Spare Parts Warehouse In Colombia Free Trade Zone Commerce Essay

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Yutong is a Chinese bus producer based in Zhengzhou, located in Henan province. Actually it is the biggest bus producer company in Asia, and the second one in world ranking. It has presence in the 5 continents of the world in more than 80 different countries such as Sudan, Egypt, Argelia, Singapore, Hong Kong, Philippines, Uruguay, Iran, China, Russia, Cuba, Jamaica, Trinidad y Tobago, Venezuela, Peru, Ecuador, Chile and Colombia.

Yutong has been experiencing a fast growth since its establishment and is willing to have presence in most of the world through excellent quality buses and good service.

The company's production has been already expanded through four CKD assembly plants : one in Cuba, one in Taiwan, one in Thailand and another one in Iran, hoping to open new ones in order to follow their goal of being all around the world. Right now Latin America is being an option to open a new one.

China is constantly growing and its products are highly demanded worldwide. Similarly, the big Chinese companies are looking forward to increase their market share in the world. Yutong is now part of this process through the introduction of high quality buses to the world with high service quality.

WHAT WILL BE DONE?

In order to improve the service of Yutong world wide, this project will be focused in Latin America market, which is growing constantly and in consequence the demand of post sales services is increasing as well. Part of a good post sales service is to have all the spare parts available when they are needed to fix the problems as quick as possible. One stopped bus means no rolling, no passengers, and at the end means an economic loose for Yutong´s clients. The lost could even reach the 1000 USD per unrolling day of the bus.

Each bus from Yutong has all its spare parts from different brands, some are Chinese and some are foreigner like the engines that are from Cummins. Yutong only makes the outer part of the bus (the complete Chassis) and assembling. In order to reduce shipping delivery time, and costs for the clients, is needed an strategic place where could be reached all the spare parts (from all the brands) able to supply the demands in most countries as possible.

The placement of a spare parts warehouse in Latin America will be proposed. The investigation will expose the possibility to have it in Colombia, and all the rules and advantages to develop the project.

JUSTIFICATION

With the establishment of a warehouse in a Free trade Zone, the most important goal to achieve is the reduction of time deliveries and have a quick answer to any demand of bus spare parts with a diminish in economic looses for the clients with an unrolling bus.

Normally, it takes between two and three months to deliver a spare part from China to South America by ship, and from 8 to 10 days by plane. After it, depending on the customs office, it can take more days to get to the client.

If the product is in Latin America already, the product would last less to be delivered to the client saving 8000usd of potential loses.

Being in a Free Trade Zone, allows to avoid the nationalization of the product and can be delivered easily anywhere with no customs restrictions.

The investigation will be focused in Colombia which could be a good choice due to :

Geographic position: with the access to both oceans: Atlantic and Pacific. It could be a central place that could deliver parts easily to any of the countries.

The Colombian government is constantly interested in foreign investment and has developed y proposed incentives to new investors such as reduction of taxes and tariffs. There is an exemption of VAT and tariffs meanwhile the products are not permanently introduced into Colombian territory.

Yutong has presence in the Colombian market since 2 years ago and is willing to increase its market share in the bus industry. With a warehouse in Colombia, customer demands would be quickly answered and could increase the demand of the bus for good post sales services.

Having a Colombian person as an intern in the company, allows obtaining information from proexport Beijing to develop the project, depending on the company needs.

MAIN PURPOSE OF THE PROJECT

The goal with the research is to have a complete document where is gathered the most relevant information about free trade zones needed by Yutong to establish a warehouse in a Free Trade Zone in Colombia, and review the laws that concern the project.

At the same time, expose the advantages without denying possibilities for the company to develop the project in another country even though the project is all focused in Colombia.

OBJECTIVES

Identify the needs of Yutong and the expanding projects.

Identify the necessity of having a Warehouse in a strategic country.

Identify the markets that can be reached with the warehouse.

Identify the quantity of demand that has to be accomplished

Identify the advantages of placing the warehouse in Colombia.

