Hysical Distribution and Transportation Alternatives

8/2/2019 Hysical Distribution and Transportation Alternatives

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hysical distribution and transportationalternatives

Your transport alternativesWe have said that one of the key distribution decisionsyou will need to make is how you will physically move yourgoods from your factory to the foreign customer (i.e. yourchoice of transportation method), and who will help withthis (the transportation intermediary). In this regard, thereare essentially four transportation alternatives available to

you. They are:

1. Air transportation- One of the major ways oftransporting goods overseas and especially wellsuited for small, light-weight and high-value goods.

2. Sea (or marine) transportation- the most commontransportation method for the majority of goodsmoving overseas from South Africa and especially sofor bulky and heavy goods.

3. Rail transportation- Clearly not appropriate foroverseas transportation, but is common for movinggoods into Southern Africa, as well as from the inlandcities such as Johannesburg and Pretoria to the portsin South Africa. The differences in railway guagesmeans that our railways cannot reach deep into

Africa.4. Road transportation- Road is the major competitor

to rail transportation within South Africa and SouthernAfrica. Road transportation is also not appropriate for


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overseas transportation, but is the main means oftransporting goods deeper into Africa.

There are other transportation alternativesused elsewhere in the world

In other parts of the world, you may come acrossalternative transportation methods. Barges are common inEurope and the US; camels, horses, donkeys and otherpack-animals are often used to reach far-away places inthe Sahara desert, places in South America and in Asia;

bicycles are often the 'last mile' means of transportation inAsia; while human-power is sometimes used in third-worldcountries.

Courier companies

In recent years, courier companies have begun to play anincreasingly important role in distribution. In the past,

courier companies were seen as 'parcel' companies. Thecollected a small parcel or package from your office anddelivered it to some distant address (either in the samecountry or in some other country). The major players suchas DHL, FedEx and UPS have become so good at theirbusiness and have built up such a massive logisticalinfrastructure that they can now deliver pretty much

anything, anywhere. Today courier companies are strivingto become the logistics arm or partners of companies whodon't want to get bogged down with logistical issues.Through outsourcing, companies can reduce the cost andrisk associated with the task of distribution. This isespecially so in the case of exporting, and you may want


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to discuss with one or more courier firms how they mightbe able to help you with your export distribution. Althougha courier company could be seen as another

transportation alternative, they, in turn, make use of air,sea, road and rail services to deliver the goods.

Transportation intermediaries - transportrepresentatives

Once you have decided on how to transport your goods tothe end user, you also need to decide on who will handle

or facilitate the transportation for you. Obviously, youcould do it yourself and many medium-to-large exportfirms do have managers who look after their respectiveinternational logistics. They generally liaise and interactwith the representatives of airlines, shipping companies,the railways (i.e. Spoornet), or individual road haulingfirms. After all, these representatives of the transportation

companies are there to help you choose the besttransportation alternative to meet your export needs andwill gladly advise you on how to overcome many of theproblems you are likely to face.

Transportation intermediaries - freightforwarders

Notwithstanding their help, you may still want to turn to afreight forwarding company to look after thesetransportation matters for you. This may be a wisedecision if you are not a regular or experienced exporter.Freight forwarders make their livilihood from faciliating the


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logisitics surrounding the movement of goods domesticallyand internationally. They usually have internationalpartners that will handle the overseas component of the

logistics on their (and your) behalf, and they normally offerand door to door services, thus taking a lot of the stressand problems associated with international logistics offyour hands. The use of freight forwarders is perhaps is themost common way of facilitating internationaltrasnportation.

Transportation intermediaries - customs

clearing agents

Your freight forwarder (or your firm) may also make use ofa customs clearing firm on the 'other side' to ensure thatyour goods are cleared through customs quickly andeffortlessly. Customs clearing is can become a nightmareand there are firms that specialise in this service. They

normally have a good working relationship with thecustoms authorties in the target country and they know thelaws and rules intimately. They may even have an accountwith the customs authority and may be able to offer youpayment terms that will help your cash-flow problems(although you should not expect this facility for the start -they will usually only offer you this facility after years oftrading with you).

