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UPS Investor Conference

November 13, 2014
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Capitalizing on Global Trade: A Success Story


Abstract:

June 3, 2014 - Discover Global Markets Business Forum - Los Angeles: Jim Barber, the president of UPS International, spoke to the Discover Global Markets Business Forum in Los Angeles. Using a local company (Medelita, which produces healthcare uniforms) as an example, Barber spoke to an audience of small- to mid-sized business owners about ways to grow their businesses through global trade.

I would like to start with a story. Like all good stories, this one has a hero who most of us can relate to.

The hero of our story is a company named Medelita, which is based not far from here, in San Clemente. Perhaps some of you have heard of them.

Medelita operates in a well-defined niche of the healthcare industry. It makes uniforms for doctors, nurses, physician assistants and clinicians.

We all know what most medical and dental uniforms look like, something like this, right?

Flimsy material, strange colors, fit like a tent. Their quality makes most pajamas look couture.

But for as long as anyone can remember, health care professionals have been handed these frumpy lab coats and medical scrubs. And since they had no choice, they wore them.

Medelita had a better idea. Believing a professional-looking uniform makes a statement about the kind of care patients can expect, Medelita decided healthcare professionals deserved something better.

It also believed there was a market for something better. Here’s what they came up with:innovative performance-fabric technology, sophisticated designs, hand-tailored workmanship, exquisite detailing, and traditional sizing.

I don’t know about you, but if I walked into a doctor’s office where people were dressed like this, I’d think I was in good hands.  

It’s probably no surprise that Medelita’s business took off. I mean, after a doctor or nurse sees this, it’s kind of hard to go back to this.

Medelita’s fashionable lab coats quickly found a market in the U.S.

But Medelita was looking beyond the domestic market. Its business model also included establishing an international presence.

But the company’s founders admit they didn’t know much about exporting.

“Scared” and “nervous” are two of the words that Medelita president Jamie Beuthin
and chief marketing officer Dan Stepchew use when remembering those days.

“We thought we had hit a wall,” Jamie says.

I’m going to get back to the Medelita story in just a few minutes.

First, I want to take a brief detour to talk about the world of global trade and e-commerce, which is the subject that brings us together at this event.

The EU is the United States’ largest trading partner. Nearly $300 billion dollars’ worth of goods were shipped from the U.S. to Europe last year.

This is a market I’ve lived for 12 years, my home is in Brussels.

Together, the EU and the U.S. account for one-third of all world trade flows.

According to a survey commissioned by UPS, Europe is also the continent more than one-third of respondents said they would most like to expand to, I’m sure that includes many of you.

Looking at e-commerce specifically, e-commerce in Western Europe is expected to grow by double-digit rates through 2016 to more than $200 billion dollars. That’s according to Forrester.

So there’s a lot of incremental opportunity out there. But many small-to mid-sized retailers are having a hard time capitalizing.

The problem is that often it’s not all that easy to ship their goods outside the U.S.

That’s not news to those of us at UPS. We know barriers to global trade can be significant.

Although import tariff rates have dropped by about two-thirds over the last three decades, from about 30 percent to about 10 percent, they’re still too high. Especially when you consider that countries impose tariffs on a product’s gross value each time it crosses a border. 

Customs fees also add up. Sometimes accounting for 10 percent of trade costs, often twice the cost of import duties.

Then there are all the tariff codes, customs regulations and documentation requirements. The fact that they often differ from country to country only adds time and confusion to the process.

These are hurdles that slow the efficient and affordable flow of goods and services for an untold number of businesses.  

These obstacles to global trade concern me for a number of reasons. They concern me because many of the companies affected are our customers. Like Medelita and many of you in this room today.

But what I want to emphasize is that exporting is worth it.

That trade is good for your business and for the U.S. 

And that exporting success is well within your reach.

This is my 29th year at UPS, starting as delivery driver in Atlanta in 1985. I came to UPS 9 years after we first expanded service beyond U.S. borders and I’ll be the first to say that we used the term “international” rather loosely back in those days.

Initially, we delivered to a total of six countries. There are folks in our company who remember having more people than packages in our international hub on some of those first nights we flew across the Atlantic.

Today, the UPS International Network touches 220 countries and territories and deliver an average of 1.6 million packages to destinations around the world every day.

We also operate one of the world’s largest airlines with 237 aircraft connecting our global air network between Shanghai, Shenzhen, Anchorage, Cologne, and Louisville. 

