2. Identifying potential foreign markets

• 2.1 Should we restrict our marketing to countries that are already buying our types of products?
  From: From: Aziz Ahmad Khan — Lahore, Pakistan
• This is a mistake made by too many new exporters. They tend to select countries that are close to saturation with products that are similar and identical to theirs. While it is more comfortable to know that they will be exporting to well-established markets, they are not prepared for the fierce battles that will follow with entrenched competitors who will not give up their local market share without a fight. This potentially combative situation could result in ever-decreasing product prices and profit margins, and a premature and costly exit from the export market.
  
  An alternative marketing approach is to select export markets based upon their NEED for your products. In many instances, this means penetrating markets where little, or none of your type of products has been sold in the local market. While the risk is higher, so is the profit potential. It will require a more intensive advertising and promotional campaign to educate local customers about the benefits of your products and why they should buy them (possibly for the first time).
  
  A STORY: Two shoe salesmen were asked to fly to an underdeveloped country, research the local market, and, upon their return, advise management if they thought that their line of shoes would sell in the local marketplace. As instructed, they left one day apart. The first salesman returned a week later and sadly informed management .there is no market for us in that county. They don.t even have shoes yet!. The second salesman returned the following day full of enthusiasm and exclaimed to management .what a great market for us. They don.t even have shoes yet!.

 

• 2.2 What is the difference between primary and secondary international market research?
  From: Reginald Wick — Ottawa, Canada

• The difference between primary and secondary international research is the proximity of the research to the foreign market as follows:

  PRIMARY RESEARCH is undertaken inside the foreign country through personal interviews, surveys, and other methods of direct contact with potential customers and representatives. A major advantage of primary research is that questions can be tailored to meet the specific needs of the seller. For that reason, it is often used by suppliers who intend to sell their products directly to local customers without using export sales representatives. However, collecting, compiling and interpreting the data requires a considerable amount of time and money. It can be too costly and time-consuming for smaller companies.

  SECONDARY RESEARCH involves collecting market information indirectly from outside sources, i.e., government reports, published trade statistics, academic studies, and private surveys. There is always a risk involved in secondary market research, i.e., collection methods may be flawed, the data may be incomplete, analysis procedures may be incorrect, or dates on the reports may be recent but the information itself is obsolete. Because it is less costly and quicker than primary market research, it is often used by smaller companies, especially those who plan to sell their products through export sales representatives within the foreign market.

• 2.3 Can you recommend internet sites for basic research in Asia?
  From: Wilfredo H. Rodriquez — San Juan, Puerto Rico
  • We suggest that you begin by contacting the following sites on the internet. They will provide you with the "basic" information you need, and they will refer you to more detailed sites so that you can refine your market research program:

    ASEAN Secretariat, http://www.aseansec.org
    APEC Secretariat, http://www.apecsec.org.sg

    We note that your company is not yet on the internet. We recommend that you consider introducing a company web site as soon as possible. The internet is the commercial communication method of the future. You do not want to wait too long, and give your competitors the opportunity to steal away your customers.

• 2.4 Is there a U.S. Chamber of Commerce in China (PRC)?
  From: Rose Marie Wharton — Milwaukee, Wisconsin (USA)
  • There are three U.S. Chambers of Commerce in China as follows:
    
    BEIJING: American Chamber of Commerce, PRC-Beijing, Great Wall Sheraton Holet, Room 444, North Donghuam Avenue, Beijing 100026, People's Republic of China, tel: (86-10)6500-5566 x 2271, fax: (86-10)6501-8273.
    
    

GUANGZHOU: American Chamber of Commerce in Guangzhou, Room M-2E10, Guangodong International Hotel, 339 Hunshi Dong Lu, Guangzhou, People's Republic of China 510098, tel and fax: (86-20) 332-1642.

SHANGHAI: American Chamber of Commerce in Shanghai, Shanghai Centre, Room 435, 1376 Nanjing Road West, Shanghai 200040, People's Republic of China, tel: (86-21)6279-7119, fax: (86-21) 6279-8802.

We also suggest that you contact the following two Chambers of Commerce of the People's Republic of China located in the United States as follows:

NEW YORK CITY: Chinese Chamber of Commerce, Confucius Plaza, 33 Bowery, Room C203, New York, New York 10002, tel: (212) 226-2795.

SAN FRANCISCO: Chinese Chamber of Commerce, 730 Sacramento Street, San Francisco, California 94108, tel: (415) 982-3000.

3. Building an international sales network

• 3.1 Can I advertise for export sales representatives at trade shows?
  From: Humberto Basares — Ponce, Puerto Rico
  • Yes, advertising for international sales representatives at trade shows is done quite often, and it can be very successful. It depends upon the type of trade show and where it takes place. If it is a general merchandise trade show in San Juan, Puerto Rico where most of the visitors will be Puertoriquenos, the probability of encountering qualified foreign agents and distributors is low. However, if you were to display your products at an industry-specific trade show at the Miami Florida Convention Center, you would greatly increase the probability of meeting qualified export sales representatives. Foreign agents and distributors attend major international trade shows on a regular basis looking for products they can sell profitably in their domestic markets.

