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Getting Started: Basics of Exporting

Q: Which companies should export?
A: Companies should only export if they are willing to invest the time and resources into researching the markets they are interested in.  Your firm should evaluate the commitment of its management and staff to exporting, the funding options available, and your capabilities to increase production.  Important factors in deciding if exporting will be a profitable venture include determining if there is a need for the product and determining which channel of distribution would be most successful.  If your product has been successful domestically, remember that it may need to be modified to be marketable abroad.  Products that do not require a great deal of training for use, versatile products, and unique products tend to have a higher export potential, but investing the time to adjust your product to a viable target market can produce good results for products that do not fit into these categories.  After you have assessed these marketing challenges, you will be better able to determine if exporting is right for your company.

Q: What about size?  Don't large companies dominate exporting?
A: It's true that the greatest volume of exported goods comes from a small number of very large American companies.  But actually, the number of medium and small sized firms that exports is quite high.  And studies have shown that all companies who export can derive benefits from the practice, regardless of the volume of goods sold.  Expanding markets can help companies of any size increase profits; small companies may find exporting to be a good way to grow in size.

Successful exporting requires a large investment of time and resources.  While large companies may have extra capital, small companies often have a higher potential for success with exports.  Small firms have shorter communication chains and decision-making processes, making international dealings more direct and personal.  As long as smaller firms take advantage of the resources available to assist them, exporting can be a very successful business venture.

Q: What planning is necessary before my company begins to export?
A: Successful exporting depends upon generating a detailed export plan.  Writing out an export plan can help communicate your company's goals, strengths, weaknesses and responsibilities before you invest time, money, and energy into developing foreign markets for your products.  Often, financial agencies require businesses to have an export plan to gain investment capital assistance.

Trade counselors or managers can help you to develop a realistic export plan.  These outlines should include the reasons you wish to begin exporting, an assessment of your exporting potential, target markets, business strategy, pricing, payment and delivery details, and finance requirements and options.

See a sample outline of an export plan.
Guidelines for preparing a good export plan.
How to develop an export business plan.

Q: Where should I export my products?
A: Detailed research will help you find foreign markets where your product could be exported to profitably.  A good first step would be finding out where your industry is successful globally, to determine where your product might be in demand.  Good research will also help you to identify competitors, necessary marketing adjustments, and possible barriers in your chosen trade arena.  Most businesses conduct primary research - directly from the foreign marketplace, via telephone, surveys, and potential customers - and secondary research from published resources and government agencies.  A great deal of research information is available on the Internet.  See Country Commercial Guides (CCG's), which are prepared annually by U.S. embassies with the assistance of several U.S. government agencies.  These reports present a comprehensive look at countries' commercial environments, using economic, political and market analysis.  A trade consultant can be of assistance in this area as well.

Once you have chosen target markets, making personal visits becomes an important part of your research.  Acquainting yourself with export markets will help you to negotiate foreign customs, business practices and values.  In addition, personal visits will demonstrate your company's commitment to potential buyers, helping you build good business relations based upon mutual trust.

Q: How can I establish good channels of communication with buyers and contacts in my export market when I don't speak the language?
A: The most important point to remember when you do business abroad is that you are the foreigner.  The market doesn't have to adapt to you, instead, you have to adapt to the business practices and customs of the market.  Even if your clients speak fluent English, they may not follow the same codes of politeness; gestures, slang, and humor could all be misunderstood in other cultures.  When you conduct market research, be sure to investigate the communication methods of your export area.

While it may seem daunting, learning the language of your export market is a valuable investment.  Beyond showing clients your genuine interest in their market, knowing their language will ensure fewer communication difficulties.  You will also become more qualified for the future in an ever more global marketplace.  Even if you can't learn an entire foreign language, take the time to learn a few key phrases - 'hello,' 'please,' and 'thank you,' for example - to foster friendly relationships with your buyers abroad.

If your clients understand English, be sure to speak slowly and clearly to avoid misunderstandings.  Many people abroad can read English better than they can speak it, so you may want to put crucial transactions down on paper.  If you only speak English and your clients do not, you should hire translators when doing business abroad.  Rocky Mountain Business provides some helpful information on the Do?s and Don'ts of obtaining translators:

DO's
Obtain translations from professional translators with native fluency and experience living in the target country or region.  See the American Translation Association for professional translators regionally affiliated with this organization.

Make sure, especially if your product/document is technical in nature, that your translators understand your message and any jargon that is included.  By explaining your product to the translator thoroughly, they will be able to be as accurate as possible.

