2008 EXPORT SALES & MARKETING MANUAL (21st Annual Edition) Author: JOHN R. JAGOE 21st Annual Edition, ISBN 978-0-943677-66-8 PUBLISHER: Export Institute, 6901 W. 84th Street Suite 317, Minneapolis, MN 55438 TELEPHONE: (800) 943-3171       http://www.exportinstitute.com Table of Contents Print       Close Window INTRODUCTION Table of Contents . . . . . . . . . . . . i List of Figures . . . . . . . . . . . . viii List of Tables . . . . . . . . . . . . ix Checklists . . . . . . . . . . . . ix Acknowledgements (Organizations, Corporation and Government Agencies) . . . . . . . . . . . . x Acknowledgements (Individuals) . . . . . . . . . . . . xii CHAPTER I. PREPARING TO EXPORT . . . . . . . . . . . . 1-1 Introduction . . . . . . . . . . . . 1-1 Major Advantages of Exporting . . . . . . . . . . . . 1-2 Evaluate Your Export Readiness . . . . . . . . . . . . 1-3 Ten Common Mistakes Made by Exporters . . . . . . . . . . . . 1-10 CHAPTER II. IDENTIFYING YOUR POTENTIAL EXPORT MARKETS . . . . . . . . . . . . 2-1 Introduction . . . . . . . . . . . . 2-1 Preliminary Considerations . . . . . . . . . . . . 2-2 Secure Export Identification Numbers for Your Products . . . . . . . . . . . . 2-2 Primary and Secondary Market Research . . . . . . . . . . . . 2-3 Methods of International Market Research . . . . . . . . . . . . 2-4 A Three-Phased Approach to Market Research . . . . . . . . . . . . 2-4 Checklist for Evaluating Potential Export Markets . . . . . . . . . . . . 2-9 Information and Reports Available Through the Internet and Other Electronic Media . . . . . . . . . . . . 2-11 Overcoming Barriers to World Trade . . . . . . . . . . . . 2-19 Need for Harmonized Standards . . . . . . . . . . . . 2-19 International Standards: . . . . . . . . . . . . 2-19       ISO 9000 Standards . . . . . . . . . . . . 2-20       U.S. Standards . . . . . . . . . . . . 2-25       European Standards . . . . . . . . . . . . 2-27 Trade Agreements: . . . . . . . . . . . . 2-30       World Trade Organization (WTO) . . . . . . . . . . . . 2-30       General Agreement on Tariffs and Trade (GATT) . . . . . . . . . . . . 2-37       Free Trade Area of the Americas (FTAA) . . . . . . . . . . . . 2-45       Western Hemisphere Regional Trade Pacts . . . . . . . . . . . . 2-46       North American Free Trade Agreement (NAFTA) . . . . . . . . . . . . 2-48       European Union (EU) . . . . . . . . . . . . 2-58       East and Central Asian Markets       (APEC and ASEAN) . . . . . . . . . . . . 2-63 Top Export Markets for United States Goods . . . . . . . . . . . . 2-64 CHAPTER III. LOCATING YOUR POTENTIAL EXPORT SALES REPRESENTATIVES . . . . . . . . . . . . 3-1 Introduction . . . . . . . . . . . . 3-1 Factors to Determine the Type of Export Sales Representatives You Will Require . . . . . . . . . . . . 3-2 Commissioned Export Sales Agent: . . . . . . . . . . . . 3-3       Export Transaction Using a Commissioned Export       Sales Agent (Flow Chart) . . . . . . . . . . . . 3-4 Export Management Company (EMC) . . . . . . . . . . . . 3-16 Export Trading Company (ETC): . . . . . . . . . . . . 3-17       Export Transaction Using an Export Management       Company or an Export Trading Company (Flow Chart) . . . . . . . . . . . . 3-18 Full Stocking Distributor: . . . . . . . . . . . . 3-27       Export Transaction Using a Full Stocking Distributor       (Flow Chart) . . . . . . . . . . . . 3-28 Establish Your Export Pricing Policies . . . . . . . . . . . . 3-39 Identify Potential Export Sales Representatives in Your Primary Target Markets . . . . . . . . . . . . 3-39 Evaluate Your Potential Export Sales Representatives: . . . . . . . . . . . . 3-41       Checklist for Evaluating Potential Export       Sales Representatives . . . . . . . . . . . . 3-42 Initial Letter to Potential Export Sales Representatives (Sample Letter) . . . . . . . . . . . . 3-44 Guidelines for International Correspondence . . . . . . . . . . . . 