Starting in Importing and Exporting

A Hot Tip about Business Administration in the United States

Last updated: 28 Sep 2012

What you need to know about starting in import export

What you Need to Know About Import Export  By Barney Lehrer  Prior to around 1996, international trade was mostly the realm of large corporations and firms specialising in trade brokerage. In the 21st Century a combination of inexpensive telecommunications, containerisation of shipments, immediate international payment processing and ease, and relative low cost of international travel have made it possible for even the single-person business to be a global entrepreneur. But how easy is it really? What does it take to operate profitably and legally in the world of international trade? It takes quite a bit of preparation and knowledge, and the risks can be higher than just trading locally, just as the rewards can be exponentially greater. The main factors to consider when contemplating either importing or exporting relate to identifying reliable business partners, finance, pricing, logistics and legal compliance ? none of which are simple tasks. Finding reliable business partners The first issue for any business is to identify your customers and suppliers. For example, if your business is local, meet your customers face-to-face, visit the factory or warehouse that supplies your goods, network in your community to find your customers and suppliers, advertise, make sales calls and do live inspections and demonstrations. When going global, however, this becomes more complicated. Assuming you want to sell your products to a company in Brazil, you need to find someone that needs your product and is able to pay. Where do you start? Larger businesses will have people on the ground in Brazil who can meet prospective clients, check out their facilities and get credit reports. Smaller companies, however, will need help. For most products, the first place to look for help selling overseas is your government?s export promotion agency: the US Commercial Service (www.export.gov), the UK Trade and Investment, (www.ukti.gov.uk), the Canadian Trade Commissioner Service (www.tradecommissioner.gc.ca), the New Zealand Trade and Enterprise (www.nzte.govt.nz) and the Australian Austrade (www.austrade.gov.au), as examples. They all offer similar services, guiding a small business through the export process, including individual consultations (for free or at a very low cost), market reports, setting up meetings with prequalified buyers and help with export financing. Many of these agencies also assist with direct investment, both domestically for overseas investors, and internationally for their native investors. For the most part, governments do not officially promote imports. However, there are hundreds of websites that can assist, including online marketplaces (such as Alibaba.com or Global Sources) and international business directories (such as Kompass and Europages). There is a comprehensive list at www.fita.org/tradehub. If you are sourcing overseas, however, you need more than just pretty pictures or Skype phone calls. You need some due diligence in the form of credit reports and references. These too are readily available on the internet; for example, see the ?International finance, letters of credit & investment? section at www.fita.org/webindex. Finding reliable international business partners requires getting to know your customers or suppliers personally and learning about their cultural and business environment. Most confidence is built in this way. Indeed in many cultures, one cannot do any business without spending a good amount of time visiting, talking, drinking tea or sharing a meal. Trade finance Once you have a buyer, or you have identified a source for products, you need to figure out how to be paid or pay your supplier. Cross-border transactions create a more complicated environment in terms of trust and availability of funds. For example, if you are selling products for the first time to a buyer in another country, how are you protected from default? Many countries have complex legal systems that make it very difficult to demand defaulted payments via legal means. Conversely, if you are buying from overseas, how can you be confident that the product you have ordered and paid for is the actual product that you will receive? This is where trade finance banking comes into play. Most mid-sized to large banks abroad have trade finance departments ? a staff of bankers whose only job is handling payments for international trade transactions. Banks offer a range of trade finance products. For a quick education in trade finance see the US International Trade Administration?s Trade Finance Guide www.ita.doc.gov/media/Publications/pdf/tfg2008.pdf. Pricing Pricing is complicated in any transaction, whether domestic or international. Going global, however, makes it even more complex. Most major currencies are traded as commodities on world financial markets. A bank crisis in Europe, for example, can cause the euro to be suddenly devalued against the US dollar. The international currency market is extremely volatile and difficult to predict, so to mitigate budgeting problems, pricing should be done in one?s home currency if possible. There may be a loss or gain on the day funds are transferred, but you are always sure about the amount you will receive in your own currency. Another option is to hedge future currency rates by having your bank buy forward or futures contracts for your transactions. This option is usually only economical for larger transactions. The terms of sale are also very important in determining price. Are you selling the product at a price that includes shipping and insurance? Do you expect the seller to get it to you with all taxes and duty paid? Then you must learn about INCOTERMS, the universally recognised terms of sale system maintained by the International Chamber of Commerce www.iccwbo.org/incoterms. INCOTERMS determine both the costs included in setting a price and the point at which title