration of coverage—for example, only covering losses incurred after 72 hours of interruption, only covering 6 months of losses, or limiting coverage for losses in any given month to 25% of the policy’s aggregate limits. They also often require an exhaustive list of those suppliers to which the insurance will apply—the composition of which the insured should give the utmost thought.
When securing coverage for your business, it is important to have done the homework required to ensure your policy’s terms accurately reflect the type, source, and duration of the disruptions your business may endure. Carriers frequently dispute whether interruptions in fact took place. For example, a burger chain that could not make French fries due to a potato shortage would reasonably argue that without its quintessential side item, it is essentially unable to conduct business. A carrier, on the other hand, would argue that the loss of one menu item does not constitute a business interruption. Therefore, it would behoove the burger chain to obtain CBII coverage that specifically covers the loss of key menu items. Carriers also frequently argue over the propriety of replacement products (or cover) obtained to resume operations. Businesses should therefore consider the availability of certain types of cover when procuring CBII coverage to ensure whatever replacement the business is forced to buy falls under extra expense coverage.
Despite the comfort of having an insurance product specifically designed to prevent supply chain disruptions, it is also important not to think of insurance as easy money. Securing insurance and making claims are ordeals unto themselves. The first hurdle to securing coverage following a loss is to properly document one’s loss. In anticipation of filing a proof of claim, it is imperative that insureds document any delays in the arrival or departure of goods, fluctuations in the purchase price or availability of essential goods, and/or fluctuations in sales prices and volume. Keeping such records is important due to the aforementioned time limits common within CBII coverage. Should coverage litigation arise, these contemporaneous records will also prove to be invaluable evidence at trial. In particularly complex cases, or where coverage is not entirely clear, it may also be worthwhile for insureds with sizeable losses to retain coverage counsel to assess the scope of available coverage and pursue their claim.
C. Contact terms—The specific and the general
Regardless of what provisions the parties may ordain to include, given the intricacies of modern supply chains, all supply contracts should carefully contemplate responsibility for distant supply chain disruptions. There are two ways to achieve this: drafting specific provisions in hopes of better elucidating the contract’s purposes and including general provisions to serve as a safety net.
Drafting targeted provisions to address disruptions ultimately benefits all parties by making the implicit explicit. For example, there has been significant litigation in the past year regarding whether the COVID-19 pandemic constitutes a “force majeure” under supply contracts. For the uninitiated, force majeure provisions are meaningless boilerplate. But too frequently they are invoked during unforeseen events in an attempt to excuse performance. The solution to their misuse is simple: don’t assume the strength of your covenants. If you desire an unqualified promise to deliver goods, your contract should say just that. Doing so ensures the parties are on the same page from the beginning. It also has the added benefit of encouraging greater due diligence, decreasing the likelihood of disruption.
In addition to including targeted provisions that make the obligations under your contracts clear, one should consider safety net provisions to increase your contract’s resiliency. One of the most common safety nets found in contracts are indemnities protecting against losses stemming from breaches. Indemnities, however, are far from infallible. For example, they do nothing to protect against an indemnitor’s insolvency. For that reason, it may be wise also to include a covenant to procure and maintain specific levels of insurance coverage—including contractual liability coverage—under policies expressly designating your company as an “insured” and likewise identifying specific contracts subject to the policies’ coverage.
Conclusion
If the Suez Canal incident has taught us anything, it is that anything can happen to disrupt a supply chain. The greatest source of strength for a business is its understanding of its unique requirements. As a business owner or risk manager, the responsibility falls on you to learn your business’s needs and to take nothing for granted. Only once you have attained a nuanced understanding of what your business needs to succeed can you make the best decisions about how to bolster your supply chains against risks, foreseeable and otherwise, using the tools available to you.
Andrew Van Osselaer, associate in the Austin office of Haynes and Boone, LLP, focuses his practice on the resolution of complex commercial disputes and regulatory investigations arising from clients’ commercial and industrial operations.
Wes Dutton is an associate in the Litigation Practice Group in the Dallas office of Haynes and Boone, LLP.