    Place a tastefully-colored sign in a prominent place inside your display area stating “EXPORT SALES REPRESENTATIVES NEEDED”. Be prepared to explain the types of representatives you are seeking, the support you will provide to them, and the services they will be expected to provide to customers on your behalf. Avoid going into too much detail at the booth. There are distractions that can make it difficult to concentrate. Make appointments to meet before and after normal trade show hours. Keep your evenings and early morning hours open to accommodate meetings at the convenience of potential representatives. Bring along a blank copy of your standard representation agreement so that you can discuss its terms and conditions in detail. Interested representatives can then take the sample agreement with them to discuss with appropriate executives within their organization.

 

• 3.2 Is it difficult to cancel a contract with a foreign sales representative?
  From: Viktor Toth — Budapest, Hungary

• The answer to this question will depend upon the laws of the country in which the cancellation takes place. In many countries, a representation contract can be terminated relatively easily. However, in other countries, it can be very costly and time-consuming to sever a business relationship with an agent or distributor. You could be required by local law to compensate the representative for a portion of the original investment, promotional money spent in advance to secure future sales, and the projected income they would have earned during the remaining period of the contract.

  Because business customs and laws vary in different countries, it is important that you present your representation contracts to an international attorney who is knowledgeable of the laws and regulations of the country in which you will be selling your products. While doing so will be more expensive in the initial stages, it is a sound business investment which could save you a large amount of money fighting litigation in foreign courts.

 

• 3.3 What is an Export Trading Company?
  From: Brian Ashford — Bridgetown, Barbados

• "Export Trading Company (ETC)" is a term used primarily in the United States. Export Trading Companies were authorized by the U. S. Export Trading Company Act of 1982 so that certain U.S. companies and industries could compete with successful Japanese and European trading companies and cartels. They are similar to Export Management Companies (EMCs) - but they have been granted immunity from certain U. S. Anti-Trust Laws while selling U. S. products in foreign markets. They may represent a number of products within the same industry. They often “source” for products in the United States on behalf of foreign buyers. They can either work on a commission basis or purchase and take physical possession of goods for resale in foreign markets.

 

• 3.4 What is the best type of export representative for a new exporter?
  From: Manuel Guma — Managua, Nicaragua

• There are four basic types of export sales representatives:
  1. Commissioned Export Sales Agents (often referred to as export brokers),
  2. Export Management Companies (EMCs),
  3. Export Trading Companies (ETCs), and
  4. Full Stocking Distributors.
  
  Before you decide which types of export sales representatives you will use, we suggest that you ask yourself the following five questions:

  (1) Through what channels are similar products being sold in your export markets?
  (2) How much capital do you have and what financial risks are you willing to assume?
  (3) What degree of control do you want to retain over the marketing of your products?
  (4) When do you want your representatives to take title and physical possession of your products?
  (5) When, how and from whom do you want to receive payment for your export sales?
  
  How to select an export sales representative is too broad a topic to cover here. There are countless resources available that outline the basic characteristics of the various types of export sales representatives. The Export Sales & Marketing Manual, published by the Export Institute and offered for sale on this site, provides a thorough study of the advantages, disadvantages and client services provided by each type of export sales representative. We suggest that you review Chapter III. LOCATING POTENTIAL EXPORT SALES REPRESENTATIVES in the table of contents of the Export Sales & Marketing Manual by clicking here.

4. Traveling to your foreign markets

• 4.1 Why is it important to visit your export markets?
  From: Charles Upham — Perth, Australia
  • It can be costly to appoint an export sales representative without visiting their country and observing their operation firsthand. It is not especially difficult to create a favorable (but false) impression during a well-planned overseas visit, but it is an entirely different matter to sustain that false image after you have had the opportunity to speak with their employees, customers, bankers and local suppliers.

    Do not allow potential export sales representatives to select ALL of the people you will be meeting. This would be like allowing the used car salesman to select the mechanic who will be evaluating the vehicle you would like to buy. The outcome is predetermined. Select a few individuals and organizations yourself, and meet with them away from your host’s facility, where discussions will tend to be more informal and candid.

    Some exporters, especially those with limited funds, forgo regular visits to their export markets to conserve short-term operating capital. This is a potentially expensive policy. We strongly recommend that exporters spend the money to travel to their foreign markets on a systematic basis. The most important factor in successful exporting is developing and sustaining STRONG PERSONAL RELATIONSHIPS with overseas representatives. Letters, faxes and telephone calls are no substitute for personal contact in foreign trade, especially when you need a special favor or help in a difficult situation.

