EXPORTING GUIDE

1
EXPORTING GUIDE

• US Export Assistance Center
• Southern Ohio District Export Council
• Compiled by Mark P. Evans
• August 2004

2
Exporting Overview

• Market Potential
• Company Resources
• Marketing Plan
• Distribution Methods
• International Standards
• International Legal Considerations
• Shipping
• Quotation
• Pricing
• Payment Terms
• Customer Service

3
Market Potential

• US Product Life Cycle vis a vis International
  Product Life Cycle
• Uniqueness of your product
• Competitive Position Outside the US
• Ease of Substitution
• Cultural Acceptance of your Brand/Product Name

4
Company Resources

• Top Management Support
• Relative Ease in Supporting Export Sales Activity
  by Sales, Marketing, Finance and Manufacturing
• Will the personnel view exporting as a thorn or a
  rose?
• Management Decision Making Style Centralized or
  Decentralized and Impact Upon Negotiations

5
Marketing Plan

• Select countries of interest
• Research US export statistics of common
  commodities (NTDB)
• Determine fastest growing markets for US
  exporters
• Assess which of your US competitors are exporting
  and where
• Internet research for competitive local products

6
Marketing Plan (continued)

• Are product modifications needed?
• What import technical barriers exist CE mark,
  CCC, etc.
• What price levels exist? Remember price in
  international markets is usually lower than US
  markets as price is more important than features,
  quality, service, etc. Your specific product may
  not require the lowest price if it has a distinct
  competitive advantage.

7
Sources of Market Information

• US Government Export Portal www.export.gov
• National Trade Data Bank (NTDB) www.stat-usa.gov
• TRADESTAT www.ita.doc.gov/td/industry/otea/
• UN Statistics Yearbook http//unstats.un.org/unsd/
  CIA
• World Fact Book www.cia.gov/cia/publications/factb
  ook/

8
General Industry Information

• Culturgram www.culturegrams.com/
• Country Commercial Guides www.export.gov/OneStopCo
  nsumer/OneStop/mrllogin.jsp
• Trade Information Center www.ita.doc.gov/td/tic

9
US Government Resources

• Trade Information Center (TIC) www.ita.doc.gov/td/
  tic
• Export Assistance Center Cincinnati
  www.buyusa.gov/greatlakes/services.html
• Gold Key Service locate potential distribution
  and arrange local introductory appointments
• Platinum Key Service long term sustained
  assistance from overseas Commercial Service posts

10
Distribution Methods

• Direct Sales
• Highly engineered products
• OEM sales
• Key account sales
• Currency fluctuations do not impact sales because
  of competitive advantage
• Few competitors or highly concentrated industry

11
Distribution Methods (Continued)

• Distributor Network
• More important to have local representation where
  engineered competitive advantage does not exist
• Local connections sell the product when barriers
  exist to direct selling

12
Distribution Methods (Continued)

• Distributor Criteria
• Must be sales people, not order takers.
• Must be marketing/selling to your target
  market/customer now.
• Must possess the capital base to advertise,
  promote, hold inventory and support their
  customers credit terms.
• Must possess the infrastructure to run the
  business and have the experience to handle all
  import administration.

13
Distribution Methods (Continued)

• Joint Venture
• Local connections very important
• Cost disadvantage to pure export
• Retains some marketing and price/profit control
• Extremely difficult to maintain fair
  relationships
• Legal systems and conventions operate differently
  compared with the USA

14
Distribution Methods (Continued)

• Foreign Direct Investment
• Buy a company and the existing customers
• Useful to buy a competitor or fend off additional
  competitors
• Allows fragmentation/differentiation of markets
  to reduce risk of attack by competitors
• Provides greater control of market, products,
  sales and profits
• Does not eliminate management culture issues

15
Distribution Methods (Continued)

• License
• Useful when capital and management resources are
  limited.
• Increases risk of creating a competitor as the
  licensee is out of sight and out of mind
• May be important to include royalty and cross
  licensing provisions for any improvements

16
Distribution Methods 4 Criteria EMPHASIZED

• Must have sales people, not order takers.
• Must have access to your target market/customer
  base immediately.
• Must possess the capital base to advertise,
  promote, hold inventory and support your
  customers credit terms.
• Must invest in the infrastructure to run the
  business and have the experience to handle all
  import administration.

