Now that financing has been arranged, steps must be taken to ensure that the goods are packed, documented and shipped properly. When transporting goods internationally, proper documentation and correct packaging are critical to the export process.

One of the main differences between selling domestically and exporting is the documentation required. Providing proper documentation with your shipments is essential. Although the paperwork involved in exporting may be more burdensome and costly than that required for domestic sales, it should not deter you.

The Role of the Freight Forwarder

The international freight forwarder acts as an agent for the exporter in moving cargo to the overseas destination. These agents are familiar with the import/export rules and regulations of foreign countries, methods of shipping, U.S. government regulations and the documents connected with foreign trade.

Freight forwarders can assist with an order from the start by advising the exporter of the freight costs, port charges, consular fees, costs of special documentation and insurance costs, as well as their handling fees — all of which help in preparing the pro forma invoice and price quotations. Freight forwarders may also recommend the best type of packing for protecting the merchandise in transit; they can arrange to have the merchandise packed at the port or containerized. The cost for their services is a legitimate export cost that should be figured into the price charged to the customer.

When the order is ready to ship, freight forwarders should be able to review the letter of credit, commercial invoices and packing list to ensure that everything is in order. Freight forwarders also can reserve the necessary space onboard an ocean vessel, if the exporter desires.

The exporter may ask the freight forwarder to make arrangements with the customs broker to ensure that the goods comply with customs export documentation regulations. In addition, they may have the goods delivered to the carrier in time for loading. Freight forwarders also may prepare a bill of lading and any special required documentation. After shipment, they can forward all documents directly to the customer or to the paying bank.

In preparing your goods for international transport, you must first determine what mode of transport you will use. When shipping to Mexico and Canada, land transportation may be the preferred method of transport. Other methods of shipping internationally are by sea and air.

Maritime shipping is almost always slower and less expensive than air. However, an exporter must factor in the additional costs of sea freight, such as surface transportation to the dock. Another factor is the time value of money: payment may not be made until the ship reaches its destination — and ocean freight can be significantly longer than air freight. Your international freight forwarder can assist in weighing the pros and cons of different modes of transportation. Once you have decided on the best mode of transporting your goods, you must begin to compile the necessary documents.

Documents Prepared Before the Shipment

Commercial Invoice/Consular Invoice

After the pro forma invoice is accepted, the exporter must prepare a commercial invoice. This is necessary for both the exporter and importer. The exporter needs the commercial invoice to prove ownership and secure payment. The description of the goods on the commercial invoice must correspond exactly to the description in the letter of credit or other method of payment. There can be no exceptions.

The importer needs the commercial invoice since it is often used by Customs authorities to assess duties. For this reason, it is common practice to prepare a commercial invoice in both English and in the language of the country of destination. The freight forwarder can advise you when a translated copy is necessary.

Similar to a commercial invoice, a consular invoice is required by certain countries. The consular invoice must be prepared in the language of the country destination and can be obtained from the country’s consulate, and often must be “consularized.” In some countries, the commercial invoice must be prepared on a special form known as a “customs invoice.” Your importer may request this of you.

Export License

Export controls are based on the type of goods being shipped and their ultimate destination. Most exports do not require a license, per se. Technically, most exports are shipped under a “general” license, which does not require an application.

Should your particular export be subject to export controls, a “validated” license must be obtained. To determine whether your product needs an export license, you must have the Export Commodities Classification Number (ECCN) for your product. If your freight forwarder cannot provide you with the ECCN, you may look the number up in the Code of Federal Regulations, Title XV, Section 799.1, available at a public or university library. Licensing information is also available from the U.S. Bureau of Industry and Security (www.bis.doc.gov/Licensing/index.htm). Once you have this number, check with the U.S. Department of Commerce’s (DOC) Bureau of Export Administration (BXA) to determine if your product may be subject to export controls.

In general, your export would require a “validated” license if export of the goods would threaten U.S. national security, affect certain foreign policies of the United States or create short supply in domestic markets.

Shipper’s Export Declaration (SED)

A new Shippers’ Export Declaration (SED) form 7525-V is required as of January 18, 2004. The U.S. Census Bureau placed a Federal Register notice on July 17, 2003, to announce amendments to the Foreign Trade Statistics Regulations (FTSR). The new form is available to the trade at www.census.gov/foreign-trade/regulations/forms. For more details, go to www.census.gov/foreign-trade/regulations/forms/correct-way-to-complete-the-sed.pdf. The SED enables the Bureau of the Census to monitor for statistical purposes the kinds of products being exported from the United States. It must be presented to the carrier before the shipment departs.

Export Packing List

An export packing list is considerably more detailed and informative than a standard domestic packing list. It itemizes the contents of each individual package and indicates the type of package, such as a box, crate, drum or carton. It also shows the individual net, legal, tare and gross weights and measurements for each package (in both U.S. and metric systems). Package markings should be shown along with the shipper’s and buyer’s references. The list is used by the shipper or forwarding agent to determine the total shipment weight and volume, and whether the correct cargo is being shipped. In addition, U.S. and foreign customs officials may use the list to check the cargo.

Insurance Certificate

An insurance certificate is used to assure the consignee that insurance will cover the loss of or damage to the cargo during transit. Documentation must be precise because slight discrepancies or omissions may prevent merchandise from being exported, result in nonpayment or even result in the seizure of the exporter’s goods by U.S. or foreign government customs. Collection documents are subject to precise time limits and may not be honored by a bank if the time has expired. Most documentation is routine for freight forwarders and customs brokers, but the exporter is ultimately responsible for the accuracy of its documents.