• 4.2 Can you recommend a good book in English on travelling overseas?
  From: Sukich Sarasin — Songkhla, Thailand

• There are several excellent books in English with advice on how to travel in foreign countries. Among our staff, we have read hundreds of books on this topic. We have discussed your question at length, and we recommend the following three publications:

  (1) Kiss, Bow, or Shake Hands. 1994. Terri Morrison, Wayne A. Conaway, and George A. Borden. Publisher: Media Corporation, Holbrook, Massachusetts. ISBN 1558504443.

  (2) Blunders in International Business. 1993. David A. Ricks. Publisher: Blackwell Publishers. ISBN 1557864144.

  (3) Craighead’s International Business, Travel, and Relocation Guide. 1994. Publisher: Gale. ISBN 0810396335.

  
  

• 4.3 How can I find out about health dangers while traveling overseas?
  From: Naresh Viswanathan — Bangalore, India

• We are not aware of a source for this type of travel information in India. We suggest that you contact the Center for Disease Control and Prevention on the Internet at www.cdc.gov. This site is sponsored by the U. S. Government and contains travel information that you will want to know before leaving on your overseas trips, i.e., health conditions and vaccine recommendations by country and geographical area, and up-to-the-minute reports on outbreaks of disease worldwide. Discuss this information with your personal physician who can give you specific recommendations on what vaccinations and other health precautions you should take. Begin making preparations and taking vaccinations as far in advance of your trips as possible. Certain vaccines may require several injections over an extended period of time, i.e.; Hepatitis B requires three injections over a period of six months.

 

• 4.4 Does it matter what type of hotels we stay in on overseas trips?
  From: Professor Hans W. Dekkert — San Fernando, Trinidad

• When you are visiting a foreign country on business, you want to give the impression of being professional and successful. Most people like to think that they are dealing with a thriving (but not extravagant) company. Stay in reasonably priced, first-class hotels. They are usually more centrally located, and you will save considerable travel time and money for taxi fares. Most first class hotels provide 24-hour telephone and fax service, a reliable guest message system, pleasant meeting rooms, quality restaurants, and access to the internet so that you can maintain continual contact with your home office.

5. Budgeting for export sales and profits

• 5.1 How can we monitor our export sales and profit performance?
  From: Alfonso Martinez — Puebla, Mexico
  • It is important that you regard export budgets and forecasts as tools which enable you to evaluate past performance, make necessary adjustments, and establish new sales and profit goals for your company.

    Your monitoring report should be broken down by country, number of units, monetary values in pesos, and current month and year-to-date sales figures. Individual categories should include products in process and delivered, orders approved or awaiting approval, and payments received and pending. See chapter nine of the Export Sales & Marketing Manual for examples of a Five Year Export Sales Forecast and an Export Profit and Loss Budget.

    If you are just starting to export, monitor your budgets and forecasts weekly. You can lengthen the periods between monitoring sessions as performance improves. Contact export representatives who are not producing and discuss how you can work with them to improve sales. However, if their poor performance continues, replace them as soon as you can. Do not wait until an export market has almost been lost to take decisive action.

    The Export Sales & Marketing Manual can be reviewed here.

    
    
• 5.2 Who pays for legal and banking fees in an export transaction?
  From: Sean B. McCortney — Dublin, Ireland (Eire)

• The final customer in the foreign market ultimately pays legal and banking fees. However, they are usually handled differently in the invoicing process.

  (1) Legal fees are estimated in advance by the exporter and are included in the purchase price. They may include legal counsel to review contracts, to ensure compliance with export licensing requirements, and to protect the exporter against violation of intellectual property rights. Legal fees are paid by the seller and the buyer does not know the estimated amount for these fees.

  (2) Banking fees are usually known in advance of the sale and are added to the price quotation/ proforma invoice to the buyer as a separate item. They are usually for processing of shipping and financial documents. Banks act as financial intermediaries between the buyer and seller in export transactions. The buyer knows the amount of the banking fees prior to placing the order.

  
  

• 5.3 How soon do U.S. companies start making export profits?
  From: Bernard Sholton — Lucerne, Switzerland

• While circumstances vary by product, price and level of expertise, it would be unusual for a U. S. company to earn a profit after one year of exporting. Although the possibility improves in the second year, most U. S. companies do not make a profit until they have been exporting for at least three years. There is an unavoidable learning curve involved in exporting. If a company does earn profits in the first or second year, we recommend that they reinvest the money to increase future export sales, profits and local market share. Not many companies, in the United States or elsewhere, can become successful exporters and moneymakers unless they are in the international market for the long term.

 

• 5.4 How do we budget for training of our export sales representatives?
  From: Paul Wolstenholme — Port Stanley, Falkland Islands

• Assuming that your export sales representatives are located in your export markets, we suggest that you consider alternate training sites and the sharing of expenses as follows:

  (1) Your trainer travels to the export market to train local personnel for a reasonable period of time. You pay for the cost of airfare both ways. Your representative pays for living, travel and training expenses while your trainer is in the country,

  (2) The next time your export sales representative sends a predetermined number of personnel to the Falkland Islands. They pay for the airfare both ways. You pay for living, travel and training expenses while they are in the Falkland Islands.