to goods switch from seller to buyer. For example, the INCOTERM CIF (cost, insurance, freight) means that the seller calculates the price including the costs of shipping and insurance. The INCOTERM FOB (free on board) means that the seller calculates the price including the costs involved only as far as the ship?s deck, but not transported. The rise of the Web also created a new situation for international buyers and sellers: disintermediation. Using the Web, buyers are more likely to have direct access to manufacturers and, conversely, sellers have more cost-effective access to end buyers. So the role of the middleman has changed ?they must be able to offer good added value to both sides of a transaction. In some cases, manufacturers will hand over all export markets to what is termed in the US as an ?export management company? (EMC). The EMC takes title to all of the manufacturer?s products for export and markets and ships them, and all enquiries from overseas buyers are automatically referred to it. Of course, importers always have to make sure they are getting the best prices, and the Web enables them to directly identify original sources. Another big factor in pricing is the ability to judge what your target market environment is like for your products. Very often, one will find the same or similar products sold in different countries at very different prices. AUSTRADE offers a detailed guide to export pricing at www.austrade.gov.au/ArticleDocuments/1464/austrade-pricing-for-export.pdf.aspx Logistics Once a deal is made, you need to ship your goods or receive the shipment. If you are the exporter, you will have to find a freight forwarder that will arrange shipping from your door to the buyer?s closest port. Freight forwarders offer invaluable services to exporters at very low cost. They negotiate shipping rates, arrange transport to and from ports, advise exporters about packing and regulations, and prepare and submit the documents required to make an international shipment. On the other side of the transaction, the important service provider is the customs broker (sometimes part of the same company as the exporter?s freight forwarder) that handles the shipment once it arrives in port, processes the import paperwork and arranges payments for all duties and taxes required to get a product into a country. Trying to export or import without these important service providers is not advisable and will usually end up costing much more in time, fees and aggravation. Many of these firms operate as ?third party logistics providers? (3PL), meaning that one independent firm handles the full cycle of supply chain (logistics) management, including the services of freight forwarders and customer brokers, as well as warehousing, trucking and other related services. Trade compliance Doing business internationally introduces your company to a complex web of laws, regulations and controls administered by numerous government agencies. In the US (where trade compliance has become especially complicated since the terrorist attacks of 2001) these include the US Customs and Border Protection, the US Department of State?s Directorate of Defense Trade Controls, the US Department of Commerce?s Bureau of Industry and Security, the US Department of Treasury?s Office of Foreign Assets Control and the US Census Bureau. Similar regulations apply in most other industrialised countries. For the exporter, a good freight forwarder will know the steps you need to take to be compliant with all the rules relating to your product. But make sure the forwarder understands your particular industry and product line. Likewise, importers should depend on their customs broker to understand what is needed to import goods in compliance with all laws and regulations. Failure to comply can result in substantial monetary penalties, and even prison terms. To be absolutely sure you are compliant, especially if your goods may have some military or other sensitive application, or if you are doing business with certain countries, there are many lawyers and consultants available who specialise in helping firms comply with trade laws. Another aspect of trade compliance is compliance with a country?s trade agreements and rules against trade barriers. The US Department of Commerce maintains the Trade Compliance Center, for example; an office where companies can register complaints about barriers they may find entering overseas markets. About FITA Online    FITA Online is a company offering comprehensive resources for international trade. It runs several major websites, as well as the popular free newsletter Really Useful Resources for International Trade Professionals (www.fita.org/useful/), which is sent to more than 80,000 businesses worldwide. The company is a strategic corporate partner of the US Commercial Service of the US Department of Commerce. FITA Online?s new website www.globaltrade.net offers the first online database of International trade service providers and a ?knowledge resource? of thousands of articles, videos, reports and events related to most important international trade issues, contributed by website users and US, UK and other government agencies. About the Author    BARNEY LEHRER is Vice President of FITA Online (http://www.fita.org). Mr. Lehrer supervises the  content of FITA Online?s websites, fita.org and globaltrade.net and its newsletter, ?Really Useful  Resources for International Trade Professionals.? Since 1995 he has made the fita.org site a preeminent  portal on the web for resources and information about international trade.    Mr. Lehrer is recognized as an expert in the use of the Internet in international trade. He speaks often at  conferences and has had articles published on the subject of international trade on the Internet in  numerous publications.     Mr. Lehrer is a graduate of the University of Massachusetts and holds an MBA from the Thunderbird  School of Global Management.  
Posted: 18 May 2011, last updated 28 September 2012

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