The number and kind of documents the exporter must deal with varies depending on the destination of the shipment. Because each country has different import regulations, the exporter must be careful to provide all proper documentation.

Inspection Certificate

Inspection certificates are often required by foreign customs or businesses for certain regulated products, often relating to agriculture, health or the environment. Inspection certificates may also be required to ensure that vessels or crates are free of contaminants before entering certain ports. Depending on the product exported, certificates are issued by various agencies, such as the U.S. Department of Agriculture, the Environmental Protection Agency or the Food and Drug Administration.

Documents Used During the Inland Movement of the Goods

Shipper’s Instructions

As an exporter, you are responsible to provide your freight forwarder with the necessary information regarding your shipment. The more details you provide, the greater the chances your goods will move free of problems. Your freight forwarder can provide you with a commonly used form for noting instructions.

Inland Bill of Lading

Inland bills of lading document the transportation of goods between inland points and the port from where the export will emanate. Rail shipments use “waybills on rail.” “Pro forma” bills of lading are used in trucking.

Delivery Instructions

This document is prepared by the freight forwarder giving instructions to the trucking or railroad company where the goods for export are to be delivered.

Dock Receipts

This document transfers shipping obligations from the domestic to the international carrier as the shipment reaches the terminal.

Bill of Lading/Air Waybill

Bills of lading and air waybills provide evidence to title of the goods and set forth the international carrier’s responsibility to transport the goods to their named destination. There are two types of ocean bills of lading used to transfer ownership: Straight (non-negotiable), which provides for delivery of goods to the person named in the bill of lading and must be marked “non-negotiable,” and Shipper’s Order (negotiable), which provides for delivery of goods to the person named in the bill of lading or anyone designated.

The shipper’s order is used with draft or letter of credit shipments and enables the bank involved in the export transaction to take title to the goods if the buyer defaults. The bank does not release title of the goods to the buyer until payment is received and does not release funds to the exporter until conditions of sale have been satisfied.

When using air freight, “air waybills” take the place of bills of lading. Air waybills are only issued in non-negotiable form, therefore the exporter and the bank lose title to the goods once the shipment commences. Most air waybills also contain a customs declaration form.

Packaging

Goods shipped for export require substantially greater handling than domestic shipments. The exporter must pack the goods to ensure the weight and measurements are kept to a minimum, breakage is avoided, the container is theft proof and that the goods do not suffer the stresses of ocean shipment, such as excess moisture.

In addition to proper packing, the exporter should be aware that certain markings are necessary on goods transported internationally. Some countries require that the country of origin be marked on the outside of the container and even have regulations as to how the mark of origin should appear.

The second type of marking the exporter should be familiar is labeling. Food and drugs must often carry special labeling as determined by the laws of the country of destination. Third, certain “shipping marks” must appear on the outside of the package. The weight and dimensions should be visible and any special instructions should be shown. You may want to repeat these instructions in the language of the importer’s country.

If your business is not equipped to package your goods for export, there are export packaging companies which can perform this service for you. For more information, ask your international freight forwarder for a list of export packaging companies in your area. In addition to the information provided above, www.export.gov is an excellent resource for answering your transporting and licensing questions.

Many businesses, after achieving success in exporting or as an alternative to exporting contemplate joint ventures or licensing agreements with foreign companies to produce goods overseas. Some companies even set up their own off-shore operations. “Strategic Alliances and Foreign Investment Opportunities” are the topic of Chapter Eight.

A temporary export license may be needed if you are visiting a country to make a presentation or show your product. A temporary export license allows you to take products that require U.S. licensing to other countries for a short time. An ATA Carnet will help. It is a special customs document that provides temporary duty-free admission into countries with commercial samples, scientific and education equipment and goods for exhibit. The DOC Bureau of Export Administration (BXA) can advise you on the need for a temporary export license. The ATA Carnet is administered by the International Bureau of Chambers of Commerce.

This chapter appeared in the book Breaking Into the Trade Game, 2004.
Topic: Strategies
Comment (0) Hits: 4576



Pricing

Pricing products for maximum competitiveness in foreign markets can be a challenge. Pricing that works in one market may be totally noncompetitive in another. Although there is no one formula, there are a number of strategic and technical considerations you can make to determine an appropriate pricing structure.

At this point a number of questions need to be answered. For example: Are you entering the market with a new or unique product? Are you selling excess or obsolete products? Can your product demand a higher price because of brand recognition or superior quality? Are you willing to reduce profits to gain market share for long-term growth? Your pricing decisions will be affected by your company’s goals.

As part of your market research, it is important to obtain as much information as possible on local market prices. Pricing information can be obtained in several ways. Thus, one source of information is overseas distributors and agents of similar products of equivalent quality. When feasible, traveling to the country where your products will be sold provides an excellent opportunity to gather pricing information. The U.S. DOC also can assist in determining appropriate prices through its Customized Sales Survey. For more information, go to www.export.gov/tic.

Marketing Your Product

To successfully market a product in a foreign country, the manufacturer must incorporate industry standards, correct labeling, consumer preferences and tastes, and other consumer-driven considerations into a marketing strategy. This may include changing the product color or adjusting the package design and product size. In many cases, only a minor product alteration may be required to successfully gain appeal.

Consideration also should be given to the product name (i.e., it may inadvertently have a negative connotation in the local language), cultural and/or religious connotations, packaging and compliance with standards (i.e., different electrical power systems, metric dimensions and local product regulations).

