Uncommon and breakthrough purchasing savings levers - Series 1 (Lever - GSP)
Objective of the series:
Hi there. I plan to share some very interesting avenues through an exciting series of at least 5 blog posts (Depending upon the response, I can consider sharing more). In each of the posts, I will share a few of the highly impactful savings levers that generate very high level of annualized savings across many industry verticals but are still not used widely just because these are hardly covered in the common Sourcing & procurement literature or practices. Hope you will find these useful, apply them somewhere and come out with flying colors. Wish you good luck and enjoy the read.
What is GSP? I am sure this is the first question that would come to every reader's mind. GSP's expanded form is Generalized System of Preference. It is a system under which EU countries comprising of France, Germany, Belgium, Luxembourg, Netherlands, Italy, UK, Ireland, Denmark and Greece have adopted (driven by GATT and then WTO). Under GSP, manufacturers and semi-manufacturers from developing countries (including India and China) will be entitled to a concessional rate of import duty in these EU countries. Why? Due to something termed in global trade as "Preferential treatment to select WTO members". Such treatments/concessions are the outcome of usual inter-governmental negotiations that take place at WTO meetings (ministerial levels) for e.g. the Doha round.
Thus, a global buyer in these EU countries importing from such developing countries has an added savings opportunity to reduce TCO even after all the usual sourcing levers have been applied. Automotive or mining companies can take tremendous advantage under this while formulating category/sourcing strategy while evaluating BCCS (best cost country sourcing) options on a TCO (consider TCO with NPV) model. Even a Bank or Insurance company in EU can benefit. Things like getting insurance policy documents printed (a major spend for Insurance firms) can be easily imported say from India into EU at one tenth of the local landed costs even after reducing all importing expenses and accounting for additional benefits under GSP! There are various other commodities across sectors/industry sectors that can leverage GSP with BCCS.
How does it work? That would be the second question which each of you would be thinking by now. Simple. The certificate of origin issued by the designated Govt. offices of exporting countries (e.g. Export Inspection Council of India) is sufficient as evidence that goods being imported are from preferred countries. However, the importer has to specify in the PO as well as the exporter has to apply for a certificate of origin categorized as Preferential. The importer/buyer just needs to follow local import laws and procedures to apply for the concessional duty while filing Bill of Entry based on the strength of this preferential certificate of origin.
Found this useful? Want me to write the rest of 4 more posts? Then send me your feedback quickly!