Transportation intermediaries versusdistribution intermediaries


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In the case of market-entry and in-market distribution, youwill also make use of intermediaries such as importagents, distributors, wholesalers, or even retailers. These

intermediaries clearly have an impact on not only youroverall distribution strategy, but also impact on thephysical distribution of your goods. However, they aredifferent from the transport intermediaries mentionedabove, as these distribution intermediaries also have amarketing function to fulfil and have more direct andgreater impact on your distribution activities. Thetransportation intermediaries (transport representatives,

freight forwarders, clearing agents, etc.) are morefaciliators of the distribution proces have less of a directimpact on your marketing strategy.

The whole channel concept

Some manufacturers, particularly of industrial products,need only be concerned with the problem of distributionchannels between nations (market-entry channels)because their products are sold directly to the end-user,i.e. another company or a government organisation.However, other manufacturers face the additional problemof distribution within the foreign market. Where this is the

case, the manufacturer should be concerned with theentire distribution channel (i.e. the whole channel), fromproducer to final buyer, whether an industrial end-user orconsumer.


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Unfortunately, exporters who trade with a large number ofmarkets frequently think that their task has beenaccomplished once they have delivered their goods to the

foreign importer. They consequently ignore thesubsequent distribution channels that link the importer withthe final purchaser, with the result that less than optimalprofits are achieved.

Preparing an export budget for your firm

Revising your initial budget

You will recall that have already allocated a small budgetin step 4 of the export planning process for your exportactivities to date. The purpose of this intial budget was toenable you to do the research and planning that isrequired to develop a viable export marketing strategy for

your firm. Even this step - step 8 - still falls within thescope of this initial budget. However, the time has come toprepare a more substantial and longer-term budget tosupport your export endeavours. Once you have completestep 8 and outlined your export marketing strategy, youwill then begin to put this strategy to work and will needmore money to do this.

Your budget must match the time frame ofyour export strategy

Your export budget should prepared with a time frame inmind. If you believe that it will take 2-3 years to establish


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your exports, then you need a budget to support yourexport activities over this period. It is no use expecting totake three years to develop your export market, but then to

budget only for one year. At the end of this year yourmoney will inevitably run out and you will almost certainlyhave to find more money. However, your firm'scircumstances and priorities may have changed and itmay be difficult to set aside more money for your exportactivities for the next year (or two) at this time. This meansthat the focus will shift away from exports, resulting in theultimate demise of your export endeavours. It is crucial,

therefore, to allocate a realistic budget for your exports forthe time period it will take you to establish your exports.

Possible budget items

The budget should include money for the followingactivities:

Export staffYou need to budget for at least one, but probably morestaff that will be allocated to handling the firm's exportactivities. Even if you plan to do this yourself, you need toattach a cost to your time, especially if it will take timeaway from your management or work activities (which itsurely will). You may argue that you will do the export

development work after hours and in the evenings, but thisseldom is feasible. Exports require a lot of attention andyou will find yourself spending more time on your exportactivities and less on your other work responsibilities. Ifyou neglect your day-to-day work, you may find that your


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business suffers as a result. It is wise, therefore, toconsider appointing an export admininstrator; someonethat can take care of most of the export activities that you

will be required to do. Not only do you need to budget forthis person, but you should also allocate a cost to (andbudget for) your own time that will spend on d evelopingyour firm's exports.

This need not be a senior position - only someone reliableand hardworking that is interested in international affairsand has some international 'commonsense' (e.g. knows

where countries are located and has perhaps travelledoverseas and or has some interest in international affairs).It is really important that the person you choose is good;this person will in some instances need to be able work ontheir own initiative and must be self-driven. They mayhave to do some administrative work, some onlineresearch, communicate with intermediaries, trade

associations and potential customers, organise tripsabroad and perhaps even arrange participation in anoverseas trade fair.

As your exports begin to grow, you may need to appointadditional staff. For example, you may want to appoint aexport marketer who will help you develop your exportmarkets and you may need someone to focus on the

export logistics, and still another to concentrate on exportpayments, assuming that your exports grow large enoughto warrant this staff.

Export resources


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Creating a small export department will mean that need toallocate space for the department even if it is only for oneperson. Allocating space underpins the idea of an 'export

department' and gives legitimacy to your firm's exportendeavours. You will need a computer, a fax machine, atelephone, a printer, a photocopy machine and other toolsof the trade. Fast internet access is essential (perhaps anadsl line) and your telephone and fax lines must be able todial international. You also need to set budget aside forinternational communications - phone calls, faxes andcourier services.