17
Department of Commerce US Commercial Service
Resources

• Market Research
• Trade Information Center (TIC) www.ita.doc.gov/td/
  tic
• Country Commercial Guides market conditions,
  best export prospects, financing, finding
  distributors, legal and cultural issues
• International Market Insights analyze conditions
  in specific markets
• Industry Sector Analysis details about an
  industry to estimate market potential, market
  size and foreign competitors
• Video Market Briefings discuss market
  conditions, regulations, key players and
  competitors
• Export Assistance Centers 111 offices throughout
  the 50 US States

18
Department of Commerce US Commercial Service
Resources (continued)

• Trade Events
• Trade Missions arrange personal meetings with
  pre-screened business partners
• Intl Buyer Program brings foreign buyers to US
  Trade shows
• Certified Trade Fairs place you in the best
  international trade shows with targeted matching
• Catalog Exhibitions showcase your product and
  service and have leads sent back to you.
• Single Company Promotions provide meeting space
  and pre-screened invitations to help you
  successfully present product or service seminars

19
Department of Commerce US Commercial Service
Resources (continued)

• International Partners
• Export Assistance Center Cincinnati
  www.buyusa.gov/greatlakes/services.html
• Platinum Key Service long term sustained
  assistance from overseas Commercial Service Posts
• Gold Key Service arrange personal appointments
  with pre-screened business contacts at the US
  embassy of your designated country
• BuyUSA.com matches international buyers with US
  suppliers online
• Virtual Trade Missions let you explore promising
  markets via video conferencing
• Intl Partner Searches deliver details on
  potential partners that have expressed interest
  in your product or service
• Commercial News USA promotes your product or
  service to more than 40,000 international buyers
  trough a free monthly catalog

20
Department of Commerce US Commercial Service
Resources (continued)

• International Partners (continued)
• Intl Company Profiles offers low cost quick
  credit checks and due diligence reports on buyers
  and distributors
• The Trade Opportunity Program provides daily
  trade leads from foreign buyers

21
Department of Commerce US Commercial Service
Resources (continued)

• Consulting and Advocacy
• Counseling assists in the development of an
  export strategy and obtaining financing
• Consulting helps resolve regulatory hurdles and
  recover payment
• Platinum Key Service provides customized,
  long-term support to achieve your business goals
• ShowTime offers in-depth counseling at major
  trade shows from market and industry specialists
• Multilateral Development Bank (MDB)
  representatives provide access to project
  opportunities funded by MDBs worldwide
• Advocacy through US Diplomats and other
  officials to give you the edge.

22
Department of Commerce US Commercial Service
Resources (continued)

• Where to start?
• 1-800-USA-TRADE to find your local export
  assistance center
• www.export.gov
• www.buyUSA.com

23
International Standards

• Product Adaptation to meet foreign government
  regulations, buyer preferences, technological
  differences.
• Engineering and Redesign
• voltage differences 120 vac vs 230 vac 1 phase,
• 480 vac vs 400 vac 3 phase,
• soft metric vs hard metric dimensions
• sae vs metric fasteners
• Branding, Labeling and Packaging
• are local or international brand names important
  to the customers and do you need trademark
  protection
• does the name translate well in the foreign
  markets
• are OSHA warning labels sufficient or do you need
  international warning labels
• does the package need US or metric weights and
  dimensions

24
International Standards (continued)

• Safety Standards what local or country safety
  standards are required for the product to pass
  through customs
• United States UL label is required on electrical
  products, toys, medical devices, etc.
• European Union CE Mark is required an any
  product which can be used as is, otherwise a
  Declaration of Incorporation (DOI) is required so
  the buyer of the product can place the CE Mark on
  the final product.
• CE Mark is a safety analysis and documentation
  requirement (placed on the product by the
  manufacturer), unlike the UL label which is a
  performance specific regulation. The CE Mark is
  required for end use products, see the CE
  Directives.