3-45 Second Letter to Potential Export Sales Representatives (Sample Letter) . . . . . . . . . . . . 3-44 Interviews with Potential Export Sales Representatives . . . . . . . . . . . . 3-47 Appoint a Sales Representative for Each Target Market . . . . . . . . . . . . 3-50 Visit Your Sales Representatives on a Regular Basis . . . . . . . . . . . . 3-50 CHAPTER IV. PRICING YOUR PRODUCTS FOR EXPORT . . . . . . . . . . . . 4-1 Introduction . . . . . . . . . . . . 4-1 Allocate Actual Costs to Your Export Prices . . . . . . . . . . . . 4-1 Export Pricing Methods (Flow Chart) . . . . . . . . . . . . 4-2       U.S. Standard Ex Works Price . . . . . . . . . . . . 4-4       U.S. Standard Ex Works Price Plus Export Costs . . . . . . . . . . . . 4-6       G&A Overhead and Discounted Profit Margin . . . . . . . . . . . . 4-8       G&A Overhead Without Profit Margin . . . . . . . . . . . . 4-10       "Floor Price" Without G&A Overhead       (Marginal Costing) . . . . . . . . . . . . 4-12 Pricing Strategies for Entering New Foreign Markets: . . . . . . . . . . . . 4-14       Pricing Strategy Number 1: Exploiting the Market . . . . . . . . . . . . 4-16       Pricing Strategy Number 2: High-Quality Pricing . . . . . . . . . . . . 4-17       Pricing Strategy Number 3: Life-Cycle Pricing . . . . . . . . . . . . 4-18       Pricing Strategy Number 4: Sharing the Market . . . . . . . . . . . . 4-19       Pricing Strategy Number 6: Developing the Market . . . . . . . . . . . . 4-21       Pricing Strategy Number 7: Buying the Market . . . . . . . . . . . . 4-22 Determining Your Standard Export Ex Works Price and Pre-Tax Profit Margin (Sample Worksheet) . . . . . . . . . . . . 4-23 International Price Sheet (Sample Worksheet) . . . . . . . . . . . . 4-24 CHAPTER V. AGENCY AND DISTRIBUTOR AGREEMENTS . . . . . . . . . . . . 5-1 Introduction . . . . . . . . . . . . 5-1 Agency (Commissioned Export Sales Agent) . . . . . . . . . . . . 5-1 Export Management Company (EMC) . . . . . . . . . . . . 5-1 Full Stocking Distributor . . . . . . . . . . . . 5-2 Major Provisions of a Successful Agency or Distributorship Agreement . . . . . . . . . . . . 5-2       Identification of the Parties . . . . . . . . . . . . 5-2       Effective Date of Agreement . . . . . . . . . . . . 5-3       Termination of Agreement . . . . . . . . . . . . 5-3       Sales Territory, Products and Related Restrictions . . . . . . . . . . . . 5-4       Identification of Products . . . . . . . . . . . . 5-4       Types of Sales Excluded from Agreement . . . . . . . . . . . . 5-4       Pricing of Products . . . . . . . . . . . . 5-5       Payment Terms . . . . . . . . . . . . 5-7       Inventory Stocking Requirements . . . . . . . . . . . . 5-8       Warranty Agreement . . . . . . . . . . . . 5-9       Promotional Responsibilities . . . . . . . . . . . . 5-10       Other Considerations for Inclusion in Agreements . . . . . . . . . . . . 5-10       Training Programs for Sales Representatives . . . . . . . . . . . . 5-11       Information to be Provided by Both Parties . . . . . . . . . . . . 5-11       Force Majeure . . . . . . . . . . . . 5-12       "Hold Harmless" Statement . . . . . . . . . . . . 5-12       Settlement of Disputes . . . . . . . . . . . . 5-13       Review of Agreement . . . . . . . . . . . . 5-14       Disclaimer . . . . . . . . . . . . 5-14 Distributor Agreement (Sample Contract - Complete Text - Seven Pages) . . . . . . . . . . . . 5-15 Agency Agreement (Sample Contract - Complete Text - Nine Pages) . . . . . . . . . . . . 5-22 Consignment Agreement (Sample Contract - Complete Text - Four Pages) . . . . . . . . . . . . 5-31 CHAPTER VI. LICENSING AND TRADE RESTRICTIONS . . . . . . . . . . . . 6-1 Introduction . . . . . . . . . . . . 6-1 Purpose of the Export Regulations . . . . . . . . . . . . 6-1 Why Compliance Is Important to You: . . . . . . . . . . . . 