Another consideration when planning a market strategy is understanding the ramifications of ISO 9000 (www.iso.ch/iso/en/ISOOnline.frontpage). When competing for business in foreign countries, particularly with regard to procurement bidding, it is important to understand and utilize ISO 9000 designations. In many instances, subcontractors supplying parts or services for major overseas contractors are required by the terms of government contracts to be ISO 9000 qualified.

The International Standards Organization (ISO) was founded in 1946 by 25 national standardization organizations, including the American National Standards Institute (ANSI). Today, some 100 countries have approved ISO certification for voluntary application. In 1987, the ISO issued ISO 9000, a series of five documents (ISO 9000, 9001, 9002, 9003 and 9004) that provided guidance on the selection and implementation of an appropriate quality management program for a supplier’s operations, rather than the actual products. The purpose of the ISO 9000 series is to document, implement and demonstrate the quality assurance systems used by companies that supply goods and services internationally. ISO standards are required to be reviewed every five years. Revised standards were last published on 15 December 2000. Additional information on these revisions can be obtained from the American Society for Quality (ASQ) at www.asq.org.

There are three ways for a manufacturer to prove compliance with the requirements of one of the ISO 9000 standards. Manufacturers may evaluate their quality system and self-declare the conformance of the system to one of the ISO 9000 quality systems. Second-party evaluations occur when the buyer requires and conducts quality system evaluations of suppliers. These evaluations are mandatory only for companies wishing to become suppliers to that buyer. Third-party quality systems and evaluations and registrations may be voluntary or mandatory and are conducted by persons or organizations independent of both the supplier and the buyer. Interpretations of an ISO 9000 standard may not be consistent from one registrar to another.

Since the supplier’s quality system is registered, not an individual product, the quality system registration does not imply product conformity to any given set of requirements. The demand for ISO 9000 registration in Europe and elsewhere appears to be coming primarily from the marketplace as a contractual rather than a regulatory requirement. As conformity to the ISO 9000 standards becomes recognized and required by foreign and domestic buyers and used by manufacturers as a competitive marketing tool, the demand for ISO 9000 compliance is expected to increase in non-regulated areas. It is therefore critical for manufacturers to determine their buyers’ requirements regarding ISO 9000 compliance. Additional information on U.S., foreign and international voluntary standards and government regulations and rules of certification for nonagricultural products is available from the National Center for Standards and Certification Information (NCSCI), which is part of the National Institute of Standards and Technology (NIST).

National Institute of Standards and Technology (NIST)

100 Bureau Drive, Stop 3460

Gaithersburg, MD 20899-3460

Phone: 301/975-NIST (6478) or TTY 301/975-8295

E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

www.nist.gov

 

Global Standards and Information Group

National Institute of Standards and Technology (NCSCI)
100 Bureau Drive, Stop 2150
Gaithersburg, MD 20899-2150

 

Phone: 301/975-4040, FAX: 301/926-1559

E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Methods of International Pricing

The cost-plus method of international pricing is based on your domestic costs, plus additional exporting costs associated with international sales and promotion, product modification, etc. (Remember, costs associated with insuring or delivery are usually “pass-through costs” that do not have a mark-up component in arriving at a selling price.) Any costs not applicable, such as domestic marketing costs, are subtracted from the overall cost prior to mark-up to arrive at your selling price. The cost-plus method allows you to maintain your domestic profit margin percentage, and thus to set a suitable price. This method does not, however, take into account local market conditions; your price may be too high to compete in a foreign market.

Different marketing costs and/or modifications to the product could change the cost basis dramatically, making the product either more or less costly for export. As a result, using the “marginal-cost” method provides a more realistic means of determining true cost of producing your product for export.

To use the marginal-cost method, first determine the fixed costs, if any, of producing an additional unit for export. Fixed costs are defined as costs that occur whether or not the company is selling anything; i.e., mortgage payments on land or buildings. If a company is operating at a profit, and additional assets are not being employed, fixed costs have been covered. At this point, any additional costs of producing products are termed variable costs.

There may be instances where additional assets are not needed to meet international sales requirements. In this case, the company would generally only be concerned with variable costs, operating expenses, taxes and net profit in determining the product sales price.

A company may have to purchase new machinery to meet international sales demands. Obviously, there would be a fixed cost component to international production costs (fixed costs would consist of amortized payment of the equipment). In this case, a fixed cost component must be included in the above example to reach the product sales price. International expenses may include the following:

Packaging

Local regulations and customs may require special labeling, translated instructions or different packaging to appeal to local tastes. The selected mode of distribution may also require a particular kind of packaging.

Foreign Market Research

Fees may be associated with specialized research and other educational services used to obtain market information.

Advertising and Marketing

Firms selling directly into new markets will most likely be responsible for the entire promotional effort, and may incur high initial outlays to establish product recognition in the new market. If an agent, distributor or trading company is employed, they typically can handle advertising and marketing as part of their contract.

Translation, Consulting and Legal Fees

Product instructions, sales agreements and other documentation generally will need to be translated into the local language. Be aware that idioms and words can differ greatly in regions using the same language. Expert translation of product labeling and instructions will enhance local marketing. Although many sales agreements are standard, it is advisable to have legal counsel to review all binding documents.

Foreign Agent/Distributor Product Information and Training

Agents and distributors may require special training to effectively market and service your products. This is true even if the agent sells similar products. Training will not only enable the agent to better represent your company’s interests, but gain a better understanding of your product.

