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Leveraging Trade Agreements to Achieve the Next Level of Savings from Global Sourcing

February 07, 2012

Manufacturers can spend 50% or more of revenue on purchasing parts. So, it is not surprising that sourcing from low cost countries to improve competitiveness has been such an important business strategy in the past ten years. According to AberdeenGroup 60 percent of manufacturers have turned to China as the cornerstone of their low-cost sourcing strategies and in the past few years this level of spend has almost doubled — from 21 percent to 39 percent. The ability to outsource product and skilled trade labor, at a fraction of the cost is integral in maintaining a competitive advantage in market pricing.

To achieve the next level of savings from a low-cost country sourcing strategy, leading companies are using trade agreements to reduce landed costs through duty reduction.

Free trade agreements are a pact or program between a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and services traded between them. Free trade agreements are designed to promote trade between regions, increase labor and sourcing opportunities within those regions, and open up foreign markets to exporters. Free trade agreements (FTAs) pose an incredible opportunity for global companies to reduce landed cost of sourced product, and improve profit margins on exported product from anywhere between 3-7% on average.

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