If appropriate in your relationship, give your foreign business partners the opportunity to review professional translations (such as those of product packaging or sales literature) prior to printing such materials.  Your associates overseas may have feedback regarding colloquialisms that are/are not appropriate for your target audience.  (You can always present these suggestions to your translator, to make sure they are agreeable and mean what they are supposed to mean.)  Also, your foreign business partners can and should have valuable feedback concerning the effectiveness of the message you are trying convey through your translated documents and products.  Is the message right for the target market?

DON'Ts
Do NOT assume that just because someone in your company can speak the language that he/she can effectively, appropriately, and correctly communicate in the target language in all scenarios.  Do NOT assume that all translation services offered over the Internet (and there are many) provide the same professional quality of translations.  Do NOT assume that mechanized translations such as those that instantly translate Internet sites and/or phrases on-line are an acceptable substitute for a professional translator in most instances.  Although these sites can be very useful to obtain a general idea of a company, product, or message being showcased on the web, they are literal translations that for the most part do not flow in the target language.

Translations can be costly, but mistakes and inconveniences caused from mistranslations can be far more expensive.  Professional translating companies can charge from $0.05 to $0.12 per word for non-technical documents translated from English into one of the more common romance languages, such as Spanish or French.  For more technical documents, or more difficult languages, such as Mandarin Chinese, Russian, or Middle-Eastern languages, expect fees to be higher.

Interpreting is the verbal equivalent of translation.  Interpreting requires a very high fluency level, among other skills, and the fees charged by interpreters reflect this.  See a list of professional interpreters accredited by the American Translation Association.

Q: How can I prepare my staff to be effective in my company's export ventures?
A: As long as you educate your staff at each step of the export process, exporting will be a rewarding experience for your company.  You will need to hire foreign market representatives, who should be educated about your products, your competition, and your goals.  Your management and employees at home are key players in your success as well.  Familiarize them with your export plan and continue to keep them informed about your progress.  Encourage employees to learn the language(s) of new markets.  The more you educate your employees, the better they will be able to perform.  To their benefit, the international experience they gain will make their jobs more interesting and make them more marketable in the future.

Q: What costs can I expect?
A: Exporting doesn't have to be a high-cost venture, but will require some extra monetary investment.  Initial research, advertising costs, and personnel additions are typical expenses.  Communication with foreign markets is more expensive than in the domestic arena.  Be sure you have a fax machine, and consider email as a lower-cost method of communication (although using email requires your clients to be as technologically up-to-date as you are).  Traveling costs are sure to increase as well.

Overall, with good planning, your costs should not exceed the eventual profits of exporting.  If you're careful, you should be able to avoid costly mistakes and scams.  Low-cost research and advertising opportunities are available, and if you have limited funds, you may be able to obtain business loans to get you started.  Exporting is like any other business expansion decision and needs to be thought of as an investment rather than a quick way to increase profits.

Q: Where can I get financial assistance?
A: Begin looking for loans at your local banks.  A bank with an international department may be more receptive to export proposals, but any lender will be sensitive to the risks of your enterprise.  Riskier international business moves may find financial support with venture capitalists, but the capital they provide will be exchanged for equity in your business; as your company grows, the venture capitalist's share in it will grow proportionally.  If you have trouble securing loans, you can try contacting government agencies that provide export financing.  Below is a list of resources you can access for more information:

Programs for Financing Exports

Export Finance Matchmaker
A U.S. Department of Commerce program designed to match, via the Internet, U.S. exporters with sources of export financing or risk mitigation.

Export-Import Bank of the United States
The Export-Import Bank of the United States (Ex-Im Bank) is an independent U.S. government agency that helps finance the overseas sales of U.S. goods and services.  Programs offered include:  Credit Insurance, Working Capital and Loan Guarantees.

SBA International Trade Loans
Provides financing for small businesses to expand their export markets or upgrade their facilities to improve their competitive position.

US Trade and Development Agency Market Feasibility Studies
Grants are available to fund feasibility studies and other project planning activities for major projects in developing and middle-income countries.

Overseas Private Investment Corporation (OPIC)
OPIC's political risk insurance and loans assist U.S. businesses to invest and compete in emerging markets and developing nations.

Programs for Financing Agricultural Exports

WUSATA
The Western United States Agricultural Trade Association, is a non-profit organization that provides grants to promote the export of food and agricultural products from the Western region of the United States.

USDA Export Credit Guarantee Program
Can be used to underwrite credit extended by the private banking sector on exports of food and agricultural products.

USDA Supplier Credit Guarantee Program
Encourages exports to buyers in countries where credit is necessary to maintain or increase U.S. sales, but where financing may not be available without CCC guarantees.

