The internet has created unprecedented global business opportunities over the last decade or so, giving small companies the ability to compete with big players in countries all over the world. While this revolution is historic on every level, the world is now looking at possibly an even greater development: the breaking down of trade barriers between countries, even those that may have been inaccessible before.
The various Free Trade Agreements (FTAs) which have been established or are currently being considered open up new opportunities for suppliers to gain market share in economies that were previously not open or were strongly protected. Trade barriers like import duties and tariffs are being systematically eliminated by these FTAs, and that is a wonderful thing for businesses – as long as they understand the consequences and take the steps necessary to ensure compliance with the agreements. Take, for example, this case study: Australia Open For Business – Real Stories – AACO Beef.
Today we consider the effect of new trade agreements on global business and how auditing should be emphasised to stay competitive
Competition is a Two-Way Street
With the probable implementation of FTAs such as the Trans-Pacific Partnership (TPP) looming on the horizon, economies can no longer protect their local manufacturers and supply chain parties from unprecedented global competition. Under these agreements, a company will be able to provide their services or goods to formerly unavailable markets. At the same time, however, they will face increased competition on their home turf.
This double-edged sword will become a powerful weapon to those companies that can demonstrate that they have superior-quality products and services to compete with their new competition from more importers. Additionally, they will need to ensure that they are compliant with the terms of any FTA they wish to take advantage of, which can be administratively burdensome and may pose significant risk to supply chains and consumers without effective auditing processes already in place.
More Than Tariffs
The reduction and/or elimination of duties and tariffs between the countries involved in the various FTAs are a huge step in promoting competition and unleashing global productivity, but there has also been a push to increase supply chain efficiency by removing barriers. A 2013 report from the World Bank showed that reducing supply chain barriers, which by necessity would include easing compliance regulations, could increase global GDP by as much as six times as removing every import tariff.
While less regulation compliance may sound good on the surface to many businesses, the truth is that even without as many regulations to adhere to the smart businesses will continue to run a tight ship in this area to ensure quality, safety, and security standards for the good of their consumers. This has also led to many businesses attempting to better control, if not own, their entire supply chain from beginning to end.
More Compliance, Not Less
Early in 2015, trade analysts agreed that the “ultimate goal for shippers… is to maintain a reasonable threshold for risk and ensure strong compliance and a consistent supply chain.” These trade analysts advised shippers to keep a checklist in order to avoid possible issues, including:
- The development of documented policies and procedures such as an import manual and accompanying internal controls that demonstrate that the policies and procedures are being followed.
- The identification of and demonstration of action on all possible and realized risks.
- Continued monitoring and testing of internal controls by third party individuals and documentation of the results and any actions taken.
- Maintenance of internal import compliance personnel on a regular basis.
So while the move to free trade is indeed an important evolution for companies everywhere, the bottom line is that auditing and compliance will become more important than ever. The risk of poor auditing throughout the supply chain in the wake of the FTAs will be more than simply fines from a regulatory agency. In the face of unprecedented competition, it could mean obsolescence in the marketplace.
The strong will survive the new global economy, and the weak will die. In this situation, the strong can be defined as those with superior products and services for consumers, and an integral part of defining that superiority will come from strict and consistent auditing for compliance with set standards. Compliance Checkpoint can assist companies with this auditing process to build the required trust and confidence from consumers with simple and consistent auditing of their supply chains from end to end.
