Tiered Suppliers help driveExporters and Importers

International Business NewsOctober 2016

In this issue: Tiered Suppliers | Country Profile – Dominican Republic | New DEC Chair

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2 Held & Associates

3 Letter from Publisher

4-5 Tiered Suppliers

6 Tiered Suppliers cont’d / Transimpex

7 Greater Kansas City Foreign Trade Zone

8 Rebori / MarksNelson

9 Country Profile: Dominican Republic

10 Dominican Republic cont’d

11 Dominican cont’d / Womens Executive

12 InterMark3

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That’s the easiest way we have of describing our feature article this month. It works in tiers as touted in the concept of the Global Value Chain (GVC). It begins with a Tier 3 supplier - manufacturing the part that goes to Tier 2. The Tier 2 supplier may aggregate parts from several sources before moving them up the chain to a Tier 1 supplier for final assembly before shipping it to the appropriate OEM.

The examples we describe in our cover story drives the automobile industry. And, the chart on Pg. 4 depicts the movement up the tiered chain. Each supplier is an indirect exporter for the finished automobile which itself may be directly exported.

Additionally, the tiered suppliers such as Accu-Mold are themselves direct exporters, shipping parts to countries throughout the world.

The key to all of this is value. By aggregating parts with some assembly, it makes it more economical for the OEM to manufacture its final product – in this case an automobile.

Added to the value statement, if one or more of the tiered suppliers imports parts destined for assembly, they can save more money by importing directly to a Free Trade Zone, where duties are not assessed until a completed component rolls out. At that point the duty rate is often lower.

They key here is offering parts that can be used in various industries. For example, if manufacturing a specialized screw for an automotive component, that screw may also be used in the aeronautical industry as well. This practice generates savings all the way along the GVC.

OEMs embrace this approach, making their automobiles more exportable in the long run.

A cog in the wheel

page 3 October 2016

Because some of these vehicles are exported, they are classified as direct exporters. The fol-lowing are Heartland manufacturers which directly or indirectly supply the automotive manufacturers.

Third tier supplierAccu-Mold in Ankeny, Iowa is a good example of a third-tier supplier for the automotive in-dustry. For 17 years Accu-Mold produced parts for power steering assemblies and pressure control valves. The high quality and precisely made parts are plastic molded and provided with a metal coating to meet the exact speci-fications set by their customers – second tier suppliers.

Because the same part may be used by the aerospace industry, Accu-Mold saves money and time, and its customers benefit via faster deliveries.

Tiered suppliers help exporters and importers save money and increase sales

Automotive vehicle manufacturers are served by many manufacturers and assemblers. These tiered suppliers manufacture parts that work their way up to automotive OEMs as depicted in this chart.

Accu-Mold Automotive Power Steering Position Sensor Hous-ing (PPA) in acrylic. The metal and plastic is inserted in the PPA

and is part of the assembly.

The Accu-Mold small part goes to a second-tier manufacturer that sources parts it needs to as-semble an electronic device that moves along to a first-tier supplier. This supplier may also source parts from either domestic or foreign manufacturers, al-lowing the power steering assembler to save money and time, which is passed along to the ultimate end-user, or OEM.

Accu-Mold small parts are slightly larger than micro molded parts: from a half inch to about 3 1/2 inch-es (9 cm) in diameter and made from a one-ounce shot of material. They require the same degree of precision and quality during production. Many have micron tolerances, and they can have micro-sized features measured in microns. The smallest parts can be the most crucial when it comes to vehicle re-liability.

In this particular scenario, Accu-Mold is an indi-rect exporter. They are also direct exporters. In fact, “Some 70 percent of their micro parts are shipped to countries throughout the world, including China, Mexico, Canada, some Central American countries and the EU, among others,” said Aaron Johnson, Ac-cu-Mold VP of Marketing & Customer Strategy.

Second tier supplierNN Inc., in Wellington Ohio can be classified as a next step-up automotive supplier, or 2nd tier sup-plier. Let’s say if NN were to request Accu-Mold mi-cro parts, NN could possibly use them in the manu-facture of highly engineered precision components, such as bearing components for the power steering systems used in automobiles.

NN, provides the highly engineered precision com-ponents that are key to keeping vehicles on the road. The bearing components, fuel and steering system components, precision plastic components, and sealing solutions manufactured by NN help make vehicles start easier, ride smoother, stop faster and last longer.

Their power steering components are a critical addi-tion to the tiered supply chain before it reaches the automotive OEM.

First tier supplier

ARi based in East Peoria, Illinois, is a prominent provider of integrated engineering solutions and a market leader in engine and powertrain testing. It can also be classified as a first tier supplier. ARi has partnered with top OEMs in Off Highway, as well as some of today’s industry leaders in automotive, aerospace and industrial manufacturing.

To continue the automotive industry example, ARi designs and manufactures auto components such as the electronic control unit (ECU). This is the box under the hood- the brain - that controls auto func-tions. ARi gets its components from an OEM-ap-proved supplier, such as Bosch. ARi incorporates the hardware components and builds the ECU with its proprietary software for delivery to the auto OEM.