USDA Facility Guarantee Program
Provides payment guarantees to facilitate the financing of manufactured goods and services exported from the United States to improve or establish agriculture-related facilities in emerging markets.

USDA Export Enhancement Program
Helps products produced by U.S. farmers meet competition from subsidizing countries, by paying cash to exporters as bonuses, allowing them to sell U.S. agricultural products in targeted countries at prices below the exporter's costs of acquiring them.

FAS Market Access Program Funds
Provides direct cost-share assistance to non-profit agricultural trade associations who assist U.S. companies in entering and expanding sales in foreign markets.

Q: Do I need an export license to sell goods in foreign markets?
A: Most products can be shipped to other countries without an export license and can be cleared by entering "NLR" (no license required) on the Shipper's Export Declaration.  Licenses are generally required for high tech or strategic goods or goods shipped to certain countries where national security or foreign policy controls are important.  The Bureau of Industry and Security (BIS) is responsible for implementing and enforcing the export administration regulations and can answer related questions.  Their on-line Simplified Network Application Process (SNAP) allows you to submit export and re-export applications, high performance computer notices, and commodity classification requests via the Internet in a secure environment.

Q: How do I determine the pricing of my exported products?
A: Just as in domestic markets, prices are determined by local supply and demand.  Your product must be priced high enough to make some profit, but low enough that it can compete in a foreign market.  Pricing products so they are competitive in international markets can be a challenge; as a pricing strategy that works in one market may be a total failure in another.  Market research is of the utmost importance in determining product pricing.  Your market research should include analyzing your foreign marketing objectives (for example; are you planning to follow a lost leader strategy that will allow you to enter a market more quickly or a market skimming strategy that may result in higher margins).  Your costs should also be analyzed as well as market demand levels and competition in each market.  Each of these factors is described in detail in the Basic Guide to Exporting.

Pricing exported goods is certainly a challenge.  More than domestically sold products, exports are subject to constantly changing market conditions.  Currency fluctuations, tariffs, import quotas and variable customer needs can all influence, for better or worse, the pricing of your goods.  Once again, careful research can help your firm to successfully navigate the complex economic conditions that determine export pricing.

Q: What payment method should I select for my export sales?
A: The best payment option to protect your company from loss is payment by the buyer in advance.  Small businesses, especially, may only ship goods if they receive cash in advance.  However, this arrangement is much better for the seller than the buyer, and could reduce sales potential, especially if competitors do not impose such strict payment restrictions.

Letters of credit are another relatively low-risk payment method, in which the buyer applies to a bank for the letter of credit, which is in turn confirmed by a U.S. bank.  This safe option comes with some costs, however, in the form of bank fees that are often higher for buyers than for sellers, and again, less than satisfactory.

Some exporters operate under a payment-on-delivery system, which allows the buyer to pay by cash or check when the product arrives.  The buyer signs a written agreement to pay, but unfortunately, if the buyer refuses the product, the seller must absorb shipment costs.

Open account payment arrangements should only be used if you have a well-established relationship with a trusted foreign buyer, as this method carries the greatest financial risks.

Q: How can I protect myself from financial losses in exporting?
A: Financial credit insurance is available to protect your company from exporting risks.  Smaller companies are best served by government programs for this insurance, while larger companies may be able to secure private insurance.  Although insurance cannot prevent losses due to buyer-seller disagreements, it can mitigate commercial risks like buyer default, bankruptcy, as well as political risks, such as war or sovereign acts. Keep in mind, however, that insurance costs will reduce your overall profits.

Currency fluctuations are another source of risk for exporting companies.  International bankers can formulate sophisticated plans to help reduce the risk of loss due to exchange rate changes, but the simplest way to protect your firm is to exercise all business transactions in U.S. dollars.  This way, the burden of currency fluctuations falls on the buyer, rather than you, the seller.

Q: I've done my research, set my prices, and found buyers in export markets.  Now, how do I get my products to foreign customers?
A: Shipping your goods can be very costly, as well as risky.  Again, the key concept is research - you will have to create a personalized blend of shipping strategies that best serves your company and product.

Freight forwarders can provide international shipping advice, and can be a very useful resource.  Make sure that you carefully document shipping and billing transactions, to avoid delays and lost funds.  Depending on the destination of your product and the shipping method you choose, you will need to consider particular packing challenges.  Remember that your goods will be subject to customs inspections, as well as possible rough handling conditions.  You may want to consider buying shipping insurance to protect against loss.

Books about Exporting: Amazon.com Listings
Basic Guide to Exporting
Building an Import/Export Business
Export/Import Procedures and Documentation
Exporting, Importing, and Beyond: How to "Go Global" With Your Small Business