Export to Latin America

8/10/2019 Export to Latin America

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Fundamentals of Exportingto Latin America

Eric Nystrom 2013

Lake Atitln - Guatemala


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Approximately US$ 355,691 million in trade between U.S. andCentral & South America in 2012

U.S. Trade with Central & South America has increased19.8% from2008 to 2012

U.S. Exports to Central & South America have increased34.3%from 2008 to 2012

U.S. Exports in 2012 to China = US$ 110,590 million(US$ 536,234 trade total)

The U.S. exported 66.3% more goods to Central & South America(US$ 183,866 million) than to China in 2012

Trade Facts


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Highlights of this Presentation

The Basic Fundamentals of Exporting(anywhere)

Latin American Export Strategic PlanElements

Latin American Strategic Issues

General Export Plan Tips,

Suggestions & Recommendations


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Export

Success

MarketSelection

Partners

MarketingFinance

Logistics

HR

Sales

ProductSelection

Entry Mode

Export PlanComponents


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Assessment & Planning

Self-Assessment

Must-Have Conditions

Nice-to-Have Conditions

Global Strategic Plan


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Self-Assessment

Useful at the beginning planning stages

Helps to set goals and get everyone on the same page

http://export.gov/begin/assessment.asp
http://export.gov/begin/assessment.asphttp://export.gov/begin/assessment.asp


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SWOT Analysis

Strengths: Weaknesses:

1. Strong Brand in USA

2. Production Capacity

3. Low Cost Producer

1. English only MarketingMaterials

2. Little International Experience

3. Not ISO 9000 Certified

Opportunities: Threats:

1. Growing Latin AmericanIndustrial Markets

2. Few Foreign Competitors

3. High & Low End Markets

1. Copycats & Pirates2. Increased Latin American

Government Regulations3. Rising Fuel Costs


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Porters 6 Forces Analysis:More robust than SWOT Analysis

Comp.products/Govt/

public


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MUST HAVE Conditions

Upper Management Buy-In,Commitment & RealisticExpectations

Knowledge & Experience producing& selling product or service

Sufficient Corporate Infrastructure

Solid Cash Flow

Production Capacity & Flexibility toproduce international products orprovide the service


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NICE-TO-HAVE Conditions

International Expertise

Foreign Language Ability

Cultural Awareness / Sensitivity

Travel to Foreign Markets


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Strategic Plan Layout

Strategic Plan Elements:

I. Creating a Vision

II. Forming Supporting Initiativesi. Market Selectionii. Market Entryiii. Cultural Intelligence

iv. Export Plan Pillars


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Creating a Vision Statement 1, 5, or 10 years out Where do you want to be? What do you want to happen?

How are going to do it?

Ex: It is January 1st2023 andwe havebecome the go-to, influential market leaderin the Latin American markets we serve byfocusing on giving our customers

consistently outstanding service through ourlocal sales, distribution & after-sales servicelocations. Our sales in Latin America are atleast $50 million and


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What are the Initiatives that Support the Vision?

Which markets am I going to select and why?

What will my entry mode be and who will be my partner?

What other strategic issues will I have to account for whenI am building my:

Sales & Marketing Plan?

Logistics Plan?

Finance, Legal, and HR Plan?


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Market Selection

ReactiveStrategy

Pro-ActiveStrategy

PrimaryResearch

SecondaryResearch

QualitativeResearch

RiskAssessment

FTAs


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Market SelectionPro-ActiveApproach to Foreign Market Selection:Create decision criteria/indicators to assess each markets potential.

Usesecondarydata to narrow the field or create a pool of

possibilities (5 to 10 markets)

Useprimarydata for final selection (1 to 3 markets; create alist ranking all identified markets)

Use qualitativedata as criteria to select or narrow selections


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Market Selection

International commodity coding system that most countries

use to classify their products

6-digit HS Code is known as the international level orsubheading (e.g. 8429.39)

All imported goods are subject to duties based on the HS

code, value listed on commercial invoice & country of originof manufacture (not necessarily the country of export)

Key Factor in Secondary Research: Harmonized System Code


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Market SelectionHarmonized System Code:

You can find your HS Code/Schedule B Number by using:

https://uscensus.prod.3ceonline.com/(search engine)

http://www.census.gov/foreign-trade/schedules/b/(by chapter)
https://uscensus.prod.3ceonline.com/http://www.census.gov/foreign-trade/schedules/b/http://www.census.gov/foreign-trade/schedules/b/http://www.census.gov/foreign-trade/schedules/b/http://www.census.gov/foreign-trade/schedules/b/https://uscensus.prod.3ceonline.com/https://uscensus.prod.3ceonline.com/


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Market SelectionGood Secondary Research Data Sites

Subscription Based: Piers Euromonitor GTIS USA Trade Online Datamyne* Kompass*

Free: Export.gov (USDOC) Global Edge (MSU) World Bank Trade Data Comdata (UN) DCEO / OTI (IL)


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Market SelectionPrimary Data Sources: Direct data collection throughinterviews, surveys and direct contact

More expensive, time consuming + personalinvolvement

Tailored to your needs, gives specific answers

Private & Government offers this service


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Market SelectionQualitative Research: research dealing with phenomena thatare difficult or impossible to quantify mathematically, such asbeliefs, meanings, attributes, and symbols

Generally used for exploratory purposes; a small number ofrespondents; not generalizable to the whole population;statistical significance & confidence not calculated

Examples include focus groups, in-depth interviews,personality tests

Can be time consuming, expensive & requires personalinvolvement


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Market SelectionGlobal Assessment Suitability Indicators:

Demographic population, literacy, education, per capita,language, Human Development Index (HDI)

Macroeconomic GDP, growth, inflation, economic activityindex, industrial activity index

Government taxes, tariffs, political stability, corruption index,ease of doing business index, non-tariff barriers, intellectual

property rights, Free Trade Agreements (FTA)

Environmental infrastructure, climate, geography


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Market SelectionRisk Assessment Factors:

Politicalexpropriation, terrorism,instability, bureaucracy, corruption,

relationship with US Government, trade &non-trade barriers

Economiccurrency exchange,recession, inflation, financial, taxes

Legal intellectual property protection,contract law, employment laws

Cultural nationalism, religion,packaging, language, context


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Description Detail Imported Product(US$)

Brazilian-madeProduct (US$)

Cost (FOB) Milking Machine(8434.10.00)

50,000.00 50,000.00

International Ocean Freight Estimated Cost 2,000.00 0.00

International Insurance 0.3% of FOB & Freight 156.00 0.00

CIF Value (basis for calculation oftaxes)

Cost + Insurance +Freight

52,156.00 50,000.00

Import Duty (ID) Federal Tax 14% on CIF 7,301.84 0.00

IPI Federal TaxIndustrialized Products (0- 5%)

0% on CIF+ID 0.00 0.00

PIS Federal Tax

Program for the Social Integration

1.65% on CIF+ID+IPI 1,185.59 1,108.65

COFINS Federal TaxSocial Security

7.6% on CIF+ID+IPI+PIS 5,460.92 5,106.50

ICMS State Tax (Sao Paulo)Circulation of Goods & Services

18% onCIF+ID+IPI+PIS+COFINS

14,510.71 12,339.91

Total Value after Taxes 80,615.07 68,555.05

Cost Differential +15%


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Market SelectionForeign Corruption Index:http://cpi.transparency.org/cpi2011/results/

Rank Country Score

1 New Zealand 9.5

2 Denmark 9.4

2 Finland 9.4

4 Sweden 9.3

5 Singapore 9.2

6 Norway 9.0

7 Netherlands 8.9

8 Australia 8.8

8 Switzerland 8.8

10 Canada 8.7

24 USA 7.1

Top Latin American countries:

Rank Country Score

22 Chile 7.2

25 Uruguay 7.0

73 Brazil 3.8

80Colombia, El Salvador,

Peru 3.4

86 Panama 3.3

100 Argentina, Mexico 3.0

118 Bolivia 2.8

120 Ecuador, Guatemala 2.7
http://cpi.transparency.org/cpi2011/results/http://cpi.transparency.org/cpi2011/results/


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Market SelectionEase of doing business index:http://www.doingbusiness.org/rankings