25
International Legal Considerations

• Export Administration Regulations
• Small percentage of exports require a license or
  are prohibited for export to certain countries
• First check the web site www.ustreas.gov/ofac
  which details prohibited countries based upon the
  type of product or service
• Second, verify your product or service is not a
  dual use (military and commercial) which would
  require an export license. If the end use of the
  product is in a military or nuclear application,
  and export license is required
• Review the restricted product list at the USDOC
  Bureau of Industry and Security
  http//www.bxa.doc.gov/licensing/exportingbasics.h
  tm

26
International Legal Considerations (continued)

• Export Administration Regulations
• Third, it is the exporters responsibility to
  ensure the product is not diverted to prohibited
  countries. Severe penalties apply
• Fourth, Foreign corporations which are more than
  50 owned by a US company or are substantially
  directed in their daily activities by the US
  company, are subject to similar trade
  restrictions as the US parent
• Get legal advice before allowing a foreign
  subsidiary to sell in a way that could not be
  done by a US parent

27
International Legal Considerations (continued)

• Foreign Government Regulations
• Consular Invoices
• Certificates of Inspection
• Health Certification
• Certificates of Origin
• Chamber of Commerce Verification
• Safety Certification

28
International Legal Considerations (continued)

• Customs Benefits for Exporters
• Duty Drawback
• NAFTA Reduced Local Import Duties Canada/Mexico
• FTAs Reduced Local Import Duties
• Completed Israel, Jordan, NAFTA, Chile,
  Singapore
• Pending Australia, CAFTA, Morocco, Dominican
  Republic
• Foreign Sales Corporation (FSC) Exemption from
  Income Tax (Banned by WTO - to be modified by
  Congress)

29
International Legal Considerations (continued)

• Intellectual Property Considerations
• Patents
• US Patents based upon first to invent
• International patents based upon first to file
  for a patent.
• After initial filing you have one year to file in
  Paris treaty countries
• In US you have one year to file after disclosure
  or sale of the product
• International patents must apply before
  disclosure or sale of the technology otherwise
  the technology becomes part of the public domain,
  or within 1 year of the US patent application

30
International Legal Considerations (continued)

• Intellectual Property Considerations
• Trademarks
• US trademark or service mark based upon first to
  use or apply for foreign trademark/service mark
  protection
• International trademark or service mark based
  upon first to apply
• Some countries do not allow registration of
  service marks
• MADRID PROTOCOL allows common application with
  individual country examinations

31
Shipping

• General Requirements
• Packed so it arrives in good condition
• Labeled correctly to ensure the goods are handled
  properly, arrive on time and at the right place
• Documented to meet US and foreign govt
  requirements and collection standards
• Insured against damage, loss, pilferage and delay
• Freight Forwarders role is to supply above

32
Shipping (continued)

• Packing LCL and CL
• Pack in strong containers adequately sealed and
  filled
• Provide proper bracing and weight distribution
• Goods should be palletized
• Packing material moisture resistant
• Wooden boxes for LCL shipments properly treated
  for insects

33
Shipping (continued)

• Labeling
• Shippers Mark
• Country of Origin
• Weight in pounds and kilograms
• Number of cases and dimension of cases in inches
  and centimeters
• Special handling marks (fragile, this side up, no
  hooks)
• Port of Entry
• Labels for hazardous materials

34
Shipping (continued)

• Common Documentation
• Airfreight shipments require non-negotiable air
  waybills
• Bill of Lading contract between owner of goods
  and carrier
• Commercial Invoice used by importing country
  customs officers (caution many customers will ask
  this value be reduced to reduce duties)
• Consular Invoice used by customs officials in
  some countries

35
Shipping (continued)

• Common Documentation (continued)
• Certificate of Origin some countries require
  plus a stamp from the local chamber of commerce
• NAFTA Certificate of Origin required for trade
  between the NAFTA countries if a US shipper wants
  to claim 0 duty. (Ex. US company re-sell goods
  in Canada made in Japan 6 months earlier)
• Inspection Certification usually a third party
  inspection required by importing customer or
  government (Philippines)

36
Shipping (continued)

• Common Documentation (continued)
• Shippers Export Declaration (SED)
• Required when shipping goods valued over 2500
  through the US Postal Service
• Required when shipping goods valued over 2500
  under Schedule B
• Prepared by freight forwarder and electronically
  filed with US Customs
• Not required for exports to Canada unless export
  license required