  In your marketing agreements, it is important that you specify how future training expenses will be shared, maximum length of stay, payment for emergency trips, and advance notice required from your export sales representatives. Don’t forget to allow for inflation in your cost estimates.

  If your export sales representative lacks the funds to pay for initial training trips, you may want to pay these expenses yourself until sales volume has reached a pre-determined annual amount. Do not forget to include these costs in your export price structure so that you are reimbursed. Another alternative would be to ask your export sales representative to reimburse you for these costs when a specified annual sales volume is reached.

6. Working with a foreign freight forwarder

• 6.1 What are INCOTERMS and how are they used in exporting?
  From: K.L. Halkin — Izmir, Turkey

  • INCOTERMS is a codification of the terms used worldwide in foreign trade quotations and contracts. They clarify the responsibilities of the buyer and seller in international commerce. Examples of INCOTERMS are EXW (Ex Works), FCA (Free Carrier), FAS (Free Alongside Ship), FOB (Free On Board Vessel), CFR (Cost & Freight), and CIF (Cost, Insurance & Freight).

    INCOTERMS were last revised on July 1, 1990 by the International Chamber of Commerce. They provide a new set of comprehensive rules for export transactions that are more compatible with recent developments in worldwide electronic data exchange (EDI). They accommodate international cargo shipped in containers, multi-modal transport and roll-on/roll-off traffic.

    If you are or plan to become an active exporter, we recommend that you purchase the publication “Incoterms 1990” from the Ankara office of the ICC Publishing Corporation, telephone: 312-417-8733. (The telephone number in the United States is 212-206-1150.) They also have an internet site located at http://www.iccwbo.org. One mistake involving INCOTERMS in a price quotation/proforma invoice or sales contract could delay delivery of the order, cost you a considerable amount of money, and cause serious misunderstandings with your overseas customers and representatives.

    
    
• 6.2 How do you choose a good foreign freight forwarder?
  From: Peter Finch — Abuja, Nigeria

• Exporters fail every day because they are unable to deliver their products in a timely and reliable manner. A reputation for late delivery is easy to acquire but difficult to correct. We recommend that you consider the following factors before selecting your foreign freight forwarder:

  (1) Location and operating hours of their local office: You may have to visit their office often. If they are located nearby, you will save on communication and travel expenses. Make certain that they will be accessible evenings and weekends in case of emergencies.

  (2) Location of branch offices: This will be especially important if you have to locate an export shipment quickly. If they have worldwide branches and affiliates, they will be able to trace your misrouted or delayed shipments from both ends of the transaction without involving third parties.

  (3) Are they a “full service” forwarder? Can they handle ocean shipments, air shipments and container consolidation to reduce transport costs? Could they handle importing? Check out their references to make certain they can process your shipping documents correctly and efficiently?

  
  

• 6.3 What services can I expect from my foreign freight forwarder?
  From: Shi Zhaodong — Wenzhou, China

• A foreign freight forwarder will make arrangements for and expedite shipments of your products to overseas destinations. Your foreign freight forwarder should be able to do the following on your behalf:

  (1) Act as your agent per your power of attorney to transport your products to the foreign port of import and, if requested by you, directly on to the importer’s location in the foreign market.

  (2) Prepare and examine shipping documents for accuracy, completeness and compliance with the legal requirements of China and importing countries.

  (3) Distribute international shipping documents and, if requested by you, submit them directly to your bank for collection and deposit to your account.

  (4) Act as your “Customhouse Broker” per your power of attorney and arrange for clearance of your import shipments through any port in China

 

• 6.4 What is an Apostille and how is it used?
  From: Jaffa Abu Zeid — Al Ahmadi, Kuwait

• An Apostille is a form of international notarization in which a designated public official certifies to the genuineness of the signature, seal and position of another public official (in the same country) who has executed, issued, or certified a copy of a public document (government document). When executed correctly, it allows the public document to be accepted as genuine in participating countries that accept the Apostille. It must be either attached as an annex to the public document, or placed on the public document itself by means of a stamp. Examples of public documents include official documents issued by judicial authorities, administrative organizations, and official certificates affixed to documents signed by persons in their private capacity. Documents executed by diplomatic or consular agents, or documents relating to commercial or customs operations, may not be authenticated by an Apostille.

7. Starting your own export business

• 7.1 Can I start out working part-time in my new export business?
  From: John M. Sargeson — Pretoria, South Africa

  • You state that you have a “satisfactory position that allows you to support your family in a comfortable condition”. We interpret this statement to mean that your work provides a steady income that you would not want to lose without being able to replace it with another reliable source of income within a reasonable period of time. For that reason, we recommend that you keep your present job and consider one of the following two alternatives:

    (1). Take a short-term leave of absence from your present position without losing your employee benefits, i.e., medical insurance or retirement plans. If you are allowed to do so, and you have sufficient working capital, business expertise and export knowledge, you can start out working full time launching your new export business. If your export business fails (and it could), you would be able to return to your old position with its steady income and employee benefits. Your maximum loss would be the money you spent to run the business and the income that you lost during the leave of absence period.