Export travelIt is very difficult to develop export markets withouttravelling abroad. Overseas buyers normally will want tomeet the people they do business with and travellingabroad shows commitment on your part. It also gives youthe chance to better understand the market you will be

operating in and perhaps to participate in a tradeexhibition. It is difficult to say how many trips you will needto undertake, but at least one is essential. I believe twotrips a year is probably adequate and desirable, and evenmore may be necessary depending on the markets youare concentrating on and the products you are marketing.

Export marketing expensesThis will be one of your biggest outlays. You need tobudget for brochures, redevelopment of your website, apromotional CD perhaps, as well as for other promotionmaterials (printing of new internationally-orientatedbusiness cards, for example). Don't forget, you may need


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to translate these materials into other languages and thiscan be very expensive. The budget for the any trade fairsalso falls under marketing, but because we see trade fairs

as being so important, we highlight this expenseseparately below.

Participation in a trade exhibitionA trade exhibition as we have said is an excellent way ofmarketing and introducing your product to the foreignmarketplace. I believe that participating in an suiableexhibition will generate a lot of good publicity for your firm

and is one of the best marketing avenues available to youin exporting. Trade fair participation is not cheap, however- see the section on trade fair budgets. I would also onlyparticipate in a trade fair once I have done somepreliminary marketing to raise the awareness of my firm. Itis likely, therefore, that trade fair participation may come inthe second or third year of my export schedule.

Additional export researchYour research activities never stop and you need toallocate some money for this research. It may be assimply as buying one or two international research reportsthat have already been compiled about the global marketfor your sector, or it may mean undertaking more specific

marketing research to establish specific customerrequirements or trading opportunities/impediments. Youmay also want to build up an export trade library and buyexport directories and similar publications.

Export logistics


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Once your exports begin to grow, you will need to budgetfor freight forwarding, insurance and other logistical anddocumentary matters. Clearly, these costs form part of

your export costing and are worked into the export price.You may, however, need to allocate a substantial sum topay upfront for these expenses, especially the first time.Thereafter, they becoming a typical cost item.

Product redevelopment expensesWe have pointed out that it is highly likely that you willneed to do some redevlopment of your product to meet

international requirements. This may involve additionalR&D, production-line adaptations, creating and printingnew labels, developing new packaging, etc. Some of thesechanges may be very expensive and you will need toallocate a budget to undetake them initially even if youexpect to recoup your expenses from your exportseventually.

Outlining an implementation schedule for your

export activities

Time frames and schedules are key to the

successful implemention of export strategiesAn important part of your export strategy is setting the timeframe for undertaking the various marketing tasks youhave set for yourself as part of the strategy. Without animplementation schedule, your strategy is endless and


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doomed to failure as you will inevitably put off things forlater. A schedule will force you to do the tasks you haveset for yourself by a certain date.

The schedule needs to be flexible andregularly revisited

Clearly, not every task will always be achievable within thetime frame you have set for yourself and there may bemany impediments and delays that you encounter. For thisreason, you should revisit your export plan regularly

revising both the strategy and the implementation shedulewith any new developments affecting your export activitiesin mind.

What should be in the schedule?

As every firm will face a different set of export tasks, it isdifficult to provide a generic export schedule. However, we

can suggest the following:

When will your export strategy be read forimplementation?

Do you need to adapt your product, packaging andlabelling in any way and if so, how long will this takeand by when should it be ready?

By when will your export price list be complete andpublished?

By when do you need your export brochure/catalogueor any other marketing material ready?

By when will your website need to be ready forexports?


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When is the next suitable exhibition taking place inyour target market? Is this exhibition an annual oneand will you take place each year?

When do you plan to go abroad again? Will you goabroad once or twice each year? When is the mostsuitable time to go abroad and will you link your travelabroad to an exhibition?

When will you appoint an export assistant? By when do you expect to get your first order?

It is suggested that you work on a three-year time frame.

You should not be over confident of generating exportsales much before the end of the second year. Strivetowards obtaining your first order towards the latter part ofyear two and generate further sales (a) from other clientsand (b) from your first client in year three. Bear in mindthat in countries such as Japan it may 5-10 years beforeyou manage to pentrate this market. Set yourself realistic

time frames therefore!