After being born in Germany and relocating 10 times as the son of a US Army Officer, moving to new communities became very normal to me, and I suppose set me up to work for a company that moves goods versus people.

Now after 11 moves with UPS, I have come to fully appreciate the opportunity this global economy holds for individuals and organizations who embrace what global trade brings to the world today. 

It has also given me the opportunity to actually touch the soil where we will pick up or deliver your packages and extend your brand.

For example, due to the creation of a new business unit in UPS called “ISMEA,” which stands for the Indian Sub Continent, Middle East, and Africa, in the last 10 days, my travels have taken me to London, Dubai, Abu Dhabi, Mumbai, Bangalore, and Hyderabad. 

So I’ve seen firsthand the desire that consumers, businesses, and political leadership in these economies have for the goods and services from the U.S. and how hungry they are to be part of your global supply chain.

That’s why I love companies like Medelita that take great care to really understand their customers.  And, based on that knowledge, make a customized product that fits their needs and really gets them excited as they leverage the power of the global supply chain. 
And it frustrates me no end when those same companies run into roadblocks when trying to build their exporting business.

Here’s the part of our story where our heroes face a formidable challenge.

Medelita’s challenge was how to stop their customers from refusing their orders.

It’s not that customers didn’t love the look and the quality of the uniforms, it’s just that they were sometimes surprised by the fees they owed.

Many international customers do not understand that they can be responsible for additional fees and duties on their orders once they arrive.

So it’s not uncommon for customers in faraway places to decide the additional costs are not acceptable and simply abandon the package.

When they do, the costs associated with each abandoned package become the shipper’s responsibility.

If you’re exporting in high volumes, these costs can quickly mount up.

In today’s no-margin-for-error business landscape, they can mean the difference between a thriving export strategy and the decision to stay home, rather than go global.

I’m sure the scenario I’m describing is one some of you, maybe many of you, have been on the losing end of.

Maybe, like many small- and mid-sized businesses, your frustration led to exasperation. Maybe you finally said, “enough.”

But let’s get back to our story.

Medelita may have been frustrated, but it wasn’t ready to turn its back on exporting as a growth strategy. It knew the potential.

Here’s the potential expressed in a few simple statistics:

As we’ve heard many times, 95 percent of the world’s consumers now live outside the U.S.

By 2030, just 16 years from now, the number of people considered middle class are projected to triple.

By all accounts, many of these consumers and the businesses they own and manage will shop online.

That’s going to give them access to an unparalleled range of goods and services from every corner of the globe.

Here’s one more thing to keep in mind: According to the Small Business Administration, companies participating in international trade are 20 percent more productive and have 20 percent better job growth than those that don’t.

But not all companies have the same foresight Medelita did.

Today, less than 1 percent of U.S. businesses export, and of those, nearly 60 percent ship to just one country.

Sixty-seven percent of small- and mid-sized companies do not participate in any cross-border trade.

Our company’s “Perceptions of Global Trade” survey also illustrates the upside:

According to the report, approximately two-thirds of small- and medium-sized businesses begin to see a return on their export investment in less than two years. 

Thirty-four percent of those surveyed saw a financial return in less than six months.

We see businesses every day that are working hard to find innovative and value-driven ways to distinguish their products and services. I’m sure you’re doing the same thing. 

As the world shrinks and becomes flatter, you’re facing stronger and stronger competition from every angle. You need to squeeze out every competitive advantage possible.

Exporting is a strategy any business should evaluate. You just need to make it as easy and efficient as possible.

Your world is tough enough as it is and you don’t need more complexity when you’re trying to grow your business.

Logistics is your physical lifeline to international customers, partners and suppliers.

It’s the plumbing that allows your goods to flow consistently and reliably.

You need to know that your shipments are going to get where they need to be, when they need to be there and in full compliance of all relevant regulations.

When you have that assurance, you can focus on what you do best and build your business.

Of course, logistics is more than shipping from point A to point B and goods making their way through customs.

It’s about a comprehensive supply chain strategy:

Everything from staging products in the right locations, selecting the right mode for delivery, accessing data, managing inventory, ensuring compliance, protecting goods in transit, and all the way to managing your customer’s experience throughout the journey. 

So I thought you might appreciate a little insight from a company that’s been doing this for 107 years.

