When purchasing products from overseas, there are many costs that businesses tend to overlook. Included in these unforeseen costs are the costs associated with basic compliance of regulations specific to the country the supplier is located in. The Department of Commerce’s “Asset Cost Everywhere” site discusses in-depth the costs of utilizing an international supplier - specifically, the high cost of complying with foreign regulations for doing business.
This blog is the fifth in a series detailing the costs associated with international suppliers. Read more:
There are two areas of regulatory compliance that companies sourcing overseas should be prepared to encounter: One, miscellaneous foreign business relations, and two, U.S. laws related to importing goods.
Costs of Complying with Foreign Regulations
Companies that operate overseas must comply with the regulations set by the country in which they do business. These regulations are not static, and are subject to change over time, across borders and at the whim of the government in charge of creating them.
Aside from established rules, the relative level of ease with which companies can obtain business permits and licenses, bank credits and land can vary from country to country as well. The law of the land may also be weaker in developing nations, meaning countries will not receive the same legal protections of their interests abroad as they would in the U.S. Finally, if an injustice does occur, the conflict resolution process overseas may be more time consuming and even potentially unfair compared to the U.S system.
Regulations abroad can cover everything from paying taxes to providing shipment documentation to paying import costs and beyond. In some countries, like the U.S., these procedures take less time and effort, freeing up resources for the purchasing company. For example, the act of preparing, filing and paying taxes annually takes, on average, 175 hours in the U.S. Compare that to 286 hours in Mexico, 259 in China and a whopping 2,038 in Brazil!
Similarly, U.S. law makes it relatively easy to export goods to foreign markets, making compliance quick and less expensive compared to other nations. The World Bank’s Doing Business Report shows both the time and cost required for exports in countries worldwide.
Time Required for Compliance to Export Goods by Country
Source: Economics and Statistics Administration analysis using data from the World Bank, Doing Business project.
In many countries, including the U.S., Canada, Australia and China, it takes up to two days to comply with export policies. Compare this the majority of Africa and the Middle East where compliance can take up to a month or more.
Cost Associated with Compliance Required to Export Goods by Country
Source: Economics and Statistics Administration analysis using data from the World Bank, Doing Business project.
In North America, Europe and around half of Africa, it costs a company $500 or less to export goods. Meanwhile, costs in countries like Brazil and Australia are much higher (up to $2,000).
Import Regulations
In addition to investing resources to comply with foreign business laws, companies must also contend with the cost of importing goods to the U.S. This involves investing resources in filing entry documents, paying import duties and arranging for the release of the goods from the U.S. Customs and Border Protection (CBP). Failure to comply with these standards can lead to heavy fines and even higher cost of doing business.
Sourcing materials within the United States
The United States ranks at number 8 out of 190 world economics in terms of ease of doing business, meaning it’s much easier to do business in the U.S. than the majority of the world. This rank is based on an analysis of the following categories:
- Starting up a business
- Obtaining construction permits
- Acquiring electricity
- Registering property
- Finding credit
- Protecting investor interests
- Filing taxes
- Trading across borders
- Upholding contracts
- Handling insolvency
Companies that choose to import goods from overseas rather than sourcing within the United States should be prepared to handle the burdens and potentially high costs of regulatory compliance across all borders. Companies that source from within U.S. borders automatically save valuable time and money, avoiding cross-border regulations altogether.
It is important to consider all costs and risks, including regulatory compliance costs, when selecting a supplier. Many times it makes much more sense to choose a domestic supplier over an international supplier from a safety perspective.
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