Identify the Free Trade Zone that will be used to develop the project where is going.

Identify the kind of Free Trade Zone Yutong fits in.

Estimate the costs incurred and saved with the warehouse.

Identify the products that would be in the warehouse and its law restrictions.

Identify the routs to supply the demand.

YUTONG IN THE WORLD

As exposed before, Yutong has presence overall the world including more than 80 countries with sales over 12.000 units al around the world, and 4 CKD plants to supply the demand.

Latin American market is growing and Yutong buses are rolling in 17 countries such as: Cuba (3700 buses), Jamaica (10), Barbados (20), Cayman (5), Aruba (10), Bahamas (10), Colombia (142), Chile (150), Ecuador (180), Venezuela (300), Peru (70), Uruguay (60), Honduras (5), Dominican Republic (50), Costa Rica (10), Trinidad y Tobago (88).

Approximately there are 3700 buses from Cuba and 1020 buses from the other countries in Latin America. The ones that have more buses are next to Colombia: Ecuador, Venezuela, and Peru, with 472 buses. These buses will need spare parts, a higher demand is expected from these countries.

Even if there is a CKD plant in Cuba, it is established to supply internal demand and the other countries have to import the buses directly from China. Similarly, Cuba has their own spare-parts warehouse but it is for internal demand as well.

In Colombia, the market is growing.

The enterprise that represents Yutong in Colombia is Kenworth de La Montaña under the name of YUTONG De La Montaña. It has been already 2 years in the market and the sales has reached the 142 buses until December of this year (2020). And it is willing to sale 50 more buses for 2011. In spare parts the demand was 100.000USD approximately and next year it is expected to increase in 50.000 dollars due to new sells.

This means, as the demand of buses increase, the demands on spare parts will increase as well and a goods and efficient distribution will be needed.

COLOMBIA IN LATIN AMERICA

Economic stability, business environment

In recent years, Colombia has been enjoying a constant growth in its GDP. The economy has grown a 4% per year for the last 5 years. During the world recession, Colombia experienced an increase of 0,4 in the GDP. Historically it has been an economic stable country with controlled rates of inflation and is the target for foreign direct Investment by different multinational enterprises. Since 2002 the FDI has increased 230%.

Similarly in 2010, the World Bank in the "Doing business report" classified Colombia as the most business friendly country in Latin America. It has reached 42 positions for the last 4 years being the 37th between 181 countries.

Colombia is catalogued as the 5th country of the world that most protect the investors according to World Bank.

One of the most important facts we have to consider about Colombia, is its strategic location. The access to both oceans makes Colombia an strategic point for global trade with access to the markets of US, Europe, Asia, Latin America and the Caribbean.

Similarly, Colombia has already 12 trade agreements with 48 countries like CAN, G-2, Mercosur, Chile, North triangle, USA, EFTA, Canada. With some of them are signed Free trade agreements with Latin-American countries.

INVEST IN COLOMBIA

Colombia has four basic principles for foreign Direct Investment, which are:

Equality of treatment: National and foreign investment should be treated the same way with no preferences or discriminatory treatments.

Universality: All foreign investments are welcomed in Colombia but the ones that include:

National defense and security activities

Processing, disposal and dumping of toxic, hazardous or radioactive waste produced outside of the country

Private surveillance and security companies.

Stability: The conditions registered at the first time, referring to reimbursement and remittance of profits will not be changed ion rder to don´t affect the investor. "Such scenario may only take place when the international reserves are less than the value of three months of imports."

FREE TRADE ZONES IN COLOMBIA

A Free Trade Zone is the type of foreign direct investment that matters to this project.

A FTZ is a geographic area, designated for the development of industrial goods or services commercial purposes with a special taxation regime, where custom duties are not applied and reduced tax rates are applied.

Colombia is constantly improving their FTZ regulations to make incentives for FDI.