Let’s start with the step that many tend to gloss over, the plan.

Every successful international strategy is underpinned by a strong plan.

The plan should answer in great detail two questions: “Where do we want to play?” and, equally important, “Why do we want to play there?”

I use the word “play” because it communicates a market that you can sell to or manufacture in. Those are your highest priority markets.

Beyond those basic questions, you also should ask:

  • What is our competition doing in the market that we can do better?
  • What are our sales, revenue and profit goals?
  • What makes us think they are achievable? 
  • What are our regulatory, compliance, contracting and legal risks? 
  • What are our financial and geo-political risks?

The elements of your plan also should include a deep understanding of the markets where you want to do business.

Do your homework. Be curious. Pay attention to the research. Ask questions. So you understand both the challenges and the opportunities associated with serving customers in other parts of the world.

Because every country, and often, each region within that country, has its unique characteristics that will affect the sales of your product.

Many companies live to regret the assumption that what works in the U.S. will translate anywhere else in the world. Starbucks’ plan to enter France with flavored coffees in to-go cups served in smoke-free cafes is just one example.

Nothing about the plan worked. And if they had only asked a Frenchman who likes to linger over his espresso at a sidewalk café with a smoke. 

Another piece of advice: Find the right partners.

Make sure they have a presence in the markets you’re considering. Do they know the customs?  Are they familiar with local regulations? Can they help you identify qualified buyers and distributors? Do they have extensive brokerage capabilities, so they can help you navigate customs?

Our friends here at the U.S. Commercial Service, who have people on the ground in more than 80 market countries, can be valuable resources when you’re doing your due diligence.

And don’t overlook the U.S. Agency for International Development, the Export-Import Bank of the United States, the U.S. Trade and Development Agency, and the U.S. Chamber of Commerce.

You also may have heard about two trade agreements that are now being negotiated. They are the Transatlantic Trade and Investment Partnership, known as T-TIP and the Trans-Pacific Partnership, known as TPP.

The goal of both agreements is to open trade channels between the U.S. and European Union, along with a number of countries in South and Central America and Asia.

If implemented, and we believe they will be, these agreements will cover a huge percentage of the world and make exporting a lot easier for all of us.

They’ll also add jobs and stimulate global economies.

Imagine if you could ship to anywhere in the EU with no duties or taxes. Imagine if shipping to Germany was as easy as shipping to Georgia. That’s the potential benefit of these agreements.

As you might have guessed, our story has a happy ending.

The UPS team here in LA sat down with the Medelita team and together we figured out how they and their customers could calculate duties and fees before orders were placed.

Now the Medelita determines fees in real-time on every product it sells in 23 countries. So there’s total transparency and no surprises when customers place and receive their orders.

Most important, there’s no reluctance for customers to hit the “process order” button, which is the goal for anyone in the e-commerce business.

Since they launched the new process, Medelita has seen a 42 percent increase in international order revenue and a 46 percent increase in international website traffic and a 19 percent increase in average order value.

I love a happy customer, especially one that is growing its business by expanding its horizons.

Now, I’d like for you to meet the heroes of our story. Jamie Beuthin, the president of the Medelita and Dan Stepchew, the chief marketing officer.

I’ll finish up with just one more thought.

I know many Los Angeles-area businesses were hit hard hit by the recession. Real estate deflation, state budget woes, high unemployment, and increased competition from other U.S. regions and abroad took a bite out of business here.

But this is a resilient market because you are resilient people. You’ve bounced back before in the aftermath of other challenges.

Many believe, as I do, that you have a unique opportunity to reorient your economy and reassert this area as a vibrant, globally significant market.

Trade could be one of the levers you pull to make that happen.

I hope I’ve convinced you that it’s worth the effort. 

One challenge that remains is awareness. Research shows that awareness of global opportunities, foreign markets and available export services is low in the LA area.

Even companies that are aware of global opportunities often prefer operating within the confines of the U.S. market, where they have a comfort level and where they’ve had success in the past.

These companies need assistance and support.

I’ve mentioned a number of resources, several of which are represented here at this conference.

I’ll mention one more, UPS.

Our 400,000 employees worldwide come to work every day with one goal in mind: to help our customers realize opportunities in the global marketplace.

In that respect, our futures are closely aligned.

At UPS, we’ve gone global. We’d love for you to go with us.

 

For more information, contact:

404-828-7123

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