Retail & Consumer

In the last decade, emerging markets have become critical to global retail and consumer goods companies seeking low-cost sources of goods and high-growth sources of revenue. What's more, in the last 18 months the recession has propelled increasing focus on markets like China and India, as the growth of CPG (consumer packaged goods) in some Western markets is anticipated to be sluggish if at all existent for the foreseeable future. Success in emerging markets requires not only a deep understanding of the consumer market, but also the appropriate organisational and supply chain structure to support a changing market-facing strategy.

There is no one-size-fits-all organisational or supply chain structure for Asia, and to some extent each market requires localisation. This is particularly true for how a retail company approaches its management of its customs and trade activities required to support dynamic supply chains. In Asia Pacific, our experience is that the best operating models for retailers, from a customs and trade perspective, successfully balance the following challenges:

Keeping import tax costs under control

  • Relatively high tariff rates;
  • High rates of other import taxes such as consumption tax or luxury goods tax , which may or may not be recoverable;
  • Targeting of related party luxury goods importers with perceived “deep pockets” by the authorities, especially on related party pricing and other intercompany payments.

Managing non-tariff barriers to trade

  • Licensing and labelling requirements are territory specific; regulations are often opaque and subject to change without notice;
  • Quality testing may be required by the local authorities and can cause delays to the supply chain;
  • Involvement of different government authorities in terms of supervision and monitoring leads to uncertainty and makes compliance harder to manage;

Efficient supply chain planning

  • Lead times are critical, particularly for the fashion industry; delays in customs clearance can be a showstopper for operational excellence;
  • Reliance on multiple 3rd party service providers opens up risks of non-compliance and disruption to the supply chain;
  • E-commerce offers improved market access but is often badly regulated difficult for customs clearance purposes

How we can help

WMS has extensive experience of working with retailers (and their 3PLs and service providers) across the region to structure their supply chains, on the one hand to meet local customs compliance requirements but also to maximise value.

Typical projects for our clients in this industry cover:

  • A review of end to end supply chain against industry benchmarked best practices and SOPs for customs and international trade management;
  • Free Trade Agreement (FTA) reviews to identify “quick wins” for duty costs and assessment of associated operational requirements;
  • Location selection for regional distribution hubs; Singapore and Hong Kong may not always be the most cost effective option!
  • Advice on the application of country specific non-tariff regulations, to minimise impact of tariff and non-tariff barriers to trade;
  • Territory by territory guidance on consumer protection and labelling requirements;
  • Assistance with managing import pricing adjustments and preparation of customs valuation defence documentation.

Case Study: Managing multiple import channels into Japan

In addition to sales to third party retailers, a sports apparel company was planning to sell products into Japan to and through its own stores, as well as through E-commerce. The company approached WMS for advice.

How we helped:

We discussed the details of the various product flows with the clients, focusing on fixed and variable components in the supply and invoicing chain. We highlighted the risks of comparable parallel imports at different values, as well as the quota restrictions on some of the products to be imported.

We subsequently designed different import models for the client to reduce duty costs and risks. Some of the pertinent aspects were:

  • Using a warehouse in Japan for call-off of E-commerce orders, allowing a lower import value to be declared and supported (different commercial level of transaction.
  • Maximized use of quota for sales to third parties, to allow more related party import flows open for customs duty planning.
  • Implementation of stricter document control processes to allow for imports that qualified for preferential duty treatment to be shipped through a hub in Hong Kong, just like all other products, without losing duty preferences.

Benefit for the client:

  • Lower duty costs
  • More efficient use of quotas and distribution hub
  • Stronger support documentation for customs valuation, reducing queries and challenges.

Optimising the supply chain for an export and import of footwear

Our client sourced footwear from China, Vietnam and India and used Hong Kong as hub to receive this footwear and redistribute it worldwide, including back to China.  The company did not utilise any FTA preferential treatment for its trade flow.

WMS analysed the “as-is” trade model and advised on a new supply chain model to reduce costs and enhance market access.

Benefit to the client:

  1. The analysis showed inefficiencies in the “as is” trade model;
  2. WMS proposed utilising a China non-bonded warehouse to eliminate the need for round-tripping through Hong Kong, thereby saving costs and improving lead times;
  3. WMS identified opportunities to apply lower tariff rates on import under various Free Trade Agreements and helped design processes to meet the requisite conditions to enjoy the preferential treatment.