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Renault’s Logan Car: ManagingCustoms Duties for a Global Product

Rev.5/15

Prof. Warren H. Hausman

Stanford University

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Background

Renault Company Status

Strategie Renault 2009

Role of Logan in company’s strategy?

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Typical Factors in Facility Location:

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Additional Factors here:

Customs Duties

Most Favored Nation (MFN) Duty Rates

Free Trade Agreements (bilateral)

Regional Trade Agreements Company-specific Trade Agreements

Local Content

Duty Drawback

Dynamic Evolution over time

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Regional Trade Agreements 1948-2012

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Global Automobile Trade Choices:

CBU: Completely Built-Up Vehicle (finished car)

CKD: Completely Knocked Down Units (parts kit)

IPO: Identify Parts Order (ship bulk parts)

Local parts suppliers

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Why higher duties on CBUs vs.CKDs?

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More Definitions:

HS Classification

Rules of Origin

Diagonal Cumulation

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Active Learning I - 2 minutes,nearest neighbor:

Name a product marketed globally that is NOT

affected by customs duties.

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Romania

CKDs

Romania

CBUs

W. Europe

Croatia

Colombia

Brazil

 Argentina

Morocco

So. Africa

India

Tunisia

Egypt

Jordan

Turkey

Iran

Russia

Ukraine

CBUs

CKDs 

Logan Supply Chain

Mexico

Thailand

Ecuador,

Venezuela

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Romania

CKDs

Romania

CBUs

W. Europe

Croatia

Colombia

Brazil

 Argentina

Morocco

So. Africa

India

Tunisia

Egypt

Jordan

Turkey

Iran

Russia

Ukraine

CBUs

CKDs 

0% for 7 yrs

D. 166

0%

8-11%

0%

0%

0% w/regional

contents oblig.

0% w/rules

of origin

Ecuador,

Venezuela

Duties

14-21%

10%

31%

0%

0%

Adding Duties

Mexico

Thailand

10%-

0%

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Active Learning II:

What new opportunities were created byRomania’s entry into the EU in 2007?

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Effects of inflation and exchangerates?

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Active Learning III:

Need a process to compare alternativessystematically … 

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South Africa Alternatives:CKD from

Romania

CBU from

Romania

CBU from

Morocco

Unit Cost €  1,500 €  1,800 €  1,800

Shipping Cost

Subtotal:

Import Duty Rates:

Duty Amount:

 Assembly Cost €  500 N/A N/A

Landed Cost

Assume a 20’ container holds 3 CKDs or 1.5 CBUs

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Summary

Customs Duties can be critical for global

supply chains

They can be very complex and dynamic Significant cost savings (and hence profit

improvements) are possible