GLOBAL SOURCINGOne of the biggest trends in business today is global sourcing. In 2001, theUnited States alone sourced over $1.3 trillion in goods to low-cost suppliersaround the globe. Of course, the biggest reason for global sourcing is the costsavings; which can be significant. Most companies report an average savings ofup to 30% when they begin global sourcing (also known as offshoring). Despitethis savings, however, many pitfalls can prevent these cost-consciouscompanies from finding the success with overseas suppliers that they hadplanned for.

The biggest pitfall that many companies have found during offshoring is thatthose initial savings don't always equal total savings in the long run. Forexample, it may cost less to produce the goods in China, but when the costs ofshipping the raw materials, dealing with government taxes and tariffs, andbringing the finished products back to the home company, the actual cost ofproduction may actually be higher. Also, some companies have found out thehard way that they often get exactly what they pay for. Cheap labor in othercountries can spell lower productivity, poorer quality, and more defectivegoods, which further increase the overall costs of production.

Many of these companies have fallen into these traps simply because they onlylooked at the cost factor instead of realizing that global sourcing is onlyeffective when it involves a total evaluation of all factors. These other factorsinclude the costs of the materials, of the transportation, of the inventorycarrying costs, of the tariffs and taxes, of the operational performance, and ofthe operational risks. Only when all of these factors are taken into considerationcan a clear picture about the effectiveness of global sourcing be predicted.

Additionally, companies sometimes fail to realize the importance culturaldifferences can play in the success or failure of an offshoring venture. Mostwestern business individuals simply do not have significant knowledge of othercultures to effectively work with them. If these business people fail to realizethis problem beforehand, they can doom the partnership before it ever gets offthe ground. For example, do not tend to believe women should be involved inbusiness. If a U. S. company looking to outsource some of their projects in thatcountry sent a top female executive to conduct the negotiations, this companymight be making a major error in judgment. In order to work in differentcountries, western companies must be willing to train their employees to workwith different cultures and understand how these paradigms play out inbusiness relationships.

Another aspect of the global sourcing process involves being knowledge aboutchanges in trade regulations and costs in other countries. For this reason,individuals involved in global sourcing need to be extremely familiar with boththe Harmonized System Code and the International Commerce Terms. TheHarmonized System (HS) Codes are six to ten digit numbers that represent

The Importance of Harmonized Code to International TradeProfessionalsIf you are in the business of importing and/or exporting, you must perform an HS code search from time to timeto determine what the harmonized number is for goods and raw materials that you may be shipping in and out ofyour country to and from other countries. Each product or substance crossing international borders has its ownHS tariff classification number, which is part of the Harmonized Commodity Description and Coding System, aninternational standard for reporting goods to customs and other governmental agencies. The Harmonized Code isa classification system of numbers and words that is used by more than 200 countries, customs and economicunions around the world, affecting nearly 100 percent of global trade. It is a complex, often confusing, yetnecessary system.

The Harmonized code was created by the Brussels-based World Customs Organization, or WCO, which is stillresponsible for administering and maintaining the system. Each HS tariff classification number contains six digitsat the beginning that are used universally, and various countries can add more digits to the number dependingon their own tariff and statistical needs. The resulting codes may be eight, 10 or 12 digits long. These numericalcodes are used for each and every commodity that crosses an international border and is declared to customs,making it easier to calculate and assess duties and taxes, determine import and export admissibility, assessrisks and other tasks.

If you are in the business of international trade, either at the commercial level or the governmental level, it isimportant to understand these international codes. Government officials and staff must be able to perform aquick HS code search to assess customs duties, enforce domestic regulations, perform risk assessment andcollect trade statistics. Business professionals must also be able to find the correct codes to determine the landedcost of imported goods and materials, identify international selling and sourcing opportunities and bring togetherprocurement and compliance along the supply chain.

The Harmonized code may be complex, but without it there would be no standardized system to classify goodsand materials in global trade. It is an important system for anyone in the trade business to understand

The Role of the HS code in Global Importing AndExporting

different trade regulations and tariffs around the globe. Hundreds of these codesexist and appropriate codes must be applied to any goods that need to cross anyborder. The International Commerce Terms (Incoterms) are a collection of 13standards that dictate the rules and responsibilities of buyers and sellersresponsible for goods that are being transported across borders. Whenbusinesses attempt to do business overseas without a thorough understanding ofthe HS Codes or the Incoterms, those situations might become somewhatproblematic.