Each of these tiered suppliers are indirect exporters, enabling the auto OEMs to directly export their ve-hicles and increase sales.

page 5 October 2016

As automaker OEMs continue their march towards developing fully au-tomated assembly, ARI’s integrated engineering services and solutions, replete with third and second tier suppliers, enables the auto OEM with the needed efficiently to keep a lid on its costs and deliver the quality needed to help it compete in the industry.

IBN

Foreign Trade ZonesA Foreign Trade Zone is an attractive option for any tiered supplier.

According to Al Figuly, Presi-dent and CEO of the Greater Kansas City Foreign Trade Zone, “By bring-ing foreign

parts into our FTZ, a company pays no duty until the parts leave the Zone. If a part is damaged and will possibly pay less duty if the part is combined with domestic-made parts in the assembly process.”

This is an example of the overall Global Value Chain (GVC) of tech-nically-driven logistics that is cap-turing the attention of worldwide manufacturers and assemblers.

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Suppliers of Foreign-Sourced Products/Components to OEM’s Should Consolidate Shipments in Kansas City Free Trade Zones.Purchase your foreign-sourced goods FOB Kansas City “duties unpaid”. Ship them “in-bond” to your shipper’s Foreign Trade Zone warehouse. If there is sorting, cleaning, repackaging or assembly to be done, do it there! Pay the duty when it leaves the warehouse and “Entered” into U.S. commerce.… perhaps a lower duty rate! Your Entries can be consolidated on a weekly basis and filed as one entry. If your merchandise is being ex-ported, you pay no US Customs duties at all! Save some money & be competitive!The logistics of this global value chain combined with “duty-free” & “reduced MPF fee” benefits of the centrally located Greater Kansas City Free Trade Zone (GKCFTZ), will save you money on the real cost of your foreign-sourced products, and the final components that are Entered (if assembly or kitting changes its duty classifica-tion), as well as supply chain costs (value-base costs for bonding, insurance, and fees) and the expenses you incur to drawback duties on exported goods.

• Import parts for assembly to an FTZ and only pay duty when moving from the FTZ.• Duties for assembled or finished products combining domestic and foreign parts are much lower when work is done in the FTZ.• Pay no duties of foreign parts that are damaged or scrapped.

Save Money on Foreign Sourced products and lower your supply chain costs

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• Consolidated Entries into one per week and reduce Customs MPF fees.• Eliminate duty drawback on exports by not paying it upon Entry.

Talk to your shippers and logistics service provider and let them know you want to save money and expedite your shipments. Find out how the GKCFTZ can help your company speed product movement and save you money. Call Al Figuly at 816.474.2227 or email alfiguly@gkcftz.com

Robert J. Rebori was elected Chair, Mid-America District Export Council (MADEC) in September. As Chair, Mr. Rebori will lead the MADEC.

District Export Councils (DECs) are volunteer councils of leaders from the local business community, appointed by successive Secretaries of Commerce. DEC members’ knowledge of international business provides a source of professional advice for local firms. Currently the MADEC has 28 members representing the entire state of Kansas and 16 counties in the Northwest Missouri.

Mr. Rebori, President of Bio-Microbics, Inc., Scienco/FAST and SeptiTech – both subsidiaries of Bio-Microbics, Inc. - focuses on innovative water, wastewater, and storm water treatment products for the Onsite, Marine, and Offshore Industries with a presence in food, dairy and agriculture as well. Bio-Microbics exports its products to more than 60 countries.

In addition, Bio-Microbics has acquired the Recover® Greywater Treatment System. Developed by Canplas Ind. LTD. Canada, under the original project name of “Next Big Thing” (NBT) to focus on a new area of the business and interest in sustainable development with regard to greywater recycling. The Recover System joins Bio-Microbics’ line and product offering for complete onsite water treatment.

Mid America District Export Council Announces New Chair

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October 2016page 8

A FEW BASIC TIPS FOR DOING BUSINESS IN THE DOMINICAN REPUBLICBy James M Malouff III, email jmm@malouff.us

• Relationships develop over time and establishing trust is important.• Dominicans can be direct and are not afraid to say what they feel.• There are few market access issues.• Generally the most efficient way to conduct business is through an agent or distributor, but it is not an abso-lute necessity. Business can be done direct. However, all contracts and agreements should be reviewed with local legal counsel to assure payment and termination in the event of non-performance.• It is important that business colleagues are treated with respect and not do anything that causes them loss of face.• Be careful with facial expressions and bodily move-ments. Gestures are context sensitive and do not al-ways translate well between cultures. • Appropriate business attire is required. Dress conser-vatively but well. Appearance matters.• Have one side of business cards in English and the other in Spanish. Present with the Spanish side up. When receiving a business card, place it in a card case to show respect to the person who presented it to you.• Have all written materials in Spanish and English.

• It is best to make appointments 2-3 weeks in advance.• The DR is predominately a Roman Catholic country. • Avoid setting a meeting date on national holidays. Some religious holidays are also national holidays. Ar-rive on time for meetings. Dominicans are generally punctual.• Avoid high pressure sales tactics.• When changing money at the airport, use the bank kiosks. They have the best rates versus other airport exchanges. • Change money at banks rather that at hotels or street exchange shops.