If you conduct a search for critical future workforce skills, words like “resilience,” “adaptability,” and “critical thinking” will undoubtedly appear pretty high in your results. Not so surprising, given the year we’ve collectively just endured and the level of uncertainty that doesn’t appear to be abating any time too soon.
Advancements in technology, robotics, and automation were quickly driving us toward significant workforce change and a need to upskill or reskill teams even before the global pandemic put more pressure on the gas. Now, many of those skills require nuanced approaches as we embrace more remote work, distributed teams and virtual connectivity – and terms like “liquid” are being used to describe the blurred lines in what the workforce of the future will look like.
The good news is that global mobility professionals are well equipped with the right blend of skills and knowledge to meet the changing needs. Because mobility sits at the intersection of talent acquisition and retention, compensation and benefits, tax and immigration, payroll and other HR functional areas, the role has become increasingly critical to business success.
Resilience
As 2020 clearly demonstrated, mobility requires agile practitioners who can guide the company as the workforce environment rapidly evolves, helping organizations respond immediately to emergencies, recover, and then reimagine business to stay relevant. Corporations have met the challenges imposed by COVID-19 in a variety of ways, encouraging flexibility when it comes to the employee base. We’re seeing far more attention paid to the personal situation of individual employees and a greater willingness to allow different approaches to achieving harmony between work and personal life.
While many relocations or cross-border assignments may still be on hold in the current environment, the surge in remote work has opened up talent pools, making it possible for companies to move jobs to people. GM teams have the big-picture view about what talent and skills are available, in what locations, and where there may be gaps that can be creatively filled.
Initiative
Mobility houses a level of expertise in many crucial areas, including tax and immigration, and can act as a hub of information on these subjects. This helps streamline processes and provides the organization with the tools and insights to make smart decisions with respect to employee work location requests as well as meeting company plans for growth. Knowing the actual work location of every employee adds complexity to the job while highlighting the need for full awareness of any potential consequences.
As one GM professional put it – many functions, including some of those in broader HR, operate in the more traditional, “black and white” space. Mobility professionals are problem-solvers and critical thinkers who are comfortable working in some of what might be called “gray” areas to find solutions. Greater levels of cross-collaboration and learning between mobility and other core functions of the business, including talent acquisition and reward, will help position organizations to be ready to meet future challenges and staffing needs.
DEI Support
Another benefit of a broader talent pool is that mobility can be a powerful tool to help foster greater diversity, equity and inclusion. We’re beginning to see a heightened focus on holistic skill sets as opposed to just one’s previous job positions or titles, which can open the door to building a more diverse global workforce. Mobility can be instrumental in executing a leadership talent plan that ensures cultural awareness is a top priority, too. International assignments can be strong talent acquisition and development tools, and help pave the way to success in a global marketplace.
Technical Expertise and Analysis
Mobility uses technology in multiple ways, including tracking and reporting on global employees, helping to manage program spend and finding ways to reduce costs, and speeding communication throughout the organization. As the tools and skillsets continue to evolve, predictive analytics will continue to play an important role in helping the business understand which individuals might be best suited for assignment success and why.
Mobility uses data to present a compelling story. Gaining greater comfort levels with statistics is critical as a more evidenced-based approach is becoming increasingly important when making business decisions and demonstrating the ROI of an assignment. While understanding the numbers is vital, integrating the human element to the discussion is a significant advantage mobility can provide to conversations about policy, process or procedures. Consistent administration and delivery of HR benefits to the employee population – including mobility – has been a guiding principle for corporations, and although the pandemic has altered this approach to some extent, it remains important to analyze decisions in terms of setting precedence while maintaining equity.
The critical skills needed for the future blend the technical, people, empathy and communication arenas, and talent mobility professionals bring a healthy mix of all of them to the table.
Leah Johnson is Sterling Lexicon’s Director, Client Solutions, and has worked in the global mobility industry for more than 20 years. She has held management positions in business development, operations, account management, and consulting, and had the opportunity to live and work in Tokyo and Hong Kong for six years. She initiated destination services in Hong Kong for a relocation management company and directed global mobility for Goldman Sachs in the APAC region. She graduated from Colgate University, earned an MBA from the University of Alabama in Huntsville, and maintains a Senior Certified Professional (SCP) certification from SHRM.