After-Sales Service Costs

Product warranties and service contracts will enhance your product’s image. An appropriate after-sales service guarantee can support your sales effort in the new market. Do not, however, promise service or warranties based on U.S. standards that you cannot deliver. After taking these expenses into account, insurance, freight, duties and a profit margin can be added to arrive at a customer price. Depending on the country, currency fluctuations can significantly affect profit margin and the final price. New-to-export companies should price products in U.S. dollars and request payment in dollars.

High-Price Option

This approach may be appropriate if your company is selling a new product, or if you are attempting to position your product or service at the upper-end of the market. Selecting this option may attract competition and limit the market for your product while, at the same time, producing large profit margins.

Moderate-Price Option

This is a lower risk approach as compared with the high- or low-price option. Here you should be able to match competitors’ prices, build a market position and produce reasonable profit margins.

Low-Price Option

This approach may be relevant if you are trying to reduce inventory and do not have a long-term commitment to the market. You will, no doubt, impede competition but also produce low profit margins. Overall, no single strategy is ideal for every company. As a result, companies often draw upon a mix of options for each market or product.

Setting Terms of Sale

Price Quotations

The pro forma invoice is the most commonly used document to give price quotations to potential customers. It is usually considered binding, although prices may change prior to final sale. To prepare the invoice, you should give a detailed description of the product and an itemized list of fees and terms of sale. Prices should be quoted in U.S. dollars to reduce foreign exchange risks. The invoice also should indicate the period during which the price quotation is valid.

You should be familiar with the common terms of sale used in international trade before preparing your pro-forma invoice. International Commercial Terms (INCOTERMS) are universally recognized in export and import contracts. These terms refer to the rights and obligations of each party (i.e., who pays what costs, when title to goods is transferred and where the goods should be delivered). A complete list of INCOTERMS published in the book Incoterms for America by Frank Reynolds can be obtained from the Government Printing Office (www.gpoaccess.gov/index.html) and should be a permanent part of your business library.

Negotiating Sales and Distributor Agreements

Sales Contracts

Knowing how to include INCOTERMS in a contract is important, but represents only one aspect of the sales agreement. Legal rights and obligations of the parties should be spelled out in a single document, which can be incorporated into the final invoice. Frequently, the terms and conditions are contained on the back of the invoice. Some of the terms and conditions necessary in a written sales agreement include the following:

Delivery Terms — Risk of Loss

A force majeure clause is standard in most agreements. This clause excuses the exporter from responsibility where a default in performance is caused by events beyond the exporter’s control, such as war, acts of God or labor problems.

Payment and Finance Terms

In addition to defining the terms of payment, provisions should be included for late payments, partial payments and remedies for non-payment. The terms of payment should consider the use of letters of credit.

Warranties

Sales contracts generally describe the goods and their qualities, workmanship and durability. In some cases, the exporter is obligated by the law in the country of import. Thus, the importer will require the exporter to warrant that the goods meet certain standards of construction and performance.

Acceptance of Goods

Frequently, the importer will insist upon the right to inspect the goods upon delivery. If found defective, the importer can reject them and refuse to pay. However, the importer is still liable for country-of-importation duties and other taxes. The export documents should reflect any such requirements. It is advisable to stipulate in the contract the terms of buyer acceptance and preferences for any inspections to be completed by a qualified third party.

Intellectual Property Rights

Protection of the exporter’s patents, trademarks or copyrights should be assured in the agreement. However, protection under the laws of the foreign country is not automatic. You should not assume that your product is protected.

Taxes

The obligations of the parties for payment of taxes other than customs duties should be defined in writing.

Dispute Settlement

It is advisable to specify how and where any disputes will be resolved, as well as which nation’s law would be applied. Bear in mind that different countries have varying arbitration laws and systems, which may apply.

Agent and Distributor Agreements

If you choose to use an agent or distributor, it will be necessary to develop a formal contractual agreement. Agent and distributor agreements spell out in greater detail the issues noted above and define other aspects of the relationship between the parties to the agreement. In the contract it is important to:

1. Specify the goods and/or services covered.

2. Describe the agent or distributor’s sales territory, and whether they will have exclusive or non-exclusive sales rights.

3. Set the length of the term for which the agreement is applicable and agree upon specified minimum sales volumes and objectives.

4. Outline protection of intellectual property.

5. Describe other types of obligations imposed on the parties, violations of which would justify termination of the contract.

6. List specific intellectual property rights granted to the agent or distributor.

When negotiating and drafting contractual agreements, it is recommended that you consult an attorney with experience in international trade and exporting. Your local bar association may provide a referral service.

Under agreement with the Federal Bar Association and the U.S. Department of Commerce, the Small Business Administration sponsors the Export Legal Assistance Network (ELAN). ELAN is a group of attorneys throughout the United States who specialize in international trade. Your local SBA office or U.S. Export Assistance Center (USEAC) can assist in locating an ELAN attorney who will provide a free, initial legal consultation to discuss your export-related questions.

As an initial introduction, however, you may want to review the information contained in International Business Practices, which covers the legal aspects of doing business internationally. Copies are available from the Government Printing Office.

Terms for financing export sales should be discussed during contract negotiations. While the U.S. seller will want to be paid as soon as possible, the foreign buyer will want to delay payment as long as possible, preferably until after the goods are resold. These two conflicting objectives will factor into any negotiations on export financing.

In addition to reaching a compromise on the method of payment, the U.S. exporter must also be able to offer the foreign buyer favorable financing terms — otherwise the sale could be lost to a foreign competitor with an equivalent product but better payment terms.