Economy Overall WorldRank

Singapore 1

Hong Kong (SAR) 2

New Zealand 3

USA 4

Denmark 5

Norway 6

UK 7

S. Korea 8

Iceland 9

Ireland 10

Canada 13

Germany 19

Japan 20

Latin AmericanEconomy

Overall WorldRank

Chile 39

Peru 41

Colombia 42

Mexico 53

Panama 61

Uruguay 90

Belize 93

Guatemala 97

El Salvador 112

Argentina 113
http://www.doingbusiness.org/rankingshttp://www.doingbusiness.org/rankings


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Market SelectionFree Trade Agreements (FTA)

USA has 14 FTAs, 6 of which involve 11 LATAM countries:

NAFTA (Mexico) CAFTA (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica

& Dominican Republic) Peru Colombia

Panama Chile

Free Trade Agreement of Americas (FTAA) Proposed - ???


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FTA Tool - Check out tariff rates & schedules byaccessing FTA tool:

http://export.gov/fta/ftatarifftool/TariffSearch.aspx

Need HS Code (4 to 10 digits)

Select FTA partner

Pending FTA partners included

Market Selection
http://export.gov/fta/ftatarifftool/TariffSearch.aspxhttp://export.gov/fta/ftatarifftool/TariffSearch.aspxhttp://export.gov/fta/ftatarifftool/TariffSearch.aspx


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Market SelectionMarket research conclusionsTop markets share certain traits, some are:

Domestic sales & dist. methods similar

Solid comparative advantage for productwith good sales potential

Stable political & economic systems

Low tariffs, restrictions and regulations

Relative ease of currency conversion &favorable exchange rates

Realistic transportation costs as a

percentage of the cost of goods sold


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Entry ModesChoosing your entry method should bebased on the following factors:

How much feedback you want?

How much control you want?

How much access to overseasresources you want?

How much infrastructure/resourcesyou currently have?


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Entry ModesTypes of Entry Modes:

Indirect

Direct with no investment

Direct with investment Turnkey projects Wholly owned subsidiaries

Joint Venture Strategic alliance

Licensing Franchising


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Entry ModesWhat is the best mode for you?

Consider your current

infrastructure & plan

Start smart & build up expertise

Choose mode on a region byregion basis

Work toward direct foreigninvestment mode


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Entry Modes

Risk & Reward

Control&

Commitment

Indirect

Licensing

JV

Direct+invest

Direct export


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Mode Conditions Favoring thisMode

Advantages Disadvantages

Exporting(no investment)

Limited sales potential intarget country; little product

adaptation required

Distribution channels close toproduction

High target countryproduction costs

Liberal import policies

High political risk

Minimizes risk &investment

Speed of entry

Maximizes scale; uses

existing facilities

Trade barriers & tariffsadd to costs

Transport costs

Limits access to local

information

Company viewed as anoutsider

Licensing

Import & investment barriers

Legal protection possible intarget environment

Low sales potential in targetcountry

Large cultural difference

Licensee lacks ability to

become a competitor

Minimizes risk &investment

Speed of entry

Able to circumvent tradebarriers

High ROI

Lack of control over useof assets

Licensee may becomecompetitor

Knowledge theft , leaks,spillovers

Licensee period islimited


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Mode Conditions Favoring thisMode

Advantages Disadvantages

Joint Ventures

Import barriers

Large cultural differences

Assets cannot be fairly priced

High sales potential

Some political risk

Gov. restrictions on foreignownership

Local company can provideskills, resources, distribution

network, brand name, etc.

Overcomes ownershiprestrictions & cultural

differences

Combines resources of 2companies

Potential for learning

Viewed as insider

Less investment required

Difficult to manage

Dilution of control

Greater risk than exporting& licensing

Knowledge theft, leaks &spillovers

Partner may become acompetitor

DirectInvestment

Import barriers

Small cultural differences

Assets cannot be fairly priced

High sales potential

Low political risk

Greater knowledge of localmarket

Can better apply specializedskills

Minimizes knowledgespillover

Can be viewed as an insider

Higher risk than othermodes

Requires more resources &commitment

May be difficult to managethe local resources


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Entry Modes

Indirect

Direct

EMCs, Export Agents,

ETCs, PiggybackMarketing, ConfirmingHouses

MODE PARTNER

Commission & Direct SalesReps, Distributors (regional,

master, retail)& End Users


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STRATEGIC ISSUES: LEGAL

Common Law vs. Civil Law: Latin America has a Civil Law legal system In Common Law, prior decisions are binding, while in a Civil Law

system they are merelypermissive

Economic Nationalism (discrimination against foreign businessinterests)

