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Management and Strategy News
Report: Reducing Supply Chain Barriers Could Increase Global GDP Up
to Six Times More Than Removing All Import Tariffs
23-January-2013
by Bain & Company
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New report finds that improvements in border
administration and transport & telecommunications infrastructure and
services could result in an up to 4.7% increase in global GDP, far
outweighing potential income gains from complete elimination of
import tariffs.
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Governments should take a holistic approach
that considers the entire supply chain, focusing on all policies
that impact supply chain efficiency to improve national
competitiveness.
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SME sector would witness increased trade
with solutions to specific constraints that disproportionately
affect smaller companies.
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The theme of the 43rd World Economic Forum
Annual Meeting is Resilient Dynamism. For more information, visit
http://wef.ch/Davos.
Read the report
Davos-Klosters, Switzerland, 23 January 2013 – Reducing supply
chain barriers could increase global GDP and world trade much more than
reducing all import tariffs, according to a new report released today by
the World Economic Forum in collaboration with Bain & Company and the
World Bank.
Enabling Trade: Valuing Growth Opportunities finds that if all
countries reduce supply chain barriers halfway to global best practice,
global GDP could increase by 4.7% and world trade by 14.5%, far
outweighing the benefits from the elimination of all import tariffs. In
comparison, completely eliminating tariffs could increase global GDP by
0.7% and world trade by 10.1%. Even a less ambitious set of reforms that
moves countries halfway to regional best practice could increase global
GDP by 2.6% and world trade by 9.4%. Economic gains from reducing supply
chain barriers are also more evenly distributed across countries than
the gains associated with tariff elimination. Regions that stand to
benefit in particular under these scenarios are sub-Saharan Africa and
South East Asia. Such large increases in GDP would be associated with
positive effects on unemployment, potentially adding millions of jobs to
the global workforce.
According to the report, lowering supply chain barriers is effective
because it eliminates resource waste and reduces costs to trading firms
and, by extension, lowers prices to consumers and businesses. Supply
chain barriers can result from inefficient customs and administrative
procedures, complex regulation and weaknesses in infrastructure
services, among many others. The supply chain is the network of
activities involved in producing and getting a product to consumers, and
spans the manufacturing process as well as transport and distribution
services.
Enabling Trade: Valuing Growth Opportunities was initiated by the
Forum’s Global Agenda Councils on Logistics & Supply Chains and Global
Trade & FDI. The report provides a wealth of information regarding how
policies can create unnecessary supply chain costs and inefficiencies
based on 18 case examples spanning multiple industries and regions. The
case examples highlight that clusters of policies jointly impact supply
chain performance; that a concerted approach is needed to cut across
different policy domains; that there may be specific tipping points that
need to be achieved for reductions in supply chain barriers to have a
significant impact on trade; and that small and medium enterprises (SMEs)
tend to face proportionally higher supply chain barriers and costs.
The report recommends that governments create a focal point to
coordinate and oversee all regulation that directly impacts supply
chains; that public-private partnerships be established to undertake
regular data collection, monitoring and analysis of factors affecting
supply chain performance; and that governments pursue a more holistic,
supply-chain-centred approach towards international trade negotiations
to ensure that trade agreements have greater relevance for international
business and do more to benefit consumers and households.
“The Forum’s Enabling Trade programme has endeavoured to highlight the
fundamental attributes that enable a country to facilitate trade,” said
Børge Brende, Managing Director, World Economic Forum. “Through a vivid
repository of case studies, which provide an on-the-ground view of
everyday barriers that companies face along trade lanes, this report
shows that removing barriers to supply chains can enhance economic
competitiveness and generate significant welfare benefits and jobs for
countries.”
“The case studies show that countries can lose their competitive
advantage in terms of factor costs, if the costs associated with their
supply chain barriers are high,” said Mark Gottfredson, Partner, Bain &
Company. “The lesson for companies is the importance of understanding
supply chain barriers and how the associated costs and delays can erode
other sourcing advantages. For example, a case study on the apparel
industry illustrates how delays at the border, inconsistent application
of regulations, and infrastructure issues completely offset significant
labour cost advantages for many countries.”
“Supply chain barriers are more significant impediments to trade than
import tariffs,” said Bernard Hoekman, Director of the World Bank’s
International Trade Department, who is also the Chair of the Forum’s
Global Agenda Council on Logistics & Supply Chains. “Lowering these
barriers will reduce costs for businesses, and help generate more jobs
and economic opportunities for people.”
Some examples from the 18 country and sector case studies in the report
include the following:
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In Brazil, managing customs paperwork for
exports of agricultural commodities can take 12 times longer than in
the European Union (a full day versus a couple of hours).
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Poor quality infrastructure services can
increase the input material costs of consumer goods by up to 200% in
certain African countries.
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In Madagascar, supply chain barriers can
account for about 4% of total revenues of a textile producer
(through higher freight costs and increased inventories), eroding
the benefits of duty-free access to export markets.
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Obtaining licenses and lack of coordination
among regulatory agencies in the US lead to delays in up to 30% of
chemical shipments for one company – each late shipment costs US$
60,000 per day.
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In Russia, product testing and licensing in the
computer sector can lead to high administrative costs and delay
time-to-market anywhere from 10 days to eight weeks.
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Local content requirements, rule-of-origin
restrictions and pilferage at the border, can increase costs by 6-9%
of consumer technology products in the Middle East and North Africa.
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Eliminating supply chain barriers in the South
East Asian rubber market could reduce carried inventories by 90
days, representing a 10% reduction in product cost.
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India’s Preferential Market Access regulation,
which provides preference for locally produced high-tech products in
government procurement, could increase costs by 10%, over the cost
of imports.
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Adopting electronic documentation for the air
cargo industry could yield US$ 12 billion in annual savings and
prevent 70-80% of paperwork-related delays.
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Easing regulatory compliance of international
trade that SMEs face when selling through the Internet could
increase cross-border SME sales by 60-80%.
The Co-Chairs of Annual Meeting 2013 are: Frederico Curado, President
and Chief Executive Officer, EMBRAER, Brazil; Muhtar A. Kent, Chairman
of the Board and Chief Executive Officer, The Coca-Cola Company, USA;
Huguette Labelle, Chair, Transparency International, Germany; Global
Agenda Council on Responsible Mineral Resources Management; Andrew N.
Liveris, Chairman and Chief Executive Officer, The Dow Chemical Company,
USA; Atsutoshi Nishida, Chairman of the Board, Toshiba Corporation,
Japan; and Axel A. Weber, Chairman of the Board of Directors, UBS,
Switzerland.
This press release originally appeared on the
Bain & Company Website
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