    (2). Start out working part-time. Enroll in evening and weekend classes to learn about exporting and how to operate a small business. Spend a few hours every week setting up your new office (preferably in your home), conducting international market research, and making initial contacts with domestic suppliers and foreign buyers. If your export business fails (and, again, it could), your maximum loss would be the money you spent starting the business. You would not have lost one rand of income from your present position even though you were unsuccessful in starting your own export business.

• 7.2 As an export agent, when should I receive payment for the sale?
  From: Lubomyr Mazur — Kharkkov, Ukraine

• You stated in your e-mail message that you are operating out of your home and that you have limited cash reserves. Therefore, we assume that you do not have the financial capacity to purchase and take title to the merchandise. If this assumption is correct, you will be acting as a commissioned export sales agent. The buyer will pay the seller directly through an international bank. You will receive from the seller an agreed-upon commission rate for arranging the export transaction. Your commission will be a percentage of the total invoice value less forwarding fees, transportation costs, and other incidental expenses. To learn more about how to organize and operate your new business, we suggest that you purchase our online report, "How to Become a Successful Export Agent."

 

• 7.3 Must I learn how to use a computer to start my new export business?
  From: Ricardo Estrada — Oporto, Portugal

• You will never be able to build a successful export business unless you learn how to use a computer. Connected to an outside telephone line, a modem and a printer, it will become your word processor, fax machine, calculator, copy machine, follow-up system, file cabinet and answering machine. Most importantly, it will be your connection to the Internet and more than 200 countries around the world. Using the Internet, you will be able to secure up-to-the-minute information on foreign markets, take advantage of sales opportunities quickly, advertise your clients’ products globally, and promote your new export business to potential customers worldwide. If you have never used a computer at work or at home, it is crucial that you begin taking computer classes as soon as possible. If you have the financial resources, we suggest that you consult with a computer expert to make certain that you secure the correct computer model and software programs for your needs. Do not overspend for an overly-sophisticated name brand computer or costly software programs that you will never use.

 

• 7.4 Should I learn a foreign language before I start my own export business?
  From: Steve Stearns — Kansas City, Missouri (USA)

• Do not postpone starting your export business until you have mastered a foreign language. To become fluent in a language requires more time than you might think. Launch your new export business immediately and use your valuable time in the initial stages to set up your new office system, conduct international market research, contact domestic suppliers and foreign buyers, advertise and promote your business, and learn as much as you can about the exporting process.

  As a North American, you are fortunate because English is the current language of international commerce. You should able to build your export business to a certain point without possessing fluency in foreign languages. However, the time will come (sooner than you might think) when you will either have to learn one or more foreign languages, or hire people who already read, write and speak them fluently. There is no substitute for communicating with customers in their mother tongue.

  NOTE: In many parts of the world, North Americans who cannot speak the local language are considered to be lazy or arrogant. Therefore, if you have not as yet mastered the local language, learn at least a few basic words and phrases so that you can show your hosts that you have made an effort to learn their language. It is also very important that you learn how to work efficiently with an interpreter so that your business negotiations will progress in a professional manner.

8. Pricing competitively in world markets

• 8.1 Must we reduce our price if we do not provide warranty service?
  From: J. Komakhidze — Kutaisi, Republic of Georgia

  • You indicate that your products are technical and require warranty and repair services. Because you do not have the personnel or the funds to travel outside of the Republic of Georgia, you want to export your products on an "as is" basis to end-users, without future responsibility for their quality and performance.

    You will most likely have to reduce your export prices to compensate end-users for future repairs and parts replacement costs. The amount of the reductions is a matter of negotiations between you and your customers. Make certain that they order satisfactory initial inventories of spare parts. You do not want to become involved in shipping small parts orders overseas on an emergency basis. This can be very expensive and disruptive to your normal business operations.

    We recommend that you make a strong effort to acquire stocking distributors inside your foreign markets. Selling “as is” can put you at a definite competitive disadvantage. Most end-users do not want to become involved in repairing their own equipment. They want to be able to call their local distributor and have them come out and make the necessary repairs quickly and efficiently.

    If your local competitors can offer reliable warranty and repair service at a reasonable price, and you cannot, who do you think will get the order? Place yourself in the position of the foreign customer - and begin securing qualified stocking distributors in each of your new export markets.

 

• 8.2 How long is the average life cycle of an export product?
  From: R. Kadirgamar — Colombo, Sri Lanka

• The length of a product’s life cycle depends upon the characteristics of the product and export markets involved. If you are only selling your product locally, it has only one life cycle that will end abruptly when demand for it ceases in Sri Lanka. However, if your product has a high level of quality and utility, it may still be attractive to customers in certain foreign markets where it would still be considered up-to-date. You may be able to offer it at lower prices because you will be using previously-depreciated equipment. This would lengthen the life cycle of your product and create new incremental profits for your company.

