EXPORTING GUIDE

US Export Assistance Center

Southern Ohio District Export Council

Compiled by Mark P. EvansAugust 2004

Exporting Overview

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

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

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

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

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.

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/factbook/

General Industry Information

Culturgram www.culturegrams.com/ Country Commercial Guides

www.export.gov/OneStopConsumer/OneStop/mrllogin.jsp

Trade Information Center www.ita.doc.gov/td/tic

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

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

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

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.

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

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

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

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.

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

Department of Commerce – US Commercial Service Resources (continued)

Trade Events Trade Missions; arrange personal meetings with pre-

screened business partners

Int’l 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

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

Int’l 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

Department of Commerce – US Commercial Service Resources (continued)

International Partners (continued)

Int’l 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

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 MDB’s worldwide

Advocacy; through US Diplomats and other officials to give you the edge.

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

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

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.

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.htm

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

International Legal Considerations (continued)

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

International Legal Considerations (continued)

Customs Benefits for Exporters Duty Drawback NAFTA Reduced Local Import Duties

Canada/Mexico FTA’s 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)

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

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

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 gov’t requirements and collection standards

Insured against damage, loss, pilferage and delay

Freight Forwarder’s role is to supply above

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

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

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

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)

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

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

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

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:

Domestic Sale Export Sale

Factory Cost Unburdened $ 10.00 $ 10.00

Domestic Freight $ 0.70 $ 0.70

$ 10.70 $ 10.70

Export Documentation $ 0.50

$ 11.20

Ocean Freight and Insurance $ 0.56

$ 11.76

Import duty 4.65% of landed cost $ 0.55

$ 12.31

Importer/Distributor Margin 15% $ 1.89 $ 2.17

Final User Price $ 12.59 $ 14.48

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 exporter’s bank it will pay the exporter even if the buyer’s bank does not pay the exporter’s bank.

Payment Terms (continued)

Irrevocable confirmed letter of credit; mechanics Buyer opens L/C at buyer’s 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).

Buyer’s bank sends L/C via SWIFT to the advising/confirming bank in exporter’s country. SWIFT requires 3 days.

Exporter’s 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.

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 exporter’s country

Exporter’s bank reviews all documents for discrepancies, send the documents to the buyer’s bank, who sends documents to the buyer.

Buyer collects the goods. Exporter collects payment according to payment

terms at sight or time draft.

Payment Terms (continued)

Sight Draft: Mechanics Ocean bill of lading endorsed by exporter Exporter’s banks sends OBoL, sight draft, and other

documents (packing list, commercial invoice, inspection certificate, insurance certificate) to buyer’s bank

Buyer’s bank notifies buyer of document arrival. Buyer pays draft and buyer’s 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.

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.

Customer Service (continued)

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

Summary: Global Market Cycle

3. CustomerService

5. New Product Development

Through Global Customer Input

4. RelationshipDevelopment2. Pricing

1. Market Research

CONTACT INFORMATION

US Export Assistance Centerwww.buyusa.gov/greatlakes Dao Le - DirectorPhone 513-684-2944

Southern Ohio District Export Councilwww.exportsouthernohio.orgDao Le – Executive SecretaryPhone 513-684-2944