Preparing and presenting your export plan

It is essential to formulate your exportingstrategy in a written document - the export

plan

As with your export research report, you need to formulateyour export strategies in a clear way, accompanied by abudget and time frame. This written document becomesyour export plan. Within the plan will be outlined your


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export strategies. It is essential that you commit yourthoughts to paper. Trying to run an export business off thetop of your head, is sure to lead to failure. A written plan:

Is likely to bring clarity to your export actions, enablingyou to explain how you link your planned actions tomarket and customer needs

It brings a degree of formality and seriousness to yourexport endeavours (if you aren't serious enough toprepare a plan, you can't be serious about exporting!)

Is more likely to be approved by management and

encourage them to commit the necessary resources(capacity, financing, staff, etc.) to developing exports

Can be used at banks and other institutions to obtainfinance

Provides a common frame of reference for all involvedin the export activities of the firm (e.g. directors,production managers, finance managers, human

resources, export staff, yourself, etc.) Serves as a benchmark for measuring success Is dynamic and can change to adapt to varying

cicumstances

Preparing the export plan

The export plan, like the export reseach report, needs to

be prepared as a formal report. The proposed outline ofthis report can be viewed here. The plan should beprofessional laid out and several copies made fordistribution to all relevant parties (directors, managers ofhuman resources, finance, production, etc., as well as to


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export staff). Support the content of the report with graphs,tables and photographs to enhance reading.

Presenting the export plan

If you are the owner of your own business, it is unlikelythat you will need to present the report for approval, butyou may want to present the report to obtain your staff'ssupport and to give them some direction as to where youhope to take your new export endeavours. In a largercompany where you are in charge of exports, you may

have to present the report to obtain management'scommitment and financial support. You may also need topresent the report to your bank in order to obtainadditional financing and so both the report and yourpresentation needs to be of a high standard. Whateveryour position, a formal, written plan is key to the futuresuccess of your export endeavours.

Obtaining approval for your export plan

You need written approval before moving on

Before you can move on to implement your exportstrategy, you need formal approval of your export plan. It

is not enough to to accept a verbal or implied approval.This will almost certainly lead to problems down the line.The best means of obtaining this approval is to presentmanagement or your board with a preprepared statementof approval which says that they have considered your


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export plan and hereby give their approval to the plan andagree to commit the resources outlined in your plan to thefirm's export endeavours. The plan should also commit

you to some action and should therefore indicate briefly(as a summary of what is in the actual plan) what youintend to achieve, by when, how much it will cost, whenyou you expect to achieve your first sale and by when youexpect to recoup your investment in exports.

You may be required to revise the plan

If management are not prepared to approve the plan, thenthey should indicate what they want changed or agree toabandon the firm's export endeavours - you will notsucceed without this approval! A reluctance to sign theapproval document is already an indication of a reluctanceon their part to move into exports. If they have validcomments or suggests or concerns, that's fine. Go backand revise your plan addressing these issues. The firmmay not have the cash available to support your exportendeavours and may first require to source externalfinancing for the export venture. Or there may be otherproblems they foresee. Once you have addressed these,adjust the export plan accordingly. Indicate in a coveringletter what you have done to address their concerns andwhat you have changed in the export plan itself. Again,

seek their approval and ask them to sign the statement ofapproval. They may raise further issues, which, as long asthey are reasonable , you may need to address. Theremay be a bit of backwards and forwards in terms ofreturning to revise the export plan and then going back to


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management to seek approval for it. After the third orfourth time, however, if you still haven't obtained approval,you may want to suggest to them that there are simply too

many concerns or problems and that they should considerabandoning their export drive (notice I say 'their exportdrive' - you should from the start make this 'their' initiative;this will encourage them to take ownership, which you willneed if you are to succeed).

I am the person that decides!

What do you do if you are the owner of the business; youhave prepared the export plan yourself and theoretically,

there is no further approval you need; you decide, after all.

We nevertheless recommend that you prepare a short

statement indicating your commitment to executing the

export strategy as outlined in your documented export

plan. This commitment needs to be documented as a

short statement supporting the exectuion of the export

strategy and should be made available for the relevant

persons who will be involved in your export activities (e.g.

production manager, finance manager, etc.) to see, so that

they can prepare themselves and also commit themselves

to the firm's export endeavours. Giving your written

commitment to your export plan and making this known toothers in the firm, simply re-enforces your seriousness to

developing your export business.


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Step 9: Obtaining finances/resources for your

exports

Why do you need finance?