The final step in completing the export transaction is arranging for payment, the subject of Chapter Six, “Export Financing.”

This chapter appeared in the book Breaking Into the Trade Game, 2004.
Topic: Strategies
Comment (0) Hits: 2610



Having determined the best international markets for your products, you now need to evaluate the most profitable way to get your products to potential customers in these markets. There are many strategies a company can choose to expand internationally. These include exporting (direct and indirect), joint ventures, strategic alliances, acquisitions of foreign companies through direct investment or licensing technology abroad.

The benefits and risks associated with each method are contingent on many factors, including the type of product or service you produce, the need for product or service support, and the foreign economic, political, business and cultural environment you are seeking to penetrate. The best strategy will depend on your firm’s level of resources and commitment, and the degree of risk you are willing to incur.

Experienced international executives often say a company contemplating international expansion must be knowledgeable of the market it is seeking to enter. Since a variety of complex issues may arise (the need to terminate a poorly performing representative, for example), it is important to be familiar with the business, legal and social environment of each market you are pursuing.

This is especially true if you are considering establishing a joint venture with a foreign partner. Foreign joint ventures are often accomplished through a licensing or off-shore production agreement. Licensing involves a contractual agreement whereby you assign the rights to manufacture or distribute your product or service to a foreign company or individual. Off-shore production usually involves establishing your own facility in the target market or subcontracting the manufacturing of your product to an existing organization. Licensing and off-shore production are discussed in Chapter Eight, “Strategic Alliances and Foreign Investment Opportunities.”

Of the various methods of foreign market entry, exporting is most commonly used by small businesses. Start-up costs and risks are limited, and profits can be realized early on. Exporting can be achieved directly or indirectly. The direct method typically requires an exporter to locate a foreign buyer and then make all arrangements for shipping the products overseas. If this method seems beyond the scope of your in-house capabilities at this time, do not abandon the idea of exporting. Consider indirect exporting utilizing an export intermediary.

Indirect Exporting

Many small businesses export indirectly by using an export intermediary. There are several kinds of export intermediaries to consider. They include the following:

Commissioned Agents

Commissioned agents act as “brokers,” linking your product or service with a specific foreign buyer. Generally, the agent or broker will not fulfill the orders, but rather pass them to you for your acceptance. However, in some cases they may assist with export logistics, such as packing, shipping and export documentation.

Export Management Companies (EMCs)

EMCs act as your “off-site” export department, representing your product — along with the products of other companies — to prospective overseas purchasers. The management company looks for business on behalf of your company and takes care of all aspects of the export transaction. Hiring an EMC is often a viable option for smaller companies that lack the time and expertise to break into international markets on their own.

EMCs often will use the letterhead of your company, negotiate export contracts and then provide after-sales support. EMCs may assist in arranging export financing, but they do not generally guarantee payment to manufacturers. Some of the specific functions an EMC perform include:

  1. Conducting market research to determine the best foreign markets for your products
  2. Attending trade shows and promoting your products overseas
  3. Assessing proper distribution channels
  4. Locating foreign representatives and/or distributors
  5. Arranging export financing
  6. Handling export logistics, such as preparing invoices, arranging insurance, customs documentation, etc.
  7. Advising on the legal aspects of exporting and other compliance matters dealing with domestic and foreign trade regulations

EMCs usually operate on a commission basis, although some work on a retainer while some take title to the goods they sell, making a profit on the markup. It is becoming increasingly common for EMCs to take title to goods.

Export Trading Companies (ETCs)

ETCs perform many of the functions of EMCs. However, they tend to be demand-driven and transaction-oriented, acting as an agent between the buyer and seller. Most trading companies source U.S. products for their overseas buyers. If you offer a product that is competitive and popular with ETC buyers, you are likely to get repeat business. Most ETCs will take title to your goods for export and will pay your company directly. This arrangement practically eliminates the risks manufacturers incur with exporting.

ETC Cooperatives

ETC cooperatives are U.S. government-sanctioned co-ops of companies with similar products who seek to export and gain greater foreign market share. Many agricultural concerns have benefited from ETC cooperative exporting, and many associations have sponsored ETC cooperatives for their member companies. Check with your particular trade association for further information.

Note: The Export Trading Company Act of 1982 encourages the use and formation of EMCs/ETCs by changing the antitrust and banking environments under which these companies operate. The Act increases access to export financing by permitting bank holding companies to invest in ETCs and reduces restrictions on trade finance provided by financial institutions. Under the Act, banks are allowed to make equity investments in qualified ETCs.

Foreign Trading Companies

Some of the world’s largest trading companies are located outside the United States. They often can be a source of export opportunity. United States & Foreign Commercial Service (US&FCS) representatives in embassies around the world can tell you more about trading companies located in a given foreign market.

Exporting through an Intermediary — Factors to Consider

Working with an EMC/ETC makes sense for many small businesses. The right relationship, if structured properly, can bring enormous benefits to the manufacturer. But no business relationship is without its potential drawbacks. The manufacturer should carefully weigh the pros and cons before entering into a contract with an EMC/ETC. Some advantages include:

  1. Product exposure in international markets with little or no commitment of staff and resources from your company.
  2. The EMC/ETC’s years of experience and well-established network of contacts may help you to gain faster access to international markets than you could through a relationship with a foreign-based partner.
  3. Lower or virtually no export start-up costs and associated risks. You can negotiate your contract with an EMC so that you pay nothing until the first order is received.
  4. Guidance through the export process step-by-step. Over time, you will develop your own export skills.