Some of the benefits in a FTZ would be:

No custom duties (Not 16% VAT and Tariffs) while the products stay in the zone.

Income tax rate reduced, but this doesn't apply for commercial users, which have general income tax rate.

Enjoy all the free trade agreements that Colombia has (excepting Peru) for exports.

Access to all credit possibilities in Colombia, such as banks, financial corporations, IFI (World bank)

At the moment are 11 FTZ in Colombia:

Barranquilla, Santa Marta and two in Cartagena de Indias in the Atlantic coast. Pacific, Buenaventura and Palmaseca in the pacific coast. Santa Fe de Bogota, Sopó and Rionegro in the central zone and Cucuta in the frontier with Venezuela.

The one we should consider, is in the Pacific, near to the port of entry: Buenaventura, which is the port where the merchandise arrives from China. It could be Pacífico, Buenaventura or Palmaseca.

The users of FTZ can be classified in Operators, Industrial users of goods, Industrial users of services and commercial users. And there are two types of FTZ in Colombia: "Special Permanent Free Trade Zone" and" single-company Free Trade Zone"

This project is for commercial purpose due that it is a warehouse to commercialize or distribute goods that will not suffer any kind of modifications during its stay in the FTZ and are then distributed internationally. The FTZ regulation refers to commercial users as a "user that store, market, preserve and sell within the correspond free trade zone."" These have to be located in a "Permanent free trade zone " or ZFP, and can only use up to the 5 % of the total of the FTZ area.

The regulations are the same for all FTZ. Here are the ones that have to be taken in consideration:

General Requirements to apply for Free Trade

Zone Status.

• Be a enterprise domiciled in the country or a foreign enterprise

branch (Not applicable to transitory Free Trade Zones for over 15

years which are interested in obtaining SEFTZ status).

• Resumes of the executive personnel and legal representatives.

• Technical, economic, financial and market studies demonstrating

project feasibility.

• Master Development Plan approved by the Cross Sector Commission

of Free Trade Zones.

• Study of land property titles covering the past 20 years, topographic

surveys, a certificate evidencing that the project falls within the

parameters of the municipal or district Development Plan and

that it meets the requirements of the environmental authority,

ownership history and no-lien certificates of the corresponding

land issued no more than thirty (30) days prior, and another

certificate certifying that public utilities may be installed in the

area.

Specific Requirements for Permanent Free Trade

Zones.

• Continuous area, no less than 20 hectares (Not applicable to

Technological Parks). But no more than 5% of thetotal of the FTZ area.

• Capacity to host infrastructure for industrial, commercial or service

activities.

• Evidence that none of the activities to be promoted by the project

are currently being developed.

• Schedule indicating compliance with:

* 100% fencing before operations start-up.

• By the end of the fifth (5th) year after receiving Free Trade Zone

status, there must be five (5) industrial goods or service users.

• Net worth valued at 23,000 M.M.L.W. (US $5.9 millions)

• Postulate itself as Operator.

• In the case of lands not owned by the enterprise applying for

Free Trade Zone Status, the enterprise must evidence through the

appropriate contracts that it is entitled to use such lands.

• Plans for the construction of control agency offices and customs

inspection areas (at least 1500 m2).Commercial Users may not simultaneously act in any other capacity, but they may have businesses in the rest of the national territory.

• No commercial users may be qualified or recognized inside Special

Permanent or "Single - Enterprise" Free Trade Zone (SEFTZ).

Qualification Requirements for Industrial Goods,

Services and Commercial Users.

• Written request addressed to Operator.

• Corporate name and object, domicile, tax identification number

(RUT), Curriculum Vitae of principal and deputy legal representatives,

Board of Directors and partners (except in the case of stock corporations

or joint-stock companies).

• Description of the project to be developed.

• Project financial and economic feasibility study.

• Composition or probable composition of the capital assigned to

the project, indicating whether it is domestic or foreign.

• When applicable, favorable concept of the appropriate authority

on the project's environmental impact.