OK, your export plan is in place and you are ready to start.Perhaps the first step on the road to export is to giveconsideration to how to finance your exports. We said rightat the beginning that exporting is a complicated andexpensive process. It requires time, considerableplanning, extensive research (much of it overseas), highlyskilled staff, product adaptations, international travel,expensive international promotions, managementinvolvement, etc. At the same time, your prices (andmargins) are often keener in export markets and yourpayment terms may mean that you only get paid in 30, 60,90 or 120 days (even longer where capital projects areinvolved). Together this translates into high expenses and

slow income. Cash-flow is often a major problem facingthe smaller exporter.

When do you need financing?

You will need financing almost from the moment youdecide to get into exports. These financing requirementscan be divided into four parts (the first three are the pre-

contract phases, while the last stage is the post-contractphase):

1. Financing to get you through steps 1 to 6 of ourexport process- At this early stage, very little financing


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is required. You may need to do some research onthe Internet and spend some time with your planningand SWOT analysis. Your expenses are more related

with the time you need to put into the planning andpreparation process than with actual outlays on travel,research, promotion, etc. You should be able to coverthese financing outlays yourself.

2. Financing to help you with your export marketingresearch efforts (step 7)- This is the stage where youtake a lot of time and effort to select your targetcountries and to better understand the target market

you wish to enter. Your expenses will probably berelated to a failry extensive desk-research effort(which may involve buy various trade magazines,directories, newspapers and other sources ofinformation), as well as at least one visit to the targetmarket where you may spend a week or moreresearching the market from within, speaking to

industry associations, chambers, potential buyersand, more than likely, visiting a trade fair or two. If youplan your research carefully, you may be able toachieve all of your in-market research goals in onevisit. A second visit may, however, be desirable, whilelarger companies may want to acquire the services ofprofessional research agencies which would push upthe price considerably. It is very difficult to estimateaccurately what a trip like this would cost, but arealistic estimate would be between R25 000 and R50000 for ten days to two weeks of in-market research.At this poitn you may already need to consider findingfinancing for this research (the DTI provides


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assistance to smaller exporters for their in-marketresearch efforts).

3. Financing to help you implement your export plan

(step 8)- Based on the research you have done, youwill prepare an export plan. Thereafter, your next stepis to implement this plan - this is where you are now!This is another expensive step in the export process.This will involve promoting your products over theInternet, via direct mail, through advertisements intrade magazines, taking part in one or more tradefairs and visitng potential buyers. It is highly unlikely

that you will be able to achieve your objectiveswithout visiting the market in question. Indeed, it issuggested that you will need to undertake at least twoor three visits to the market before your marketing hasany effect (if at all). The cost of these trips couldeasily amount to R25 000 per trip, with three tripscosting you R75 000 or more. Add to this the

advertising you have done, then it is not unrealistic toconsider spending R100 000 to R120 000 during thisphase of the export process.

4. Financing to help you achieve your contractualobligations (steps 9-18)- Assuming that yourmarketing effort has paid off and you have secured acontract. Your next step is to produce the goods,package and label them, ship them off to thecustomer, provide the agreed-upon service and wiatfor payment. This is perhaps the costliest part of thewhole process and is very difficult to estimate. It maycost you hundreds of thousands to millions of rands.This will be the stage where your financing needs are


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the most acute. It is also likely that this will only takeplace about two years or so from starting down theroad of exports and you may find that you have

already spent R100 000 to R250 000 (and more) tosecure the order.

What are your financing options?

Banks- There are a number of sources of financing.The most common source remains the bankinginstitutions. In this section, we will deal with how you

should approach your bank for assistance withfinancing.Click here to learn more. The Department of Trade and Industry- At the

same time, the Department of Trade and Industry alsoprovides various incentives to assist exporters andsmall businesses with their export and businessoperations - we examine these as well.Click here tolearn more.

Payment methods as a means of financingexports- In exporting there are also different paymentmethods or options that you can follow and eachpayment option has different implications for yourcash-flow - we examine these payment options as asource of financing.Click here to learn more.

Payment terms as a means of financing exports-

Payment terms has to do with the contractualrequirments that you negotiate with the foreign buyerand has to do with the method of payment (discussedabove), when you will be paid (incorproating any
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credit terms you may extend to the buyer) and forwhat you will be paid.Click here to learn more.

Pricing as a financing mechanism- The price that

you charge for a product also has an impact on themoney you earn and the financing you require. Wetherefore examine pricing as a means offinancing.Click here to learn more.