The Committee on Foreign Investment in the United States (CFIUS or the Committee) is an interagency government committee authorized to review, modify, and block foreign acquisitions of or investments in U.S. businesses that could adversely affect U.S. national security.
In 2020, new regulations went into effect that broadened the scope of foreign investment transactions subject to review by the Committee. Historically, CFIUS national security reviews were limited to transactions that could result in a foreign investor obtaining “control” of a U.S. business. However, the scope of transactions subject to potential CFIUS review has been expanded, and now includes certain non-controlling foreign investments in U.S. businesses involved in critical technologies, critical infrastructure, or sensitive personal data of U.S. citizens. In addition, CFIUS has instituted new mandatory filing requirements for specific types of foreign investment in U.S. critical technology companies.
It is now more important than ever for non-U.S. companies doing business with or investing in the U.S. to understand how their business can be impacted by the revised CFIUS regulations. If a non-U.S. company is considering buying or investing in a U.S. business, conducting an assessment of potential CFIUS risks and obligations must be included in the due diligence process. To assist with this assessment, below is an overview of CFIUS, as well as a breakdown of the key CFIUS regulatory changes implemented in 2020 that stand to impact your business.
Committee on Foreign Investment in the United States (CFIUS)
CFIUS is chaired by the U.S. Department of Treasury and has the authority to review any transaction by or with a foreign person which could result in control (or in certain non-controlling interests) of a U.S. business by a foreign person. This includes proposed or completed mergers, acquisitions, or takeovers by foreign governments, foreign entities, and those controlled by foreign governments and entities. When CFIUS has jurisdiction over a proposed transaction, parties can voluntarily notify the Committee of the transaction and its terms. CFIUS is authorized to commence reviews unilaterally, but it rarely uses this power.
Foreign investors often seek to file for CFIUS approval voluntarily because once a transaction is cleared by the Committee, it qualifies for a “safe harbor” and is generally considered cleared indefinitely, thereby eliminating CFIUS-related risks. On the other hand, if CFIUS does not clear a particular transaction prior to its closing, there is a chance that the Committee will unilaterally initiate an investigation and ultimately require divestiture of the foreign party, potentially even years after the transaction has closed.
If CFIUS determines that a covered transaction presents a national security risk, it has the authority to impose certain mitigating conditions before allowing the deal to proceed, and may also refer the transaction to the President, who has sole authority to block a proposed transaction or unwind a completed transaction. However, U.S. Presidents have rarely used their power to block transactions because CFIUS generally enters into mitigation agreements with the parties to high-risk transactions in order to alleviate any identified national security concerns.
If CFIUS opposes a foreign investment or acquisition, and mitigating measures cannot be implemented by the transacting parties, it is often the case that the foreign investor withdraws the deal prior to CFIUS escalating its recommendation to the President. While to date only five investments have ever been blocked by a President, numerous proposed transactions have been withdrawn by the parties involved to avoid the risk of having the transaction formally blocked.
CFIUS has become much more active in recent years, particularly under the Trump administration, where the Committee reviewed 697 transactions between 2017 and 2019. Recent high-profile examples include the following:
-In 2017, President Trump blocked the acquisition of Lattice Semiconductor Corp. by the Chinese investment firm Canyon Bridge Capital Partners due to national security and intellectual property concerns.
-In 2018, President Trump blocked the acquisition of U.S. telecommunications equipment company Qualcomm by the Singapore microchip maker Broadcom.
-In 2019, CFIUS raised concerns over Beijing Kunlun Company’s investment in Grindr LLC, an online dating site, over concerns of foreign access to personally identifiable information of U.S. citizens. The Chinese firm subsequently divested itself of Grindr.
-In 2020, President Trump announced plans to ban the popular social media platform TikTok based on its ownership by Chinese technology company ByteDance and its potential access to sensitive personal data of U.S. citizens. CFIUS and ByteDance are still in the process of negotiating the terms of prospective mitigating measures that would allow TikTok to continue its U.S. operations.
In recent years, there has been a push for CFIUS reform by government officials who viewed the process as inadequate to face modern geopolitical threats to U.S. businesses and technologies posed by foreign direct investments into U.S. companies – particularly from Chinese foreign investment. This led to the passing of the broad CFIUS reform legislation known as the Foreign Investment Risk Review Modernization Act (FIRRMA) in August 2018.