Some disadvantages of exporting through an intermediary include:

  1. Loss of some level of control over the way in which your product is marketed and serviced. Your company’s image and name are at stake. You will want to incorporate any concerns you may have into your contract, and you will want to monitor closely the activities and progress of your intermediary.
  2. Loss of part of your export-sales profit margin by discounting your price to an intermediary. However, you may find that the economies of scale realized through increased production offset this loss.
  3. A higher price passed on to the overseas buyer or end-user. This may or may not affect your competitive position in the market. The issue of pricing should be addressed at the outset.

Export Merchants/Export Agents

Export merchants and agents will purchase and then repackage products for export, assuming all risks selling to their customers. This export intermediary option should be considered carefully, as your company could run the risk of losing control over your product’s pricing and marketing in overseas markets.

Piggyback Exporting

Allowing another company, which already has an export distribution system in place, to sell your company’s product in addition to its own is called “piggyback” exporting. Piggyback exporting has several advantages. This arrangement can help you gain immediate foreign market access. Also, all the requisite logistics associated with selling abroad are borne by the exporting company.

How to Find Export Intermediaries

Small businesses often report that intermediaries find them — at trade fairs and through trade journals where their products have been advertised — so it can often pay to get the word out that you are interested in exporting. One way to begin your search for a U.S.-based export intermediary is in the Yellow Pages of your local phone directory. In just a few initial phone calls, you should be able to determine whether indirect exporting is an option you want to pursue further.

The National Association of Export Companies (NEXCO) (www.nexco.org) and the Federation of Export Associations (FEA) are two associations that can assist in your efforts to find export intermediaries. The U.S. DOC’s Office of Export Trading Company Affairs (OETCA) (www.ita.doc.gov/td/oetca/index/html) can also assist in providing information on how to locate ETCs and EMCs, as well as ETC cooperatives in the U.S. The office, under a joint public/private partnership, provides the contact information for EMCs/ETCs, as well as other export service companies, such as banks and freight forwarders. Locating the best export intermediary to represent you overseas is important. Do your homework before signing an agreement.

Direct Exporting

While indirect exporting offers many advantages, direct exporting also has its rewards. Although initial outlays and the associated risks are greater, the profits are likely to be greater, too. Direct exporting signals a commitment on the part of company management to fully engage in international trade. It may require that you dedicate a staff person or even several personnel to support your export efforts, and company management may have to travel abroad frequently. Selling directly to an international buyer means you will have to handle the logistics of moving the goods overseas. Direct exporting can be achieved with the help of many organizations.

Sales Representatives/Agents

Like manufacturers’ representatives in the United States, foreign-based representatives or “agents” work on a commission basis to locate buyers for your product. Your representative most likely will handle several complementary but non-competing product lines. Generally, an agent is a representative with authority to make commitments on behalf of your firm. As a result, it is important to be cautious about using trade terms interchangeably. Your agreement should specify whether the agent/representative has legal authority to obligate the firm.

Distributors

Foreign distributors, in comparison, typically purchase merchandise from U.S. companies and resell it abroad at a profit. They usually inventory product, which allows the buyer to receive the goods quickly, and often provide after-sales service to the buyer.

Your agreement with any overseas business partner — whether a representative, agent or distributor — should address whether the arrangement is exclusive or non-exclusive, the territory to be covered, the length of the association and other issues. (see Chapter Five, “The Export Transaction,” for additional information on negotiating agent/distributor agreements.)

Finding overseas distributors for your products need not be more difficult than locating a representative here in the United States. Nevertheless, it likely will require an investment of time and resources to travel to your target market to meet face-to-face. One way to identify those interested in your product is to tap the DOC’s Agent/Distributor Service. This program provides a customized search to identify agents, distributors and representatives for U.S. products based on a foreign company examination of U.S. product literature.

Other sources of leads to identify foreign agents and distributors include trade associations, foreign chambers of commerce in the United States and U.S. chambers of commerce located in foreign countries. Many publications can be useful. The Manufacturers’ Agents National Association (www.manaonline.org) also has a roster of agents in Europe.

Foreign Government Buying Agents

Foreign government agencies or quasi-governmental agencies are often responsible for procurement. In some instances, countries require an in-country agent to access these procurement opportunities. This often can represent significant export potential for U.S. companies, particularly in markets where U.S. technology and know-how are valued. Foreign country commercial attachés in the United States can provide you with the appropriate in-country procurement office.

Retail Sales

If you produce consumer goods, you may be able to sell directly to a foreign retailer. You can either hire a sales representative to call on retailers in target markets or you can introduce your products to retailers through direct-mail campaigns. The direct-marketing approach will save commission fees and travel expenses, but may not be as effective. You may want to combine trips to your target markets with exploratory visits to retailers. Such face-to-face meetings will reinforce your direct marketing.

Direct Sales to End-Users

Your product line will determine whether direct sales to the end-user are a viable option. A manufacturer of medical equipment, for example, may be able to sell directly to hospitals. Other major end-users include foreign governments, schools, businesses and individual consumers.

Finding Buyers

Advertise in Periodicals

Many small businesses report that foreign buyers often find them. An ad placed in a trade journal or a listing in the DOC’s Commercial News USA can often yield innumerable inquiries from abroad. The printed version of CNUSA is a monthly export catalog-magazine promoting U.S. products and services to more than 150 countries at a fraction of the cost of any other advertising. CNUSA is the ideal way for all U.S. companies to showcase their products and services around the world and increase export sales with a minimal investment. Through CNUSA, you have access to 150,000 buyers, agents, and distributors through embassies and consulates worldwide. CNUSA has proven to be a most effective vehicle for selling products overseas and now it is available both in print and online (www.cnewsusa.com).