Cashing in on export receivables- If the foreignbuyer owes you money, you can turn these'receivable' into cash.Click here to learn more.

Foreign currency loan- Although not a common

source of financing for the avergae exporter in SouthAfrica, a foreign currency loan is worth considering forlarge-scale capital products.Click here to learn more.

Alternative sources of financing- Finally, there areseveral alternative sources of financing that you mightwant to consider, including getting finance from theIndustrial Development Corporation, obtaining

overseas financing, getting help from the buyer, yoursuppliers and even from your intermediaries.Clickhere to learn more.

Export risk- The question of export risk also affectsyour financing requirements. After all, the lower yourrisk, the more likely the banks will be to finance youroperations. We therefore take a look at export risk asa means of lowering your finance risk. Export risk is amulti-faceted topic which discuss in a separatesection.Click hereto learn more about export risk.Related to the issue of export risk, is the question ofexchange rate risk and we also look at how you
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should deal withexchange ratesin your exportdealings.

Bank financingOne of the most common ways of financing exports is byobtaining credit from commercial banks (much like youwould finance your domestic activities). Although thistends to be a traditional source of finance, most smaller

exporters complain that banks are not very receptive totheir financing needs and are far too bureaucratic in theirprocedures. Bank credit also tends to be relativelyexpensive. You may want to read more about dealing withbanks.This credit may be in the form of an overdraft thatyou negotiate with the bank or it may be a loan for aspecific project, although prefer not to finance individualorders as they prefer to establish an ongoing business

relationship with customers.Although many entrepreneurs may complain that gettingfinancing from a bank is like drawing blood from a stone,the reality is that banks are the key source of exportingfinancing the world round. Banks are not reluctant toprovide financing. Indeed, providing financing or credit is

one of the main ways for them to earn income forthemselves. At the same time, banks do not want tosimply throw their money away and so they take greatcare in considering and analysing the requests forfinancing that they receive from prospective exporters. Inso doing they take many factors into consideration.
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To begin with, they look at the business history of thecompany asking for financing. If you have had a rockyrelationship with your bank and have struggled to pay

back money in the past; or if your business is currentlystruggling to make ends meet, then do not expect a open-armed welcome. Your bank will require considerableconvincing that you will make a success of this venture.

If this is your first time venture into exports, your bank maybe more reluctant to assist you (or will at least wantconsiderable assurance of your likely success). Your bank

is certainly not likely to give you money unless you canshow the thought and effort that you have put into thisventure already. They will want to know:

What research have you done? What plans have you made (they will almost certainly

want to see your export plan)? What makes your product so special? Why have you selected this particular country? Who have you spoken to? How will you market your product? What sales/profits do you expect and how long will it

take to achieve these sales?

Do not view these expectations in a negative light. If youcan convince your bank of your case, then you stand agood chance of success. If your plans are not thoughtthrough, are very thin, or are unrealistic, expect a frostyreception from your bank. The best is to go back to thedrawing board and do your planning properly.


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If, on the other hand, you are able to put a clearly thoughtthroughexport planon the table that shows the researchyou have done and the export plan you intend following,

and if this plan is realistic, the banks will almost certainlyconsider it favourably. Be particularly realistic about whatyou hope to achieve, the sales you will achieve, the profitsyou will make, the time it will take and the effort involved.Banks know exactly how difficult exports are. Indeed, oursuggestion is that if you do not have a well-formulatedexport plan on paper, forget about approaching your bank!

Payment methods as a means offinancingAs in the domestic market, there are many differentways of receiving payment for goods sold tobuyers. The payment method you use may have asignificant effect on the financing you require andthe level of risk to which you are exposed. We willnow discuss the most common payment methods inexporting:

Open account

Payments in advance Documentary collections Documentary credits
http://www.exporthelp.co.za/modules/8_export_plan/intro.htmlhttp://www.exporthelp.co.za/modules/9_financing/payment_methods.html#openaccounthttp://www.exporthelp.co.za/modules/9_financing/payment_methods.html#paymentshttp://www.exporthelp.co.za/modules/9_financing/documentary_collections.htmlhttp://www.exporthelp.co.za/modules/9_financing/documentary_credits.htmlhttp://www.exporthelp.co.za/modules/9_financing/documentary_credits.htmlhttp://www.exporthelp.co.za/modules/9_financing/documentary_collections.htmlhttp://www.exporthelp.co.za/modules/9_financing/payment_methods.html#paymentshttp://www.exporthelp.co.za/modules/9_financing/payment_methods.html#openaccounthttp://www.exporthelp.co.za/modules/8_export_plan/intro.html


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Open account

This is an agreement you would really only enterinto with a very good client - one that you trust. Withan open account, you agree to supply the goods tothe importer and, once you have done so, you theninvoice the buyer. Once the buyer receives theinvoice he or she effects payment.