DOMINICAN REPUBLIC OVERVIEW

• Christopher Columbus landed on the island in 1492 and called it “Hispaniola;” which is now composed of two countries; the Dominican Republic and Haiti. • Traditional founding date of the Dominican Republic is 1821.• Capital City: Santo Domingo.• Santo Domingo, established in 1498, is the oldest continuously inhabited city and the first permanent Eu-ropean settlement in the New World.• Santo Domingo is also the site of the first cathedral, castle, monastery, and fortress built in all of the Ameri-cas. • Population: (2016) 10,672 million.• Size: 18,705 square miles. By area and population is

PROFILE: DOMINICAN REPUBLIC

page 9 October 2016

Dominican Republic, continued from page 9The DR is the most visited destination in the Caribbean. Its year-round golf courses, geographical and bio diver-sity and its beaches are the main attractions.

INTERNATIONAL TRADE

Major exports: gold, ferronickel, electrical equipment, medical devices, plastics, scrap metal, sugar, bananas, beverages, jewelry, clothing, leather, footwear, and qual-ity cigars.

Major imports: equipment and machinery (various), vehicles, vehicle parts and services, building products, fuel, services, chemicals, pharmaceuticals, foodstuffs, cotton, and consumer goods.

Major trading partners:*Exports: United States, Canada, Haiti, Switzerland, and China.

Imports: United States, China, Mexico, Venezuela, and Trinidad and Tobago.

Note: The US is the Dominican Republic’s number 1 trading partner.

Exports to the US – $4.1 billion (2015)

Imports from the US – $7.1 billon (2015)

MARKET OPPORTUNITIES

NoteworthyThe US and the Dominican Republic are signatories to the Dominican Republic and Central American Free Trade Agreement (CAFTA-DR), which eliminates tar-iffs and other trade barriers and increases market ac-cess for manufacturers and service providers.

The Dominican Republic is located in close geograph-ical proximity to the US With its multiple international airports and multiple harbors, it allows for easy ac-cess and reduced shipping costs. The close proximity additionally aids in maintaining personal contact with customers. The buying patterns of many Domini-cans mimic those in the U. S.

Foreign investment: The government encourages foreign investment. US Foreign Direct Investment (FDI) – U. S. FDI in Dominican Republic (stock) was $1.2 bil-lion in 2014 (latest data available), a 3.5% increase from 2013. US direct investment in Dominican Republic is led by manufacturing, information, and wholesale trade

the second largest country in the Caribbean after Cuba.• Bordering country: Haiti.• The Dominican Republic is slightly twice the size of New Hampshire.• Government: Representative Democracy.• Independence Day: 27 February.• Currency: Dominican Peso (1 US Dollar = approxi-mately 45.76 DR Pesos).• Religion: 95% Roman Catholic, 5% other.• Literacy rate: 96%.• Official language: Dominican Spanish. English is spoken at major hotels, tourist areas, and by some who have business interactions.• Largest urban areas: Santo Domingo-2.25 million; Santiago de los caballeros- 1.7 million; Santo Domingo Oeste-701,000.• Climate: Tropical climate with little seasonal variation. Avg temperature 78.8 degrees. • American television shows and other media are widely available and popular.• Consumer attitudes and many brand preferences are similar to those in the US.

Noteworthy:The United States is the main political, social and eco-nomic partner of the Dominican Republic. The reality of being geographically so close to the world’s largest economy and having a large community (Diaspora) in the country, which is estimated at more than a million people, are important factors that give the Dominican Republic a comparative advantage over some other nations.

ECONOMY

The DR has the ninth largest economy in Latin America and is the largest economy in the Caribbean and Central American region.

The DR is one of the fastest growing economies in the Americas i.e.: GDP growth in 2014 and 2015 reached 7.3 and 7.0% respectively. Growth during the first quarter of 2016 was 6.1%.

Natural resources: nickel, bauxite, gold, silver, and ar-able land.

Major industries: services, agriculture, mining, metal refining, textiles, cement, tobacco, electrical compo-nents, medical devices, and tourism.

October 2016page 10

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The Industrial Free Zones program began in 1969, attracting foreign direct investment projects to the country during the last 45 years. The Dominican Republic has one of the most dynamic and successful industrial free zone programs in the Americas.

Sales opportunities for US companies:*

The continued growth of the economy pro-vides opportunities for US companies in a number of manufactured goods, commodi-ties, technology, and consumer goods cat-egories including:

Information technology Minerals and fuel Chemicals and Pharmaceuticals Machinery & equipment of various kinds Building products Vehicles and partsFood stuffsAgricultural products Renewable Energy

Import opportunities:

US importers can also take advantage of the CAFTA-DR Treaty in the importation of products and materials produced in the Dominican Republic.

*For additional sales opportunities email info@intermark3.com or call816.616.7779.

Sea Cliff on Caribbean coast near El Quemaíto, Barahona Province, Dominican Republic

International Business News

page 11 October 2016

See our credentials at www.intermark3.com. Email today for a no-cost interview.fbaehner@interrmark3.com, or Tel 816.616-7779

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