Participate in Catalog and Video/Catalog Exhibitions

Catalog and Video/Catalog exhibitions are another low-cost means of advertising your product abroad. Your products are introduced to potential partners at major international trade shows — and you never have to leave the United States. For a small fee, US&FCS officers in embassies show your catalogs or videos to interested agents, distributors and other potential buyers. Visit www.export.gov/tradeevents.html for more information.

Pursue Trade Leads

Rather than wait for potential foreign customers to contact you, another option is to search out foreign companies looking for the particular product you produce. Trade leads from international companies seeking to buy or represent U.S. products are gathered by US&FCS officers worldwide and are distributed on-line. The leads also are published daily in The Journal of Commerce (www.joc.com) under the heading “Trade Opportunities Program” and in other commercial news outlets. Another source of trade leads is the World Trade Centers (iserve.wtca.org/).

If your product is agricultural, the U.S. Department of Agriculture (USDA) Foreign Agricultural Service (FAS) (www.fas.usda.gov) disseminates trade leads collected by their 80 overseas offices.

Exhibit at Trade Shows

Trade shows are another means of locating foreign buyers. The U.S. Commercial Service’s International Buyer Program brings thousands of international buyers annually to meet with U.S. companies at major trade shows in the United States. Each year the U.S. Commercial Service selects and promotes 28 trade shows representing leading industrial sectors.

International trade shows are another excellent way to market your product abroad. Many U.S. small businesses find that attending one foreign trade show just is not enough. For more information about U.S. and international trade shows go to www.export.gov/comm_svc/.

Participate in Trade Missions

Participating in overseas trade missions is yet another way to meet foreign buyers. Public/private trade missions are often organized cooperatively by federal and state international trade agencies and trade associations. Arrangements are handled for you in order to simplify the process of meeting prospective partners or buyers.

Matchmaker Trade Delegations are DOC-sponsored trade missions to select foreign markets. Your company is matched carefully with potential agents and distributors interested in your product. Being properly prepared for the kinds of inquiries you might encounter on overseas trade missions is important. The Small Business Administration offers pre-mission training sessions through some of its district offices, Export Assistance Centers and the SCORE program.

Contact the Multilateral Development Banks

In developing countries, large infrastructure projects are often funded by multilateral development banks such as the World Bank (www.worldbank.org), the African, Asian, Inter-American Development Banks and the European Bank for Reconstruction and Development. Multilateral development bank (MDB) projects often represent extensive opportunities for U.S. small businesses to compete for project work. Small businesses can be key beneficiaries for sub-contracting opportunities when larger U.S. firms win major project funding.

The project financing by the MDBs help U.S. businesses gain access to many export opportunities. Additionally, the DOC’s Office of Energy, Infrastructure and Machinery, Infrastructure Division (www.ita.doc.gov/td/oeim/) can assist in identifying contracting and subcontracting opportunities.

Qualify Potential Buyers or Representatives

Once you locate a potential foreign buyer or representative, the next step is to qualify them by reputation and financial position. First, obtain as much information as possible from the company itself. Here are a few sample questions you will want to ask:

  1. What is the company’s history and what are the qualifications and backgrounds of the principal officers?
  2. Does the company have well trained personnel, facilities and resources to devote to your business?
  3. What is their current sales volume?
  4. What is the size of their inventory?
  5. How will they market your product (retail, wholesale or direct)?
  6. Which territories or areas of the target country do they cover?
  7. Do they have other U.S. or foreign clients? Are any of these clients your competitors? It is important to obtain references from several current clients.
  8. What types of customers do they serve?
  9. Do they publish a catalogue?
  10. How effective is their sales force?

When you have this background information and are comfortable about proceeding, then obtain a credit report on their financial position. DOC’s World Trade Data Reports (WTDRs), available from the nearest U.S. Export Assistance Center or your local District ITA Office, are compiled by US&FCS officers. A WTDR can usually provide an in-depth profile of the prospective company you are investigating.

There are also several commercial services for qualifying potential partners, such as Graydon reports. U.S. banks and their correspondent banks or branches overseas and foreign banks located in the United States can provide specific financial information.

Cultural Considerations

Keep in mind that cultural sensitivities will affect your market entry in any country outside the United States, including Canada. Do not assume that because the language of business is English, the way of doing business is the same as in America. Take time to research cultural considerations along with market trends. A good overview of doing business with most nations is presented in International Business Practices or CultureGrams (www.culturegrams.com).

In this chapter we have discussed methods of market entry, how to find potential foreign buyers and representatives and how to qualify whom you will be doing business with overseas. Advance market research and preparation is the best way for a small business to define a potential export market. The next question that needs to be explored involves how to accomplish the business of exporting — that is, how the deal should be structured — the topic of Chapter Five, “The Export Transaction.”

This chapter appeared in the book Breaking Into the Trade Game, 2004.
Topic: Strategies
Comment (0) Hits: 8948



In an effort to prevent terrorism, U.S. Customs and Border Protection (CBP), a division of Homeland Security, implemented several important maritime security measures. One of the most sweeping is the 24-hour manifest information rule.