Overall, global sourcing is not as simple as just moving production from theUnited States or other higher-cost country to a lower-cost country like China orIndia. While companies can save money through offshoring activities, theymust also take the time to evaluate the big picture that includes multiple factorssuch as shipping costs, tariffs, and potential risks. They must also be willing todo their homework on other cultures and to expand their knowledge to includethe HS codes, Incoterms, and other regulations so that they can carry out theiroffshore operations smoothly and cost-effectively.

There are many things you must understand if you are going to be involved in globaltrade management, and many complex systems that you must be well versed with. TheHS code system is one key to global trade, which is used by governments to assesscustoms duties, enforce domestic regulations, perform risk assessment and collect tradestatistics

There are many things you must understand if you are going to be involved in globaltrade management, and many complex systems that you must be well versed with. TheHS code system is one key to global trade, which is used by governments to assesscustoms duties, enforce domestic regulations, perform risk assessment and collecttrade statistics. Companies also use the code to determine the landed cost of importedgoods and materials so they can identify selling and sourcing opportunities abroad andbring elements of procurement and compliance together in the supply chain.

In order to understand the HS code, it is a good idea to learn a little bit about itshistory. The HS, or Harmonized Commodity Description and Coding System of tariffnomenclature, is an internationally standardized system of names and numbers that isused to classify traded products. It was developed by the World Customs Organization,also known as the WCO for short, which is still responsible for maintaining thecode. The organization has been integral to global trade management for many years,and was formerly called the Customs Co-operation Council. It is an independentintergovernmental organization based in Brussels, Belgium with more than 170 countriesas members.

Companies can determine the landed cost of raw materials, semi-finished and finishedgoods, consisting of the total cost of purchasing, transporting, warehousing anddistributing, using this code. Government organizations can determine customs duties,enforce domestic regulations, perform risk assessments and collect statistics using thistrade-related numbering system. The digits in the code consist of a four-digit heading,which is part of a six-digit subheading, which cannot be changed. Individual countriesmay extend the HS number to eight or ten digits for customs or export purposes, however.

The HS code is used for many things. It is used as a basis for customs tariffs, transporttariffs and statistics, the collection of internal taxes, the collection of international tradestatistics, trade negotiations such as the World Trade Organization schedules of tariffconcessions, rules of origin, the monitoring of controlled goods including wastes,narcotics, chemical weapons, ozone layer depleting substances and endangered speciesand Areas of Customs controls and procedures such as risk assessment, informationtechnology and compliance. Although many people don't even know it exists, it is acrucial part of the global market as we know it today.

HS Code and Other Aspects of Global TradeThings like the HS code and all the associated costs are not necessarily the first thingsthat come to mind when people think about global trade, but they are integral to theprocess of any import and export of goods and materials. If you are involved with

global trade management, you must understand the Harmonized Commodity Descriptionand Coding System (HS) of tariff nomenclature, a globally standardized system of namesand numbers to classify traded products which was developed and maintained by theWorld Customs Organization, a Brussels-based independent intergovernmentalorganization with more than 170 member countries. You must also understand thelanded cost of any raw materials, semi-finished and finished goods, including the totalcost of purchasing, transporting, warehousing and distributing.

The average person probably doesn’t know the HS code exists, but chances are thatproducts throughout their home and office were classified by this coding system beforemaking their way down the supply chain to their local store. The HS is a six-digitnomenclature consisting of four digits known as the heading, followed by asubheading. The 170 member countries that use this coding system cannot alter theheading or subheading in any way, which keeps the numbering system harmonized.

There are more than 200 countries, customs and economic unions in total that use the HSfor a number of activities related to global trade management. They can use it todetermine the landed cost and as a basis for customs tariffs, collection of internationaltrade statistics rules of origin, collection of internal taxes, trade negotiations, transporttariffs and statistics, monitoring of controlled goods and areas of customs controls andprocedures including risk assessment, information technology and compliance. Thecodes have changed a bit over the years, though , so it is important to be sure that thedefinition set being used for the goods or materials in question is correct for the currentsystem.

Understanding all the codes and performance measures used to determine global tradefactors and examine the efficiency of an organization’s logistics is an integral part ofmanaging an international commodity-based business.