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Case Study for Import Attendees

Mar 15

Written by: Hal Jacobson
3/15/2010 8:31 AM 

 

 
Hello Hollywood Story---Global Market Series Meets the Roadster
 
Introduction / General Facts and Assumptions
 
Cast and Characters
Tornado Metals - manufacturer of motorcycle accessories in the U.S.
- Mike Longview, founder and CEO
 -Al Ford, Rotary member and automotive part manufacturer
Roadster – chrome-plated aluminum cup holder made for Harley motorcycles
iBex, Inc. – product design and development company
Zhang Deng Metal Products Ltd. – metal products fabricator in China
                                                         -   Bin Deng, owner/manager and supplier
Lee Deng – cousin of Bin Deng, manufacturer of leather goods
Hermanos Pádilla – producer of exotic leather saddles and accessories located in Monterrey, Mexico
 
Company Background
Tornado Metals has been in business since 2002. The founder and CEO of this small but thriving company is Mike Longview. They manufacture motorcycle accessories, including customized parts, in a small plant in Lancaster, TX. The products are typically made of fabricated metal. The current product line consists of exhaust systems, mufflers, chain links, valves and customized handlebars.
 
Tornado Metals is growing at a good pace, doing close to $20M in sales annually. As the company matures, Mike wants to diversify his product line to even out the sales cycle. He has concluded that it’s time to enter the higher end market by creating products for Harley Davidson motorcycles. Mike is attracted by the higher profit margins and sees an opportunity to improve Tornado Metal’s brand image.
 
Harley Davidson Meet the Roadster
Mike Longview has decided to enter the high-end market with the Roadster, a chrome-plated aluminum cup holder that attaches to the Harley’s handlebars. The Roadster’s development was based on the input of hundreds of motorcycle owners, interviews with Harley Davidson parts managers, prototype testing and consumer surveys. iBex Inc, a product design and development company, was hired to complete the final technical and aesthetic design of the product.
 
Presentation is important with a high-end product. So Mike asked iBex to design an ostrich leather case to wrap around the cup holder. The case will color match the leather motorcycle seat. The fitted Roadster ostrich case can be sold separately as an additional accessory option. The plan is to distribute the Roadster through Harley Davidson dealerships in the US who have already expressed interest in the product. Mike already has already received some pre-orders. The company, Tornado Metals, will also sell it through Harley Davidson online stores.
 
Decision: Offshore Production in China
The current plant is in Lancaster. Mike has decided to outsource both the cup and ostrich cover. At a recent Rotary luncheon, Mike met Al Ford, a manufacturer of automotive parts, who recommended using Zhang Deng Metal Products, Ltd. in China. At Al’s suggestion, Mike signs up to attend the Global Market Series, Import Certification Series.
 
More drama to come………………..

___________________________________________________________________________________________________ 

 
Hello Hollywood Story---Global Market Series Meets the Roadster
 
Session II International Sourcing-Country and Company Analysis & Selection
 
Review:
 
Zhang Deng – Manufacturer in China
Based on the favorable trade reference from his fellow Rotary member, and the knowledge that the Zhang Deng Metal Products had experience in exporting to the U.S., Mike is willing to contact this manufacturer.
 
Zhang Deng Metal Products came highly recommended as a reliable Chinese producer of metal product with prior experience exporting to the US, therefore Mike determines that the chromed aluminum part will be manufactured in China. (FACT)
 
Leather Supplier – Manufacturers in China or Mexico?
Mike has to find an ostrich leather supplier and a leather goods producer because Zhang Deng only fabricates metal product. However, Bin Deng gave him the name of his cousin, Lee Deng, who manufactures leather goods.
 
The initial contacts with Lee do not give Mike the same trust and confidence level as with Bin. Lee’s company is much smaller and seems less structured. Lee has no experience in exporting and would rely on Bin for exporting licenses and other paperwork. Questions regarding scheduled volumes and quality consistency fulfillment requests get evasive answers and nothing is in writing. Mike decides to look elsewhere.
 
Mexico is much closer and represents a place where all kind of leather works are produced with good quality. The shorter distance transportation can compensate some higher labor costs.
 
Mike completes his sourcing research. With the help from the Hispanic Chamber of Commerce, Mike contacts the Hermanos Pádilla in Monterrey, Mexico, specializing in leatherwork (saddles, seats, etc.). In addition to ostrich, they offer other leather options such as alligator and lizard for both the cup holder and assorted seat cover.
 
It appears that the Hermanos Pádilla are renowned in Mexico and abroad. They supply furniture stores in California with leather accessories, and they are the official supplier of horse leather saddles, ropes, helmets equipment of the Mexican Olympic Team (Horse Jumping).
 
The cost per unit is competitive but higher than the China manufacturer.
 
Hermanos Pádilla also offers to assemble the leather cover to the cup holder that could be shipped directly from China to Mexico. Additionally, Mike has an acquaintance who travels regularly to Mexico and is able to audit the facility in Monterrey.
 
Tools:
Country Comparison- www.globaledge.msu.edu
Company Research-above
Landed Costs- see attachments

____________________________________________________________________________________________________

 

 

Hello Hollywood Story---Global Market Series Meets the Roadster
 
Session I Questions-Customs & Border Protection
 
After attending the Import Certification-CBP session, Mike learns what his obligations are as the importer of record, IOR.
 
1. How to classify his items:
             motorcycle seat_____________________
 chrome plated aluminum cup-holder___________________
 ostrich leather case________________________
 
2. Determine the duty rate based on proper valuation.
             motorcycle seat_____________________
 chrome plated aluminum cup-holder___________________
 ostrich leather case________________________
 
 
3. If the seats are shipped separately (not part of an assembled motorcycle), to replace
    standards seats, do they have a different HTS number?
 
Bonus Question:
#4. What special considerations must be taken in account when importing ostrich or exotic leathers?
 
 
Tools:
 
HTS

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1 comment(s) so far...

Re: Case Study for Import Attendees


One of our session attendees queried the classification of the ostrich case for the cup holder.

One of the first steps is to check US Fish and Wildlife Services to insure there are no restrictions against the import of ostrich skin. A quick review of the their web site does not indicate any prohibitions.

Classification sends us to Chapter 42 and after reviewing the footnotes we decide that Ch. 42 is correct. Cup holders are not specifically classified so we proceed to the catch all sub-heading 4202.19.000. The duty rate is 20% therefore we will look to countries of origin where we have a Trade Agreement to hopefully avoid that duty, subject of course to the quotes from each.

By Hal Jacobson on   3/15/2010 12:35 PM

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