Initiated on December 2, 2002, the rule helps CBP identify threats by requiring sea carriers or non-vessel operating common carriers (NVOCCs) to electronically provide detailed descriptions of U.S.-bound sea container contents 24 hours before they are loaded abroad. On February 2, 2003, after a 60-day phase-in period, CBP began fully enforcing the regulation. Unfortunately, uninformed trading partners found that noncompliance can result in fines, the inability to unload containers, or the vessel being denied U.S. docking privileges.

Details, Details, Details

Cargo declarations are required to be sent to CBP via its automated manifest system (AMS). If you are not set up on this system, you can utilize the services of a provider, or provide paper documents to your carrier for input into AMS. You also should note that the use of common cargo descriptions such as “said-to-contain,” “general merchandise” or “freight-all-kinds,” are no longer accepted. Instead, the cargo’s precise narrative description or its six-digit tariff number must be supplied.

In the past, CBP may have only received information that identified the shipper as a carrier or importer, which didn’t allow for specific tracking. Today, more information about the shipper is required, including the full name and address. Noncompliance runs the risk of closer scrutiny, and increases the likelihood that your containers will be delayed for examination or receive “do not load” messages.

Between February 2 and April 29, 2003, Customs reviewed more than 2.4 million bills of lading, and approximately 260 containers with inadequate cargo descriptions were denied loading. According to Paula Greaves, CDCS Vice President and Senior Operations Manager of Trade Operations at Bank of America, “The need to comply with these rules and provide security in the movement of goods does press technology further into the business stream. However, this provides an upside since the technology likely will enable administrative cost savings in the supply chain.”

Keep Operations Running Smoothly

In addition to ocean vessels, other modes of transportation, such as air, rail and truck, likely will be subject to advanced notification requirements. So what can companies do to ensure successful business operations?

Each company should contact CBP. Importantly, firms need to reevaluate their supply chain to ensure that every involved organization, including their overseas trading partner, understands the rules. Then, it is vital to determine where changes need to be made and to implement them. Plus, the traffic departments of both exporters and importers should work closely together to build in the necessary lead times and prepare required information accurately.

This article appeared in December 2003. (BA)
Topic: Strategies
Comment (0) Hits: 3435



Corporations lose tens of billions of dollars a year through theft and fraud, with check forgery and unscrupulous employees among the biggest culprits. The increase in these white-collar crimes over the years may be attributed to company downsizing and the inability to segregate duties — as well as technological advances, such as computers, telecommunications and the Internet.

Today, it’s easier than ever to forge checks and steal nearly anything, including money, company secrets and other intellectual capital. Yet, with all they have to lose, many corporations do not take the necessary precautions to protect themselves from theft and fraud.

So what can treasurers do to protect their most valuable assets? The first step is to become aware of the threats to your company’s finances and information. Once you’ve identified the risks, experts suggest developing a comprehensive plan and strategies to combat them.

Your Most Significant Risks

Even if you have the most state-of-the-art alarm system in place, your company may still be exposed to threats from both within and outside, including:

  • Employees — With access to inside information and knowledge of your company’s layout and security measures, employees pose one of the biggest threats, according to security experts. Employees may perceive a negative job review, layoff or other adverse job action as a legitimate reason to sabotage or steal from their employer. In addition, personal, medical or financial difficulties sometimes cause the most honest employees to consider criminal acts.
  • Vendors and Customers — If you’ve established a special relationship with vendors and important customers, it's easy to become lax in your security, allowing them to enter sensitive or protected areas of your company. However, while there, they may obtain confidential information and critical company secrets.
  • Criminals and Competitors — Your competitors may resort to corporate espionage, coercing your employees into revealing confidential information or paying professionals to steal information by hacking into your systems.
  • Computer and Systems Attacks — These acts are intended to steal, alter and disrupt information, or to destroy data and computer systems. They may include viruses, session hijacking, wiretapping, and eavesdropping.

Strategies for Protecting Your Company

There are a number of steps you can take to safeguard your company from these risks. They are:

  • Screen Your Employees Carefully — Start with the hiring process, using background checks on everyone from clerical workers to the CEO, especially those who will have access to confidential information. Watch employees for changes in behavior, spending patterns, work attendance, physical appearance, and job performance. These things can be the first signs of financial or family difficulties, addictions, psychological illnesses, or other problems that could be detrimental to your company.
  • Segregate Financial Responsibilities — Although difficult in today's downsizing environment, it's important to have at least two people responsible for accounts payable. In addition, the authorized signers should not be the same people who reconcile the accounts.
  • Reconcile Your Books at Least Every 30 Days — In fact, large-dollar items should be reconciled daily. By reconciling promptly, you can detect check fraud and any other irregularities quickly, and then act immediately to minimize exposure to further losses.
  • Control Access to Restricted Areas — Use passwords, keys and badges, eye scans, fingerprint scans, and other electronic security to limit access to offices and computer systems. Hire security consultants regularly to ensure that these measures are being used and followed.
  • Use Detection and Anti-Virus Programs — Install programs on your computer and telecommunications systems that alert you to intrusions or viruses. With alarms or warning messages, you’ll be notified of viruses, the use of unauthorized passwords, when repeated passwords have been tried, if an unauthorized user is attempting to enter your systems, and many other potential problems that could disrupt your business. To make them as effective as possible, your anti-virus and detection programs should always be operating.

Identify Problems Before They Get Out of Hand

If you’re not on your guard, corporate theft and fraud could occur right under your nose. That’s why it’s critical to know your risks and crucial to have a plan in place for mitigating them.

This article appeared in Crain's Detroit Business, November 2003. (CO)
Topic: Strategies
Comment (0) Hits: 2327



Quick Search

Stock Watch

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!