37
Shipping (continued)

• Common Documentation (continued)
• Export License for controlled goods
• Export Packing List is more detailed than a
  domestic packing list and requires
• Itemizes material in each package
• Lists individual gross and net weights in English
  and Metric
• Shippers and buyers references
• Insurance Certificate to assure the consignee the
  goods are insured

38
Quotation

• State the Seller and Buyer
• Detail Price and Currency
• Validity Period
• Terms and Conditions Sheet
• Warranty Period
• Shipment terms per INCOTERMS 2000 (Ex-Works and
  CIF most common)
• Ex-Works shipment schedules and estimated arrival
  schedule
• Payment Banking Details Account , Sort Code,
  Swift Code
• Pro Forma Invoice typically required with
  quotation as a means for the customer to assure
  what they are buying

39
Pricing

• Market Based Pricing
• Requires accurate survey of market prices at your
  level in the value chain
• Cost Based Pricing
• Requires Calculation of direct costs through the
  value chain
• Example

40
Payment Terms

• Terms must be evaluated according to company and
  country credit risk. The Asian banking crisis of
  1997 is a prime example of country risk.
• Typical payment terms
• Cash in advance check, telegraphic transfer or
  credit card
• Irrevocable confirmed letter of credit at sight
  or x days after ocean bill of lading. A confirmed
  L/C is a guarantee by the exporters bank it
  will pay the exporter even if the buyers bank
  does not pay the exporters bank.

41
Payment Terms (continued)

• Irrevocable confirmed letter of credit mechanics
• Buyer opens L/C at buyers bank including
  language for documents required from exporter to
  effect payment (we recommend sending preferred
  L/C language to buyer before the L/C is opened).
• Buyers bank sends L/C via SWIFT to the
  advising/confirming bank in exporters country.
  SWIFT requires 3 days.
• Exporters banks sends letter of confirmation and
  L/C to exporter.
• Exporter reviews L/C carefully as all
  instructions must be carried out to the letter
  and all documentation must be provided without
  errors, or discrepancy fees will apply and
  payment may not occur.

42
Payment Terms (continued)

• Irrevocable confirmed letter of credit mechanics
  continued
• Exporter contacts freight forwarder who schedules
  the ocean or air shipment, and prepares all
  documentation
• Once the goods are loaded, the ocean or air bill
  of lading is completed by the freight forwarder.
• Freight forwarder then sends bill of lading,
  commercial invoice, packing list, etc. to the
  advising/confirming bank in exporters country
• Exporters bank reviews all documents for
  discrepancies, send the documents to the buyers
  bank, who sends documents to the buyer.
• Buyer collects the goods.
• Exporter collects payment according to payment
  terms at sight or time draft.

43
Payment Terms (continued)

• Sight Draft Mechanics
• Ocean bill of lading endorsed by exporter
• Exporters banks sends OBoL, sight draft, and
  other documents (packing list, commercial
  invoice, inspection certificate, insurance
  certificate) to buyers bank
• Buyers bank notifies buyer of document arrival.
• Buyer pays draft and buyers bank turns over
  ocean bill of lading to allow buyer to collect
  the goods.
• Note Do not ship via air under sight draft as
  goods can be collected without an airway bill of
  lading
• Open Account is the most risky transaction, but
  is least expensive for both sides.
• L/C is the most expensive as banking fees are
  incurred by both the exporter and the buyer.

44
Customer Service

• Perhaps the most unanticipated and most important
  factor to succeeding in the international market.
• Customer service can be described as the manner,
  procedure and timeliness with which communication
  is conducted. Some examples
• Send wrap up meeting notes within one business
  day of your return from abroad.
• Meet all deadlines
• Establish a communication policy for all
  personnel who will communicate with the customer,
  such as
• Send an answer to all inquiries and questions
  within 24 hours.
• If an answer is not possible within 24 hours,
  send a schedule for answering the question within
  24 hours.
• Ensure the final answer is not delayed longer
  than 6 business days.

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Customer Service (continued)

• Why? Fast communication ensures you are easy to
  do business with, and helps ensure you become the
  preferred supplier.

46
Summary Global Market Cycle
47
CONTACT INFORMATION

• US Export Assistance Center
• www.buyusa.gov/greatlakes
• Dao Le - Director
• Phone [phone]
• Southern Ohio District Export Council
• www.exportsouthernohio.org
• Dao Le Executive Secretary
• Phone [phone]