In Europe, the resulting arbitrage risk for consumer goods manufacturers amounts to a fifth of total market size, according to an Oliver Wyman study. This endangers the financial performance – and even the survival – of many consumer goods makers. ![]() There are various ways to combat these trends, in particular through the smart, holistic management of trade spend. Overspending on trade investment is still common, especially in online channels. But it can be minimized by making more deliberate allocation choices through greater transparency. Many top consumer goods companies operate with a central platform that collates trade spend information from different markets and channels, both for reporting purposes and to inform decisions throughout the organization. To make it clearer what kind of deal trade partners are likely to be content with, the platform usually also comprises data about their margin requirements, based on a reverse-engineering exercise. A trade spend grid can then help to manage allocation across borders and channels, using central guidelines and pay-for-performance objectives for customers. These operations have to become part of an international trade spend organization which usually also aims to harmonize prices across neighboring countries. In addition, manufacturers can differentiate their products and brands for different markets, making it harder for retailers to demand cross-border negotiations. The threat from international arbitrage comes amid massive disruption in the retail sector. Traditional retailers are under mounting pressure from online competition, and their biggest cost is that of goods for resale. ![]() ![]() So they are internationalizing their sourcing to take advantage of international price differences.
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