 

• 8.3 How much do we add to our domestic price to establish export prices?
  From: Melissa McGrew — Christchurch, New Zealand

• Unless your products are highly technical, unique or modified at your customer's request, eliminate as many domestic costs as you can from your export ex factory (works) price and then add on your estimated costs to export and your profit margin.

  One of the most common mistakes made in export pricing is the inclusion of domestic costs that do not apply to the foreign buyer. A prime example of inflated export pricing is the inclusion of domestic sales and marketing costs for advertising, promotion, commissions, company vehicles, expense accounts, etc. If you were the foreign buyer, would you want to pay the seller a second time for costs that have nothing to do with your transaction, or doing business in your country?

  Once you have eliminated as many domestic costs as you can from your standard ex factory (works) price, then add on estimated costs for product modifications, special packaging, export administration, international market research, foreign travel, training, etc. Remember that your standard export ex factory (works) price will be increased by your customer’s costs for transport, insurance, import duties, and a mark-up percentage for their cost of doing business and their profit margin.

9. Writing export marketing agreements

• 9.1 How should you define the effective date of an export agreement?
  From: Lee C. Mong — Tianjin, China
• You can use a specific date if negotiations have been completed and all required documentation has been provided to the satisfaction of all parties to the agreement. You can also use an unspecified future date if the agreement is contingent upon receiving additional documentation or completion of an action, i.e., submittal of forms to government authorities or cancellation of competitive product lines. In the latter case, the agreement will not become effective until all information and actions have been completed to the satisfaction of all parties to the agreement. It is important that you include a date or maximum period of time for these actions to take place, after which the agreement will automatically expire. You do not want to place yourself in the position that you have spent a lot of time and money on an agreement which cannot, or will not materialize.

 

• 9.2 What is a "merger clause" in an export marketing agreement?
  From: Juan Pagan — Guadalajara, Mexico
  • Negotiating an export marketing agreement can extend over a long period of time involving many telephone conversations, e-mails and faxes. In order to avoid misunderstandings and subsequent legal actions, we recommend that you include a Merger Clause in your export marketing agreements. It should state that the final agreement (1) supersedes and cancels all previous agreements, written or verbal, that may have occurred prior to the signing of the final agreement and (2) cannot be changed without the prior written authorization of both (or all) parties to the agreement. We advise that you consult with an experienced international attorney for the proper wording of a merger clause that specifically meets your needs as the exporter.

 

• 9.3 Should we require a minimum stocking order for new distributors?
  From: Edward Kaminski — Gdansk, Poland

• Yes, we advise that you require all new distributors to purchase a minimum initial stocking order of products and spare parts (if needed). Ultimately, the total value of the initial order is your decision, but we suggest that you make it large enough to confirm your distributor's (1) financial strength; (2) commitment to promote and market your product; and, (3) willingness to stock enough products (and spare parts) to ensure prompt sale, delivery, warrant service, and product repair. If there are numerous items involved, we suggest that the initial stocking order be quoted in zloty EX WORKS YOUR FACTORY.
  
  
  When expenses are properly allocated for the time of personnel, non-standard packaging, special handling and administrative overhead, you may lose money fulfilling small export orders. Therefore, we recommend that you establish either a minimum handling charge or a minimum order amount. Avoid agreeing to the repurchase of slow-moving items, which may encourage excessive ordering by distributors who know that you will buy back what they do not sell. You can counteract this partially with a substantial restocking charge.

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10. Securing export licenses and permits

• 10.1 What seminars are available on the U.S. Export Administration Regulations (EARs)?
  From: David Warneka — Santa Fe, New Mexico (USA)

• U.S. federal government seminars on the Export Administration Regulations (EARs) are offered by the Bureau of Export Administration (BXA), an office in the U. S. Department of Commerce. Seminars range in length from one-half day to two days. Topics include export licensing requirements, export management systems, technical data handling, and encryption of export information. The seminar schedule by city and date for the remainder of 1998 and early 2000 will be available in September 1998. You can obtain a copy of the schedule by calling the BXA Export Regulations Seminar Office at (202) 482-6032. The schedule will also be available on the internet at http://www.bxa.doc.gov. We recommend that you secure a schedule and reserve a space as soon as possible. These seminars are very popular and are usually sold out in advance.

 

• 10.2 What is the Foreign Corrupt Practices Act (FCPA) and how does it affect my business?
  From: Gregory Kalomas— Dover, Massachusetts (USA)

• The FCPA was enacted in 1977 and amended in 1988 by the Congress of the United States. This Act makes it a crime for U. S. individuals and companies, including their subsaries, branches or affiliates, to knowingly offer payment or promise of payment of money or anything else of value to foreign government officials to secure business. It does not apply to bribes offered to non-government officials, although there may be local laws that could result in prosecution.
  
