Navigating the Choppy Waters of a Changing Global Market

Editor's Note: contribution from Asmita Pahwa at Daymon. Daymon is a retail consultant and Asmita is their Senior Director of Global Sourcing and Supply Chain Management. The piece outlines the uncertainty in the world of global sourcing and what's to come in 2017.

Uncertainty seems to be the word of the day in global sourcing. From shifts in political, economic and trade policies around the world to changing expectations in terms of speed to market, there are numerous powers at play that suppliers, retailers and brands will have to watch closely over the coming months.

One of the most talked about factors at play is political uncertainty in the United States as the new administration gears up for some significant change to the status quo. Executive orders have already been passed to eliminate the Trans-Pacific Partnership (TPP) deal and advocated bilateral trade agreements; these changes in trade pacts will significantly influence future strategic sourcing decisions and the supply chains of retailers and brands.

Proposed changes in the tariff structure could also lead to a major shakeup in sourcing strategies. Commonly called “border adjustment,” the proposed tax would eliminate the incentives that businesses currently get for moving or localizing operations outside of U.S. borders. Exports would be exempt from U.S. taxes, but imports would not be deducted as a cost of doing business. On the flip side, if other countries implement protectionist policies, U.S. exports could become subject to heavy foreign taxes. Coupled with the predicted rise in interest rates these changes will significantly impact the cost of doing business.

Europe has its own set of woes centered around political and economic uncertainty. There are continuing doubts over the future of the euro and the results of upcoming 2017 elections in France, Holland, Germany—and possibly in Italy, Spain and even the United Kingdom. Though there will be no quantifiable changes in rules governing sourcing until Britain leaves the European Union—which is likely not to happen before spring 2019—worries about relative exchange rates, widely varying inflation and further collapses of consumer confidence will be a constant background concern throughout the next few years.

A variety of factors in other regions are combining to make global sourcing much more complex and uncertain, including:

• Geopolitical risks in Turkey and Ethiopia
• Security concerns in Pakistan, Bangladesh and Turkey
• Volatile currencies in countries such as Brazil, Mexico and Turkey
• Increasing corporate social responsibility demands
• Pressure to increase speed to market, while also lowering costs

Under pressure from nearly every direction, it's fair to say that supply chain network models will undergo continuous analysis and scrutiny this year. We are already assessing various landed cost scenarios (calculations of total product cost after accounting for shipping, tariffs and other fees) and tax factors within a product lifecycle to ascertain potential threats to profitability.

If one thing is certain in 2017, it's that there will be changes in how we source. Creative and innovative product sourcing will be an important differentiator and competency throughout the year as consumers continue to drive the demand for customization and innovation.

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