6-2       Penalties for Violations . . . . . . . . . . . . 6-2 Export Administration Regulations (EAR) . . . . . . . . . . . . 6-4 Why the EAR is Important to You . . . . . . . . . . . . 6-4 Is Your Transaction Subject to the EAR? . . . . . . . . . . . . 6-5 Compliance and an Export Management System (EMS): . . . . . . . . . . . . 6-6       Management Policy . . . . . . . . . . . . 6-6       Responsible Officials . . . . . . . . . . . . 6-6       Recordkeeping . . . . . . . . . . . . 6-6       Training . . . . . . . . . . . . 6-7       Internal Reviews . . . . . . . . . . . . 6-7       Notification . . . . . . . . . . . . 6-7       Order Processing System . . . . . . . . . . . . 6-7       EMS Screening Elements . . . . . . . . . . . . 6-8       Denied Parties Screen . . . . . . . . . . . . 6-8       Entity List Screen . . . . . . . . . . . . 6-9       Diversion Risk Screen . . . . . . . . . . . . 6-10       Nuclear, Missile, Chemical, and Biological       Weapons Screen ("Prohibited End-Uses/Users" Screen) . . . . . . . . . . . . 6-13       Embargoed and "Of Concern" Countries Screen . . . . . . . . . . . . 6-16       Product Classification/License Determination . . . . . . . . . . . . 6-16 Anti-Boycott/Restrictive Trade Practices . . . . . . . . . . . . 6-17 The Foreign Corrupt Practices Act (FCPA): . . . . . . . . . . . . 6-19       Who is covered by the FCPA . . . . . . . . . . . . 6-19       What the FCPA prohibits . . . . . . . . . . . . 6-20       Indirect Payments and the "Knowing" Standard . . . . . . . . . . . . 6-20       Accounting Standards . . . . . . . . . . . . 6-21       Enforcement and Penalties . . . . . . . . . . . . 6-21       Guide To Permissible Foreign Payments . . . . . . . . . . . . 6-21       Procedure For Dealing With Minor Foreign       Officials . . . . . . . . . . . . 6-24       Guide To Dealing With Foreign Sales       Representatives and Partners . . . . . . . . . . . . 6-24 CHAPTER VII. WORKING WITH YOUR FOREIGN FREIGHT FORWARDER . . . . . . . . . . . . 7-1 Introduction . . . . . . . . . . . . 7-1 Evaluating and Selecting Your Freight Forwarder: . . . . . . . . . . . . 7-3       Checklist for Evaluating Potential Forwarders . . . . . . . . . . . . 7-5 Sources of Information on Foreign Freight Forwarders: . . . . . . . . . . . . 7-6 Foreign Trade Terms (INCOTERMS): Responsibilities of Seller and Buyer . . . . . . . . . . . . 7-7 Breakdown Dividing Responsibilities and Charges Between Seller and Buyer (Flow Chart) . . . . . . . . . . . . 7-8 Major International Shipping Documents: . . . . . . . . . . . . 7-10       Shipper's Letter of Instructions . . . . . . . . . . . . 7-10       Commercial Invoice . . . . . . . . . . . . 7-12       Packing List . . . . . . . . . . . . 7-14       Shipper's Export Declaration (SED) . . . . . . . . . . . . 7-16       Pre-Inspection Certificate . . . . . . . . . . . . 7-18       Certificate of Insurance . . . . . . . . . . . . 7-20       Certificate of Origin . . . . . . . . . . . . 7-22       Consular Invoice . . . . . . . . . . . . 7-24       Dock Receipt . . . . . . . . . . . . 7-26       Ocean Bill of Lading . . . . . . . . . . . . 7-28       Air Waybill of Lading . . . . . . . . . . . . 7-30 Metric System in World Trade: . . . . . . . . . . . . 7-32       Advantages of Adopting the Metric System . . . . . . . . . . . . 7-32 Apostille (International Notarization) . . . . . . . . . . . . 7-33 Automatic Export System (AES) . . . . . . . . . . . . 7-34 CHAPTER VIII. PAYMENT METHODS FOR YOUR EXPORT SALES . . . . . . . . . . . . 8-1 Introduction . . . . . . . . . . . . 8-1 Factors to be Considered in Determining Methods of Export Payment . . . . . . . . . . . . 8-2 Methods of Payment: . . . . . . . . . . . . 8-3       Cash in Advance of Shipment (Transaction Flow Chart) . . . . . . . . . . . . 8-4       Letter of Credit (L/C): . . . . . . . . . . . . 