December 2012 Article – Basics of Exporting

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Basics of Exporting
by Jerry Pacheco

Many entrepreneurs shy away from exploring the international marketplace because it seems like such a black hole, and the first step can be uncertain. Organizations such as the SBA and the U.S. Department of Commerce’s International Trade Administration publish good export guides. However, over the years I have counseled hundreds of companies with their international projects, and I always assure them that exporting can be broken down into a series of simple steps, which are common to most export guides. I also urge them to collect as much free information as possible before paying a consultant to collect this same information. It is always recommended that a company put together an international business plan, which is similar to a standard business plan, but with elements particular to developing a company’s international market.

First, a company must do a self-inventory to assess its strengths and weaknesses. If the local market and its demands are taking all of the owner’s time just to keep the doors open, a decision must be made if adequate resources can be devoted to exploring exporting as an option. As is the case when entering any new local market, conducting due diligence is critical in removing as many barriers as possible that may hinder success. In the first step, a manager needs to ascertain whether he/she has adequate financial and staff resources to undertake an export project. Will a specific person be assigned to this project who will conduct follow up on leads and be the point person for any issues that arise? Will the company be able to provide adequate sales support? Before going any further in the export process, a company has to perform this self-assessment.

The second step is identifying your market – in other words, identifying which buyers would be most apt to buy your product/service. In this step, there are a ton of resources to help companies interested in exporting. A particular country can be researched using resources such as the Organization of Economic Cooperation and Development (www.oecd.org); the CIA’s World Factbook (www.cia.gov); or the United Nations’ Online Library (http://www.un.org/en/).

In terms of market-specific information, the website www.export.gov provides a wealth of information, including export markets, tariffs, training, and trade shows. The International Trade Administration’s website (http://trade.gov/) provides information on a multitude of trade-related topics.

Local resources, such as the U.S. Department of Commerce Export Assistance Centers, chambers of commerce, state government international trade divisions, and Small Business Development Centers Networks can have export experts that help companies navigate through the process.

The next step is pricing your product for a particular export market. Let’s say that a potential buyer has been identified and a product quote is being requested. Before this quote is sent, a company should already have determined the final price to the buyer. I have worked with many American entrepreneurs who are experts on their local market and can quickly assemble a quote, which if accepted, will provide a profit margin for the company. However, exporting a product/service can involve a whole new set of costs such as international freight, customs brokers’ fees, tariffs, and insurance. A company also must decide the optimal distribution channel and the transportation mode(s) for getting a product/service to market. If a company has not included these extra costs in the final price of a product delivered to a foreign buyer, margins can shrink quickly and losses may occur.

Related to pricing the product/service is the method for receiving payment for your export, and reducing payment and currency risk. Obviously, the best way to mitigate risk is to demand payment from your buyer before the product is shipped. However, this pushes most of the risk onto the buyer, which may not be acceptable. Credit card transactions can be used, but there is inherent risk in having payments rescinded or reviewed if a problem occurred during the transaction. Larger transactions can be conducted using documentary letters of credit, in which banks representing the buyer and seller become involved in the deal to verify that the transaction takes place as agreed upon. Bankers should be consulted before an export quote or transaction takes place in order to understand payment options, and to ascertain whether bankers’ fees will eat into the profit margins.

Finally, a company must have a plan for generating future exports, not only in the first country in which it succeeds, but other markets that hold promise for its products/services. To a certain extent, the experience gained in the initial export market can be used in new markets. However, every market is different and has its own business environment and idiosyncrasies.

Following these basic steps can offer a path to entering the global marketplace.