FIRRMA was designed to expand the scope of foreign investment reviews conducted by the Committee, and overhauled the CFIUS review process to more effectively address modern U.S. national security concerns. The revised CFIUS regulations provided for in FIRRMA formally took effect in February 2020.
Historically, CFIUS reviews have been based on voluntary notice submissions by parties to a covered transaction. Only transactions that involved foreign control and that raised national security concerns would be filed by the transacting parties with the Committee for approval. Under FIRRMA, the Committee now also has the authority to review non-controlling “covered investments” by a foreign person in a U.S. critical technology, critical infrastructure or sensitive personal data company. These “TID Businesses” (i.e., U.S. Technology, Infrastructure and Data companies) include companies that engage in one of the following activities:
-Produces, designs, tests, manufactures, fabricates or develops one or more critical technologies;
-Owns, operates, manufactures, supplies or services critical infrastructure; or
-Maintains or collects sensitive personal data (e.g., health or financial data) of U.S. citizens that may be exploited in a manner that threatens national security.
A “covered investment” includes circumstances where a foreign investor obtains:
-Access to material non-public technical information;
-Membership or observer rights on the board of directors or an equivalent governing body of the business or the right to nominate an individual to a position on that body; or
-Any involvement, other than through voting of shares, in substantive decision making regarding sensitive personal data of U.S. citizens, critical technologies, or critical infrastructure.
CFIUS has also instituted new mandatory filing requirements involving inbound investment in U.S. companies involved with “critical technology.” When FIRRMA was initially implemented, filings became mandatory for certain transactions involving U.S. critical technology businesses that were included among 27 specified industries identified by their North American Industry Classification System (NAICS) codes.
However, beginning in October 2020, CFIUS implemented a new rule tying the “critical technology” definition to U.S. export control regulations. Now, filing a declaration with CFIUS is mandatory for covered transactions involving a U.S. business that “produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies” where a “U.S. regulatory authorization” would be required for the export, re-export, or transfer of such critical technologies to the foreign investor. Accordingly, having a clear understanding of U.S. export control classification regimes and licensing requirements, including those promulgated under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), is now a significant component of any CFIUS analysis.
In addition, FIRRMA added mandatory filings requirements for certain types of foreign government investment. If a foreign government holds a “substantial interest” in a foreign investor that in turn obtains a “substantial interest” in a TID Business, a CFIUS filing is now mandatory. This filing requirement is triggered when a foreign government holds at least a 49% (direct or indirect) interest in the foreign investor, whereas a foreign person will obtain a “substantial interest” in a TID Business if it seeks to obtain at least a 25% (direct or indirect) interest. In such scenarios, the parties must file a mandatory declaration with CFIUS at least 30 days prior to the transaction’s closing.
Global Impact
In terms of global impact, U.S. businesses and foreign investors previously unfamiliar with the CFIUS filing process, or that were previously outside the jurisdiction for a covered transaction, will now have to analyze the potential implications of a mandatory or voluntary CFIUS filing when considering even passive forms of foreign investment. This includes businesses ranging from health care companies, telecommunications companies, technology start-ups, related infrastructure industries, venture capital funds, emerging technology companies and manufacturers, and any company that maintains or can access sensitive U.S. consumer personal or health data.
Robust due diligence on proposed foreign investments will be more important than ever to ensure compliance with any mandatory CFIUS requirements. This will result in cross-border deals becoming much more time-consuming processes that will require significant scrutiny and attention to detail when drafting contractual rights afforded to foreign investors. Importantly, this will also require increased “up-stream” due diligence on any proposed non-U.S. investor’s corporate structure and ultimate ownership.
The business decision that a potential non-U.S. investor will need to make regarding which type of filing (if any) should be made with CFIUS is based on factors such as the complexity of the transaction, the working relationship between the parties, the national security implications and risk-level of the U.S. business, the likelihood of a successful resolution with CFIUS, the economy of legal resources, the evolving definition of what constitutes a “national security concern,” and current CFIUS enforcement priorities.