  

As a manufacturer and active exporter located in the United States, your company is subject to all of the provisions of the FCPA. Because of the many requirements of the Act, it is impossible to outline all of them here. We recommend that you refer to chapter six of the Export Sales & Marketing Manual entitled "Export Regulations" where the FCPA is presented in a clear and easy-to-understand format. It is important that you fully understand the requirements of this Act because, if a violation occurs, it could result in a fine of up to US$2,000,000.00 for corporations, US$100,000.00 for individuals, imprisonment of up to 5 years, or a combination of a fine and imprisonment.

 

• 10.3 What are the major purposes of U.S. Export Regulations?
  From: Donna Perpich — Dallas, Texas (USA)
• The Export Regulations of the United States, administered by the the U. S. Department of Commerce and other government agencies, are designed to accomplish the following three objectives:
  
  
  (1) Support national security: prohibits the export of items that could affect the military potential of countries unfriendly or hostile to the United States.
  
  

(2) Support foreign policy: prohibits the export of items that could affect the execution of declared international obligations, i.e., trades embargoes.



(3) Protect resources in short supply: prohibits the export of natural resources that could affect national military potential or create inflationary pressures.



Penalties for violation of U. S. Export Regulations are severe. For companies, they range from a fine up to US$1,000,000 or five times the value of the exports involved - whichever is greater. For individuals, they can be as high as U$250,000 in fines, or imprisonment for up to ten years - or both. Other penalties that may apply are seizure of goods and suspension of exporting privileges. Another negative factor is the adverse publicity that may result when the news media and government agencies report and publicize court decisions and settlements of Export Regulations violations.

11. Receiving payment for export sales

• 11.1 How does a sight draft work with an irrevocable letter of credit?
  From: Peter Aurandt — Bristol, England
• The export transaction takes place as follows: Buyer (importer) requests price quotation from seller (exporter). Exporter sends price quotation/proforma invoice to importer. Importer accepts price and places order with exporter. Exporter accepts order. With information contained in exporter’s price quotation/proforma invoice, importer opens irrevocable letter of credit at importer’s bank (issuing bank) payable to exporter. Exporter examines and approves letter of credit. Exporter ships goods to importer. Upon receipt and approval of documents as specified in letter of credit, exporter’s bank (confirming bank) pays exporter in full less banking fees. Exporter’s bank sends documents to importer’s bank and receives payment from importer’s bank. Importer’s bank advises importer when goods have arrived and requests full payment from importer. Importer signs sight draft and pays importer’s bank BEFORE receiving original shipping documents needed for importer to take physical possession of goods at port of import.
  
  
  Although the sequence in the above transaction may be somewhat different depending upon the individual order, the basic principles will remain the same. Unless the exporter’s bank fails, there is absolutely no risk to the exporter if all terms and conditions of the irrevocable letter of credit are met. The exporter receives payment regardless of what might occur further along in the transaction. By accepting the legal responsibility of the confirming bank, the exporter’s bank takes a risk (although extremely remote) that the importer’s bank cannot or will not be able to pay. A much larger risk is taken by the importer’s bank. If the importer refuses to accept the sight draft and pay for the goods, the importer’s bank is still required to pay the exporter’s bank, and then seek payment from the importer through the local court system.
  
  
  The importer also takes a sizeable risk in the above transaction. All that the importer knows for certain is that the correct number of containers have been shipped. What if there were only rocks in the containers? The importer would not find out about it until the importer has paid the bank, picked up the shipment at the dock, and opened the containers.

 

• 11.2 What are the advantages and disadvantages of consigning goods overseas?
  From: Enrique Palmero — Caracas, Venezuela

  • The main advantage of consignment is that the goods are available in the export market where they could be seen, touched, demonstrated, and delivered immediately to potential customers. It is much easier to sell using an actual product than referring to a photograph or promotional flier. However, there are definite disadvantages to consigning goods, especially in foreign countries. Ask yourself the following questions before you decide to deliver your goods internationally on a consignment basis:
    
    

    (1) How long can you wait for payment? The idea behind consignment is to give the seller additional time and operating funds to advertise, promote and sell your products. Unless you have sufficient capital to wait for payment, keep the consignment period short, i.e., three to six months. You do not want to be financing other businesses interest-free with your money.
    
    

    (2) How would it affect your business if you are not paid? In most cases, a bank is not involved as an intermediary in a consignment transaction (to enforce payment). You will receive payment directly from the seller (consignee). If the consignee sells your products but refuses to pay as agreed, or not at all, your recourse to enforce payment is limited to direct negotiations with the seller or litigation in a local court system which could be biased in favor of the consignee.
    
    

    (3) What would you do with the products if they are not sold? Are there other markets in the area where you could ship them economically and sell them at a favorable price? This could be difficult because you would not be in a good bargaining position with potential buyers. Another alternative would be to absorb the transportation cost and ship them back to Venezuela. This would be costly and would also depend upon whether the products are in condition for resale. The other alternative would be to sell them in the original export market at bargain prices.