Choice of Law Clauses in export contracts (party autonomy) Most L.A. countries historically have not recognized party autonomy More L.A. countries beginning to recognize the principle of party

autonomy


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Uniform Commercial Code (UCC) vs. Contracts for the IntlSales of Goods (CISG): UCC is good but some L.A. countries are uncomfortable with some of

the common law requirements (e.g. consideration)

Many UCC and CISG provisions are similar If both countries accept CISG, then automatically in force Be careful that offer acceptance mirrors the terms of offer If you can choose which law to use, go with UCC most familiar &

most judges in state courts & foreign countries unfamiliar with CISG

Analyze local rules on Agent and Distributor Relationships(i.e. title of ownership, commission fees, termination, exclusivity, etc.)


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Organizational structures can differ significantly in scope & detailin Latin American countries (i.e. partnerships, corporations, LLCs)

Intellectual Property Law:

If you want IP protection rights in a country, you must obtain theprotection under that countrys rules no automatic protection

Trademark registration requirements in L.A. can be very differentthan those in U.S.

Get agents or distributors to obtain IP protection for their territory

Arbitration not often used in L.A. because L.A. countriestraditionally have not enforced arbitral awards obtained outside thatcountry. In order for arbitration to be binding, add an arbitration clauseto your export contract.


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STRATEGIC ISSUES: CrossCultural Communication

Distortion or misinterpretation can occurwhen messages are sent from one

cultural perspective to a different one.

This is because the sender is using adifferent set of values, attitudes, beliefs,expectations and preconceptions fromthat of the receiver.


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STRATEGIC ISSUES: CrossCultural Communication

Understand cultural framework

Customer service #1 focus

Be consistent but flexible

Be careful of granting exclusivity

Its all about relationships

Minimize perceived risk


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STRATEGIC ISSUES:Product Selection

Factors to consider:

What are the needs of your LatinAmerican customer (VOC)?

How easily can you modify yourproduct to meet Latin Americanneeds?

How will your packaging, labeling &manuals change?

What about after-market salessupport, returns & warranties?


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Export Plan Tips and AdviceFreight is your #1 variable cost. Getting your product to yourcustomer in good shape, on time and at the lowest cost should be atop priority

Freight Tips:Find a knowledgeable Freight Forwarder/Carrier you can work withAn average shipment is handled between 44 and 91 times duringtransit & falls 2 meters (6.5 ft.) or receives a blow equal to a 2-meterfall at least once during transitSelect packing materials that consider the mode of transport (e.g. air

or ocean freight), type of commodity & weather (e.g. desiccant)Use international handling & instruction symbolsBe shrink-wrapped if feasible

Remember the ISPM 15Regulation (keep bugs out!)http://www.aphis.usda.gov/import_export/plants/plant_exports/wpm/wpm_faqs.shtml
http://www.leeinspect.net/International_Exports_Contact_Us_Bossier_City_LA.html


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Export Plan Tips and AdviceCompliance

Most exporters are unsure if they are 100% compliant. Makesure your international sales processes & procedures include:

List of specific export docs needed for each country(tradewizards.com)

Your Export Control Classification Number (ECCN)

Use the Denied Parties List (DPL) on BIS website to check newbuyers

Having a Destination Control Statement (DCS) on key exportdocuments


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Export Plan Tips and Advice

Sales, Marketing & Promotion

Get FREE or low cost secondary research from InternationalTrade Centers, SBDCs, State Agencies (DCEO), FederalGovernment (Dept. of Commerce export.gov) Market Selection Market Entry

Find new overseas reps, distributors & partners via:

Dept. of Commerce Gold Key program ($700 - $1300) Go to trade shows & trade missions (STEP program) Connect with OTI foreign offices


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Export Plan Tips and Advice

Finance

Using Credit Insurance (e.g. EX-IM

Bank) to gain new customers &increase order sizes

Develop an Export List Price in localcurrency to increase revenues 5 to15% via foreign currency exchange

(FX)


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Thanks, Gracias, Obrigado, Merci!

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