8-6           Exporter's Checklist for Analyzing           Letters of Credit . . . . . . . . . . . . 8-7           Payment by Sight Draft with Letter           of Credit (Transaction Flow Chart) . . . . . . . . . . . . 8-8           Payment by Time Draft with Letter           of Credit (Transaction Flow Chart) . . . . . . . . . . . . 8-10           Advised, Confirmed and Irrevocable Letters           of Credit . . . . . . . . . . . . 8-12           Transferable L/C . . . . . . . . . . . . 8-12           Assignment of Proceeds . . . . . . . . . . . . 8-14           Back-to-Back Letter of Credit . . . . . . . . . . . . 8-15           Red Clause Credit . . . . . . . . . . . . 8-15           Standby Letter of Credit . . . . . . . . . . . . 8-16           Common Discrepancies in Letter of Credit           Documents Received by Banks . . . . . . . . . . . . 8-16           Amendments and Correction of Discrepancies           in Letters of Credit . . . . . . . . . . . . 8-17       Collections: (Transaction Flow Chart) . . . . . . . . . . . . 8-17           Documents Against Acceptance (D/A) by           Time Draft (Transaction Flow Chart) . . . . . . . . . . . . 8-18       Open Account (Transaction Flow Chart) . . . . . . . . . . . . 8-22       Consignment of Goods (Transaction Flow Chart) . . . . . . . . . . . . 8-24 Hedging Against Foreign Currency Fluctuations . . . . . . . . . . . . 8-26 Financing or Selling Your Export Accounts Receivable . . . . . . . . . . . . 8-27 Factoring and Forfaiting . . . . . . . . . . . . 8-28 Barter and Countertrade . . . . . . . . . . . . 8-28 Export-Import Bank of the United States (Ex-Im Bank) . . . . . . . . . . . . 8-31 Sources of Financial Information for Exporters . . . . . . . . . . . . 8-32 Federal Government Sources of Financial Information . . . . . . . . . . . . 8-32 State Government Programs . . . . . . . . . . . . 8-34 Non-Governmental Sources of Financial Information . . . . . . . . . . . . 8-34 CHAPTER IX. BUDGETING FOR EXPORT . . . . . . . . . . . . 9-1 Introduction . . . . . . . . . . . . 9-1 Assumptions Used in Budgets . . . . . . . . . . . . 9-1 Five-Year Sales Forecast . . . . . . . . . . . . 9-2 Five-Year Sales Budget . . . . . . . . . . . . 9-3 Five-Year Export Budget (Transaction Flow Chart) With Item-by-Item Examples and Definitions . . . . . . . . . . . . 9-4 Foreign Sales Corporation (FSC) . . . . . . . . . . . . 9-11 CHAPTER X. TRAVELING TO YOUR EXPORT MARKETS . . . . . . . . . . . . 10-1 Why Travel to Your Export Markets? . . . . . . . . . . . . 10-1 How to Conduct Business in a Foreign Country . . . . . . . . . . . . 10-2 Foreign Customs and Business Practices . . . . . . . . . . . . 10-2 Interpreter Services . . . . . . . . . . . . 10-3 Books for the International Business Traveler (List) . . . . . . . . . . . . 10-4 Establish Your Preliminary Travel Itinerary . . . . . . . . . . . . 10-5 Information to Take with You on Overseas Trips . . . . . . . . . . . . 10-7 Checklist for Your Overseas Trip . . . . . . . . . . . . 10-12 How to Protect Yourself While Traveling Abroad . . . . . . . . . . . . 10-14 APPENDIX A. TOP FOREIGN MARKETS FOR U. S. EXPORTS . . . . . . . . . . . . A-1 Twenty-five Most Promising International Markets and Product Lines for U. S. Suppliers . . . . . . . . . . . . A-1 APPENDIX B. FEDERAL GOVERNMENT RESOURCES . . . . . . . . . . . . B-1 U. S. Department of Commerce Export Assistance Centers (USEACs) . . . . . . . . . . . . B-1 Export Licensing Control Agencies . . . . . . . . . . . . B-9 Small Business Administration Field Offices and Small Business Development Centers . . . . . . . . . . . . B-10 U.S. Embassies in Foreign Countries . . . . . . . . . . . . B-17 U.S. Customs Service . . . . . . . . . . . . B-27 APPENDIX C. U.S. STATE AND LOCAL GOVERNMENT RESOURCES . . . . . . . . . . . . C-1 State International Trade Offices . . . . . . . . . . . . C-2