 

• 11.3 How can we sell our products in foreign currencies?
  From: Jaime Ventura — San Jose, Costa Rica
• Unless you have the expertise of an international currency trader, your primary objective as an exporter should be to sell your products in foreign markets at a predetermined profit margin. The easiest way for you to do that would be to require payment in colones. However, if this is not possible, we recommend that you "hedge" your profit margin against the devaluation of your customer's currency. Establish a foreign currency account at your bank and arrange for a foreign exchange credit line. Your bank will then agree to purchase most of the foreign currencies that you receive from export sales at a fixed rate in colones against future deliveries. You can use hedging in export transactions involving letters of credit, documents against payment, consignment of goods, and open account. Hedging is also advantageous to importers because they can guarantee a firm purchase price in local currency when they sign the order.

• 11.4 Should we request cash-in-advance for a one-of-a kind export order?
  From: Mark J. Francis — Adelaide, Australia
• Unless it is a large, well known company, we advise that you require full payment in advance before you purchase inventory and begin production. If they were to cancel the export order in mid-production, and then refused to pay, you would be forced to absorb the up-front costs and discard the product, or finish production and try to find a buyer with a need for a unique, one-of-a-kind product. Both options would be very costly. If they refuse to pay in full in advance; i.e., bank draft, letter of credit or money transfer, we advise that you reject the export order. Sometimes, you have to turn down an export sale because it is simply not worth the financial risk involved.

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12. Promoting and selling in foreign markets

• 12.1 Should we hire a public relations firm in our new export markets?
  From: S.L. Cosmonopolous — Iraklion, Greece

• Public relations in foreign markets can be very costly for a small company like yours with annual export sales revenues of less than US$1,000,000. Unless a serious situation develops in one of your export markets, we recommend that you postpone spending money on public relations until your export sales and profits have reached a higher level.

  In the meantime, ask your export sales representatives to act as your public relations arm. They may already be using an advertising or public relations firm that can provide this service to them at a relatively low cost. It is to their financial benefit to make certain that your products and company enjoy the most favorable image in the local market.

  In return for their cooperation, keep your export sales representatives up-to-date on all important changes in products, personnel and corporate policies. Send them copies of public relations releases that you have issued in the United States. It is to your financial benefit to keep them informed about your activities and professional accomplishments. They will appreciate your attention and confidence, and will tend to respond in kind.

 

• 12.2 Should advertising and promotional materials be translated into the local language?
  From: George M. Brooke — Apia, Opolu Island, Western Samoa

  • It will almost always be more effective if your products are advertised and promoted in the language of the export market. However, translation in Western Samoa might be too expensive and risky. If translators are not totally familiar with the current oms and word usages in the export market, words and phrases with multiple meanings could seriously damage the image of your company and products. A famous example of this is the word "NOVA" which was used in Latin America as the name of an automobile. No one had realized (or at least did not mention) in advance that “NOVA” phonetically means "does not go" in Spanish. A local in any Latin American country would have advised them of this comical, embarrassing and costly mistake before it happened.

    It may be cheaper and less risky to have your advertising and promotional materials translated by locals within the export market. If you are using an export sales representative, you may ask if they would like to arrange for and supervise the translation. Be certain to specify who will pay for these services, and whether the final translated materials must be submitted to you in advance for approval. Advance approval of translated materials can be impractical because of the delay involved, the need to react quickly to local marketing conditions, and the lack of language expertise within your organization.

 

• 12.3 How can we take samples into countries without paying duties?
  From: Marie Sherd — Winnipeg, Canada
• We suggest that you contact your local Chamber of Commerce in Winnipeg, and apply for an ATA Carnet. Assuming that the countries you will be visiting are also participating members of the ATA Carnet System (like Canada), you will receive an ATA Carnet that will allow you to bring commercial samples into these countries without paying import duties or taxes. "Commercial samples" are defined as items for showing or demonstration in the country of importation for the purpose of soliciting sales orders, including advertising materials, promotional items, and actual samples. You can also receive ATA Carnets for temporary importation of professional equipment and items for trade shows. To secure an ATA Carnet, you will be required to pay an issuing fee and a refundable security deposit.

• 12.4 Can we get rid of ("dump") our old inventory quickly in foreign markets?
  From: Paul Shenard — Portland, Oregon (USA)
• By "old," we assume that you mean obsolete, off-the-shelf (non-unique) products that you can no longer sell in your domestic market. The days of "dumping" products overseas at a good profit margin are rapidly coming to an end. Due to modern communications, including the internet, product life cycles are becoming shorter while customer product knowledge is becoming more current and sophisticated. The best option would be to sell your older products internationally at a discount to recover most, if not all of your costs. It could also provide you with a positive entry into several foreign markets, along with a reputation for being an honest supplier who treats customers fairly.