The new trade era unleashes a flood of strategic questions for the C-Suite

February 7, 2019

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By Rajiv Jetli and Sebastian de Meel

As the contours of global trade shift around new pacts and policies — including the newly forged U.S.-Mexico-Canada Agreement (USMCA), US-China tariffs, and the on-going Transpacific Partnership — top executives are beset by a growing list of questions about how they’ll respond. Indeed, the calculus of cross-border trade and its effects on margins, pricing and competitiveness is a fast-moving target.  And, while trade agreements have always impacted business operations and growth strategies, the pace of change and the breadth and complexity of these new trade rules certainly makes it feel as if a new trade era is upon us. Indeed, three quarters of U.S. importers say that trade policy changes are the top challenge they face.

While C-suite leaders across most industries are affected in this new trade climate, industrial manufacturers with global operations and supply chains face potentially heavy exposure, as we discussed in a November blog post. From raw materials to finished components and electronics, manufacturers are looking not only at the supply chain implications, but also on other impacts on their business as prices and even availability of certain products may change unpredictably.

The auto industry, which is particularly exposed to global trade turmoil because of its global supply chains and manufacturing bases, provides an informative example. A recent survey showed that 63% of automotive executives believe USMCA will increase production costs, and 78% said finding North American suppliers (to meet the pact’s country of origin requirements) is a top priority.

This isn’t just a challenge for CEOs. Rather, it’s an all-hands-on-deck situation that requires the attention of marketing, procurement and finance chiefs, business unit leaders and more.

Some big trade questions for the C-suite

Of course, there are myriad questions facing the C-suite – and just as many possible answers. Below we share a few top-priority questions leaders in most industrial manufacturing companies should be asking themselves and their teams. They are grouped, generally, by function, yet it is important to note that any given issue could and should be addressed collaboratively across the C-suite.

CHIEF EXECUTIVE OFFICER

  • What mix of risk and opportunity does the shifting trade landscape present?
  • How does this change my competitive landscape? Are there new opportunities I should be taking advantage of?
  • Should we pass on increased costs to customers, or just absorb them?
  • Do I need to rethink my M&A strategy? Do I need to rethink my product development strategy?
  •  Should we consider working with other industry players to define solutions for industry?

CHIEF FINANCIAL OFFICER

  • What is the level of margin erosion and associated financial impact?
  • Are there any additional controls I need to implement?
  • How will trade policy changes affect our cash position and investment strategies?
  • How is our tax structure impacted, and how can we mitigate those impacts?

CHIEF OPERATING OFFICER

  • How do I align the supply chain to minimize tariffs?
  • Are there unforeseen supply chain risks based on tariffs?
  • How will our processes change to be compliant (i.e., elimination of tracing list, communications procurement, customs, monitoring solutions)?
  • Do we have the right trade solution technology in place to facilitate new compliance rules?

CHIEF PROCUREMENT OFFICER

  • How do I build flexibility into my vendor base?
  • Can our existing vendors and suppliers meet cost reduction targets?
  • Should I rethink my global sourcing strategy for specific categories?

CHIEF MARKETING OFFICER

  • How do we pass long any price increases without hurting demand?
  • Which customer/product segments are more price elastic than others?
  • Does the profitability by customer change? How do we manage?

BUSINESS UNIT LEADERS

  • With pressure on cost base, are there new ways to manage data or automate which will give back some of the margin erosion?
  • Are there technology solutions to implement to adhere and monitor sourcing and requirements?
  • How does my workforce composition need to change?
  • How will our individual operations and business units be impacted?

Answering these questions is just the beginning. Determining how best to act on those answers in a meaningful and timely way, against a tumultuous trade policy backdrop, is the ultimate challenge for members of the C-suite.

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