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What is trade compliance?
In the supply chain and logistics industry, “trade compliance” usually refers to the governance processes that cover HS classification, export controls, Customs valuation, import and export licensing, utilization of Free Trade Agreements and Customs procedures. This is not an exhaustive list. Big MNCs that have extensive business dealings across borders typically hire trade compliance managers to oversee compliance concerns. However, smaller companies usually do not have the financial resources to hire a full-time compliance expert. Instead, they seek clarification from consultants or brokers as and when issues arise. Most seem to survive just fine, so it begs the question…
Can trade compliance be outsourced?
The short answer is yes, but with some limitations.
The broad scope of topics of concern that compliance people deal with is not specific to individual companies.
- The rules of HS classification apply the same to products regardless of whether you are trying to classify a bag of sand or a vending machine.
- Incoterms work the same regardless of whether you are shipping from Singapore to Thailand or Singapore to Brazil.
- Customs valuation principles are applied in a similar fashion across most of the world, with slight adjustments that need to be made for the basis of valuation in different territories
- Licensing controls apply the same to all companies in a single country
I think you get the idea.
Moreover, as a company, you really shouldn’t be facing compliance issues so often that you need in-house access to a trade compliance expert 24/7. If you do, then perhaps a larger project to deep dive into the root causes of issues is required.
So why do big companies hire trade compliance people anyway?
Many factors can drive the decision for a company to manage trade compliance in-house. In fact, some bigger MNCs see so much value in keeping trade compliance people on payroll that they have ever-expanding teams!
- Large MNCs with regional compliance teams overseeing import/export activities in many countries may in reality be facing Customs issues and challenges often enough to require fast access to a compliance person 24/7
- An in-house compliance function will also better understand the needs of the business and be able to offer compliant workaround and solutions to problems
- Full-time compliance resources will be able to better manage long term projects within the company that require an informal network of resources for success
- In-house compliance functions can be allowed to have access to sensitive and confidential information with a lesser degree of risks
A final word…
When relying on external consultants for help with trade compliance issues, companies may face some limitations with how effectively issues can be addressed. However, this model would usually work effectively for small or medium-sized enterprises. Large MNCs however, would more easily be able to build a business case to hire trade compliance professionals instead of relying on external services. Even for large MNCs however, there is often a need to seek external help in some countries where rules are not well published or in instances when matters may need to be addressed through legal proceedings.
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