The current state of the global economy is growing more complex and cutthroat, as indicated by various news sources. As a result, businesses must evolve in order to flourish amidst this era of worldwide rivalry. A vital element for survival involves devising tactics that foster understanding of tariffs while also mitigating their repercussions. Join us for a concise exploration lasting just five minutes into the essential strategies and principles that prosperous international companies implement to adeptly navigate the obstacles posed by tariffs.
1. The basic concept of tariffs
Minimizing the burden of tariffs is essential as one of the strategies to strengthen the competitiveness of companies. As we briefly looked at in the previous article, tariffs are taxes on goods in cross-border trade. Companies should analyze in detail the tariff rates, tariff imposition methods, and tariff application regulations for the goods to accurately understand the country's tariff system subject to import and export of the goods. In addition, it is important to continuously analyze the causes of tariff changes and their influence, such as responding quickly to changes in the international situation.
2. companies' tariff strategies
In today's business landscape, companies can no longer rely solely on affordability, product range, and effective marketing strategies to survive. With the global economy becoming more intense and intricate, businesses must also prioritize developing tactics to minimize tariff expenses. This is crucial in order to generate substantial profits for future growth. These strategic approaches towards tariffs significantly contribute to enhancing a company's competitiveness and ensuring success in the international market.
1) companies' strategies to minimize the tariff burden
Companies can diversify their product lines to distribute tariff burdens. Tariff burdens can be minimized for each country through selective multinational production and various variations of products depending on whether or not a free trade agreement is signed with the exporting country and the contents of the treaty. And, by reducing production costs, the tariff burden can be eased. Most tariffs are imposed in a way that is proportional to the price of the goods. Therefore, reducing production methods and costs through an efficient logistics production network can increase product competitiveness and reduce the burden of tariffs. To go into more detail, see below.
(1) Diversification of raw material sources
Companies can distribute potential tariff burdens by trading with various countries without relying on a single supplier in procuring raw materials for their products. In addition, domestic and overseas production can be harmoniously combined to reduce costs and ease the burden of tariffs.
(2) Advancements in Manufacturing Processes
Organizations have the opportunity to innovate their manufacturing procedures, thereby enhancing production efficiency. This can be achieved by expanding production capacity or optimizing processes to enhance performance and decrease production costs.
(3) Aligning Localization and Multinational Production
Companies can synchronize the localization and internationalization of product manufacturing lines to develop effective tariff strategies. By establishing production facilities near the primary target market of a product, organizations can minimize reliance on distribution networks, leading to cost and tariff optimization. Considering regional regulations and tariff benefits allows for more efficient coordination of production proportions by region, resulting in improved production strategies.
(4) Collaboration with customs experts
Companies must collaborate with experts from each country to establish a precise tariff strategy. It is very important to establish and finalize strategies for tariffs and comply with customs application regulations through the advice of customs experts specialized in each country. In addition, we must continue to work with local experts to monitor and respond quickly to changes in customs-related laws and regulations.
2) Enterprises' Entry into the International Market and Tariff Strategies
(1) Utilization of Customs Agreements and Trade Cooperation
Companies can actively utilize customs agreements and trade cooperation signed with countries of interest to benefit from tariffs. Furthermore, we can use the support and cooperation provided by international trade organizations to ease the tariff burden.
(2) Preparing to respond to a customs investigation
Companies should establish a tariff strategy in preparation for a control investigation. Customs investigations can not only add to the tariffs imposed on companies, but can also cause various disadvantages in the import and export process. In Canada, for example, Article 40(3) of the Customs Act requires a six-year record keeping of commercial exports, and accumulated fines are imposed under the Administrative Monetary Penalty System (AMPS) for failure to provide documents for audit, proof, or investigation. Therefore, companies should anticipate the possibility of tariff investigations in advance and prepare prepared countermeasures. This can be prepared by working closely with customs experts, keeping documented data and relevant evidence for a period of time under each country's customs laws, and accurate and transparent transaction records.
(3) Differentiated Regional Market Research
Companies must conduct regional differentiation and market research when entering international markets. You can analyze tariff policies and regulations in different countries and regions, identify the competitiveness of corporate products in specific regions, and optimize tariff strategies based on them.
(4) Localization of products and establishing local partnerships
Success in the international market requires understanding the characteristics and needs of local consumers, which are key target markets, and localizing products or services accordingly. They can also work closely with local partners to take advantage of regional advantages and ease tariff burdens. Local partners can also provide regional-specific tariff and trade-related information to multinationals to help them comply with relevant regulations and avoid unnecessary conflicts with their customs offices.
3. Identifying ongoing tariff trends in companies
Tariffs fluctuate constantly as each country's policies and regulations change. That is why it is very important for companies to keep an eye on tariff trends and modify their strategies accordingly. For sustainable growth and dominance, companies must establish systems that respond sensitively to changes in tariff policy and collect and analyze relevant information.
As discussed above, multinational companies must quickly analyze and accurately follow each government's rapidly changing tariff policies in line with various international trends. Through this, disadvantages caused by violations should be avoided, and furthermore, local tariff policies should be actively utilized to minimize the burden of tariffs on companies. In order to operate successfully in a modern world where the international market is growing, we need to gain a competitive advantage in the international market through our insight into tariffs.