• All authorizations, qualifications and certifications required to

develop their activities.

• Commitment to obtain the necessary certifications for all procedures,

services, infrastructure, technology and other elements inherent to

the development of its activities, within two (2) years following

the date on which they are granted Free Trade Zone status.

• Written certification by the applicant's legal representative in

the sense that neither the company nor its partners have been

convicted for fraudulent crimes during the five (5) prior to the

qualification application.

• Certificate of existence and legal representation. Certificate of

existence and legal representation issued no more than thirty (30)

days.

• Companies with total assets below 500 M.M.L.W (US $129.000)

are not subject to the investment or job generation requirements.

• The following are the requirements regarding investment and

jobs according to total assets:

• If assets increase or decrease during the year following the qualification,

the investment and job creation commitments must be adjusted

accordingly.

WHO?

This project could be developed by Yutong- China itself, with the collaboration of Yutong de la Montaña in Colombia.

It would have developed with the help support of proexport Colombia and an external advisor that can study the feasibility of the establishment of this warehouse.

RESOURCES NEEDED

Financial Resources:

As is well known, even if a company has enough cash to develop a project it should take a credit for taxes matters. So, as exposed before, A foreign direct investor can enjoy the access to Colombian credit.

Yutong´s total asset range is over US$7,5 millions; so, according to the regulation, Yutong would have to invest a minimum of US$2,3 million.

According to Proexport, with the information provided by the Pacific Trade Zone,some of the operation costs of the Free trade zone could be:

COSTOS DE ZONA FRANCA

SERVICIOS PUBLICOS

UNIDAD

VALOR

PESOS COP $

ACUEDUCTO

 

 

Cargo Fijo

$/mes

9.542

Costo variable

$/m3

605

ASEO

 

 

$/Usuario

$/usuario

15.500

ALCANTARILLADO

 

 

Cargo Fijo

$/mes

4.770

Costo variable

$/m3

290

GAS

 

 

Cargo Fijo

$/mes

 

Costo variable

$/m3

 

ENERGIA

 

 

Alumbrado Público

$/mes

 

Tarifa

$/Kw

243

TELECOMUNICACIONES

 

 

Telefonía Fija

 

 

Cargo de conexión

$

 

Tarifa por minuto

$/minuto

63

Costos fijos por mes

$/mes

25.000

Mantenimiento y servicio de línea telefónica

$/línea

 

Conmutador virtual

$/mes

 

PBX

$/mes

34.150

Correo de voz

$/línea

 

Otros (especificar)

 

 

Internet

$/ mes

 

FINCA RAIZ

Renta mensual promedio

 

 

Lotes o patios

$/m2/mes

3.500

Locales

$/m2/mes

 

Oficinas

$/m2/mes

26.000

Bodega

$/m2/mes

12.000

Valor venta

 

 

Lotes o patios

$/m2

280.000

Locales

$/m2

 

Oficinas

$/m2

 

Bodega

$/m2

 

In "grosso modo", the material resources that would be needed are:

Warehouse

Spare parts, Shelves

Logistics supplies like forklifts

Human resources

Logistics operators

Administrative personal

CONCLUSIONS

YUTONG is growing fast as its country economy. The demands are higher each time, and in order to fulfill the client's expectations, post sales services have to be improved in order to create higher demands.

In order to improve service, a good supply chain has to be accomplished in order to safe times of delivery.

The establishment of a warehouse in Latin America is very important in order to supply the demand of this growing market.

Colombia is one of the most stable economies of Latin America and is very well ranked according to World Bank, so it's a good option to invest in.

Proexport and the government are creating incentives to attract FDI, which gives a lot of benefits to the investor.

Colombia has important trade agreements with other countries, which can be enjoyed by the company if it is in a FTZ.

The strategic position of Colombia allows entering in any market of South America.

This project could be very expensive but in Long term the benefits will be bigger.

With the information exposed above, are enough reasons to consider Colombia as a possibility to develop a project that includes FDI.

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