Are you skilled enough to start exporting

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Writuparna Kakati | 27 Aug, 2008
Operating an export business is exciting, adventurous, and financially rewarding. At the same time, it is full of challenges and risks. But if you are successfully operating your business in your own country, there is no reason why you could not enter into the challenging but must lucrative world of export business.

But before you start, you need to have sound knowledge of what export business is, how to find and explore an export market, what ways you should follow for product promotion and marketing, how to transport the goods, what are the legal problems you may face, etc.

Success in export trading largely depends on your planning and skill, and therefore self assessment is very important before you jump into exporting. In this topic, we are going to offer a step by step guide how to be successful in export business-

Step 1: Export planning

Conduct market research

It is very important to conduct market research before you commit to exporting. Consider the following things during the research-

What is the industry structure in the country where you are going to export your goods or services?

Predict the demand of your products or services in the targeted export market

What extent of competition you have to face in that market? Who are your competitors? What are their strengths and weaknesses?

Do your products or services need any modification to be saleable in that market?

Prepare an export market plan

After conducting the market research, you need to prepare a market plan. Consider the following things while preparing this plan-

Do you have necessary financial resources?

Do you have necessary man power?

Are you familiar with the business laws, regulations and restrictions of the country where you are going to export?

Are you aware of the of the product standards and regulations in the overseas market

Analysis product characteristics

Is any packaging changes required?

What about labeling requirements, brand name and after-sales services?

If there is any change required, how much it would cost?

Step 2: Selling & distribution in the overseas market
It is one of the most important decision you have to take. In any business, the marketing and distribution mechanism determines its success to a great extent. There are two main ways- direct export and indirect export. You can set up a office in the foreign country and sale your products directly.

Another way for direct exporting is to sell over the Internet but in that case, you have to find out buyers by yourself and arrange everything related to shipping your products overseas. If you cannot manage all the requirements for direct exporting, you can look for partners who already understands the local market. You can consider the following 'partners' to export your products indirectly-

Export management companies: EMCs usually work on a commission basis and act as 'off site' export department of your company. If your business is small then hiring an EMC is the best option to start your business in a foreign land.
Export trading companies: ETCs functions just like an EMC in many ways. They act an agent between the buyer and seller, take title to your goods for export and pay you directly.
Foreign trading companies: Various Foreign Trading companies can also help you in your export business. Try online and you would certainly find many such companies operating in different countries.

You can also consider one of the the following options-

Sell your products to a distributor
Sell your product to a sales agent
Enter into a joint venture with a local business.

Step 3: Marketing your products
While marketing your products in an overseas market, you have to be extremely careful in planning your marketing strategy. Besides business rules and regulations, you must also be aware of the tradition and culture of the country where you are going to do your business. While promoting your products or services in a foreign land, consider the following things-

Use the promotional media to which most of the target customers are exposed to. For example, if there are more newspaper readers in the country than TV viewers, use the first type of promotional media.
While promoting your products, be conscious of the taste and cultural feeling of the local people; avoid colloquialisms and metaphors.

Step 4: Transportation
If your business is involved in direct exporting of goods, you may require to take the responsibility of transportation depending upon the agreement with your client. In such cases, what would be the best mode of transportation depends upon what type of goods you are going to export. Depending upon the contract, you may need to pack the products adhering to particular norms and also to arrange insurance. To get rid of all these complexities, you may hire a specialist freight forwarder which can handle all the things your customers insist.

Choosing transport

Consider the following issues before choosing your means of transportation-

What are the products you are going to import? What is the size and weight of each products and the total products?

How much time you can afford to the product need to reach its destination?

How much you are ready to pay for transportation?

How valuable are the products you are going to import?

Which type of transport will be the best? In India, we have a widely spread rail network.

Choosing a freight forwarder

While choosing a freight forwarder, consider the following things-

Is it experienced enough, particularly in transporting the type of goods you are dealing in?

Has it enough experience in shipping to the country you are targeting?

Can it handle multi-modal solution? (If you need it to meet your requirement)

Labelling: Freight forwarders usually consolidate consignments to reduce costs. It is therefore necessary to use correct labelling and shipping marks for smooth processing of your goods.

Documents:

The written contract between buyer and seller.

Specific documents required to get the goods through customs, to work out the right duty and tax charges

Documents regarding insurance, etc.

Step 5: Financial issues- Face them in a smart way
In export business, it is often seen that the delay between the shipping of goods and your receiving payment affects cash-flow. That is why it is necessary to be a little bit extra careful while handling such deals. If possible, you should insure your business against not being paid in case any overseas customer goes out of business.

Currency issue is another most important thing you need to consider while dealing with overseas clients. If some of your customers face problems in obtaining foreign currency to pay you, insist upon letter of credit that secures payments at an agreed rate.

Payment methods in international trade: While doing business internationally, trading can seem complicated and risky. Geographical distance, language difference, plethora of rules and regulations- a businessman has to face so many difficulties in import-export business. Among these difficulties, the most common problem is the risk in the transaction. To overcome it, one needs a good understanding of different payment methods in international trade. There are four primary methods of international payment-

Documents against payment (D/P): In this type of payment, the seller (exporter) gives instruction to a bank that the documents attached to a draft for collection are deliverable to the drawee only against his payment of the draft. After the goods are shipped, the seller (exporter) sends the export documents to the buyer's (importer's) bank. Only when the buyer (importer) pays, the documents are given to it by the bank.
Advance payment or cash in advance: This mode of payment offers greater level of protection to the seller (exporter). Here, the supplier ships goods only after the payment has been received.
Letters of credit or documentary credit: In this type of payment, a bank substitutes an buyer's (importer's) creditworthiness and guarantees an seller (exporter) payment for goods or services when presented with a set of specified export documents by the supplier.
Open account: In this mode of payment, the level of protection for the buyer (importer) is greater. The exporter ship goods prior to being paid and without without any third-party guarantee of payment. Goods are purchased by the buyer (importer) without payment, and future payment for delivered goods totally depends on the trustworthiness of of the buyer (importer).

Step 6: Risk management
Business at the international level involves different risks which are different from those encountered while doing business at the domestic market. The best way to manage and minimize those risks is to recognize them. Prepare a simple risk management plan for your SME and analysis where you are exposed to risks. If necessary, talk to experienced advisers to identify, assess and manage the risks.

1. Political risk: The country where your client is located may experience major political instability. Such instability could result in defaults on payments, confiscation of property, exchange transfer blockages, etc.
2. Legal risk: International transactions are governed by unilateral measures, bilateral relationships, multilateral and regional agreements. This difference in law may have impact in such areas as taxation, currency dealings, property rights, employment practices, etc.
3. Credit related risk: While doing business internationally, the most common problem businesses face is the risk in the transaction. To overcome payment related risks, an exporter needs good understanding of different payment methods in international trade.
4. Internet frauds: Like in any other place, the Internet is not free from scammers and frauds. It is not only individuals who are targets for a variety of illegal schemes but also small as well as large business organizations.
5. Quarantine compliance: Many countries (especially the European countries) have strict quarantine requirements to prevent the spread of contagious disease. Before sending a shipment, ensure that your products are allowed to be exported to the destination country.

Entering into export business is the best way to extend your market. But export business involves so many challenges right from identifying a promising market to product promotion in an unknown land. It therefore requires a planned approach so that you can get the best return of your time and money. Never try to kick start- get the basics right and take every step carefully.