There may be some credit terms associated with anopen account. In other words, you will agree with

the buyer that he/she only needs to pay say 30days after receiving your invoice. With an openaccount, you, as the exporter, carry all the riskassociated with the sale. You may need to arrangefinancing yourself to pay for the credit period, butbanks may be reluctant to finance you solely on thestrength of the open account as they have noguarantee that the importer will pay. Instead youmay have to offer other forms of guarantee.

Payments in advance

This is certainly the most preferred form of paymentfrom the exporter's point of view. Unfortunately,importers are seldom willing to pay for goods inadvance. However, if you are in a very strongnegotiating position (for example, you are the onlysupplier of the goods or the only company that hasstock currently), you may be able to negotiatepayment in advance for all or part of the shipment.


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Alternatively, an understanding importer may beprepared to pay for part of the contract price inadvance as evidence of goodwill. This provides you

with some security that you will be paid and helpsto fund the cost of your production and shipping. Atthe same time, it allows the buyer the opportunity tocheck the quality of the goods before parting withthe rest of their money. This will need to benegotiated with the importer.

With payment in advance, you have no risks and

bear none of the financing costs. There is noadditional cost to you beyond the costs involved inany export transaction. Payment or part payment inadvance is typically used for low value sales toindividuals or new customers. Payment in advanceis also common when selling over the Internet. Ifyou wish to buy a book from Amazon.com, you

would by credit card and only once you have paid,would the books be dispatched to you. It is arealistic alternative payment method for smallexporters that sell rather unique items such as artwork, and most overseas buyers will be willing touse this method of payment because the amountsinvolved are small (and hence, the risk is small).

For any individual transaction, the most appropriatemethod will depend on the level of risk involved,how strong your negotiating position is and how thecost of financing compares for you and yourcustomer.


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Documentary collections

What are documentary collections?

Documentary collections allow you to keep control of thegoods and to raise additional finance as a result. Howdocumentary collections work is that an overseas bank,acting on your bank's behalf, will only release thedocuments necessary for your customer (i.e. the importer)

to take possession of the goods once they formally acceptthe terms of a bill of exchange. In accepting the bill ofexchange, the customer essentially pays the overseasbank (i.e. they essentially "buy" the bill of exchange fromthe bank).

Bills of Exchange

A bill of exchange is a written document in which 'thedrawer' requires 'the drawee' to pay a specified amount.The drawer is yourself, while the drawee is usually yourcustomer.

If a bill is being used with a term letter of credit, thedrawee is usually the customer's bank. The bill will alsospecify when payment should be made. The bill can either

request immediate payment ('at sight' or 'on demand'), or itcan specify payment at a later date ("the term"), e.g. 30days after sight. The terms of the contract usually requireyour customer to accept the bill immediately if it is for laterpayment. New exporters may find that their bank is not


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initially willing to provide them with term bills. Draweesbecome legally liable for payment once they 'accept'(agree to pay) the bill. A bill is often referred to as a "draft"

until it has been accepted. 'Negotiable' bills specifypayment 'to the order of' the drawer. This allows you tonegotiate the bill, ie to sell it to another party (usually yourbank) to raise finance.

Should the bill of exchange not be accepted by thecustomer, you will still have ownership and control of thegoods, but in your customer's country. There is also a risk

that you may not receive payment, unless the bill hasbeen guaranteed by the bank ("avalised"). You will have astrong basis for pursuing legal action against the customerbut in the foreign country.

The bill of exchange can specify any credit period that younegotiate with your customer. For example, you canspecify immediate payment, payment after a set number

of days, or payment by a given date. Once the bill hasbeen accepted, you can use the bill of exchange to raiseadditional finance.

You should be aware that in the case of a bill of exchange,both your bank and the overseas bank will charge acommission. Your terms of trade with your customer mustspecify who is responsible for paying these charges.Documentary collections are typically used for exports tocustomers you have an established relationship with.


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Documentary creditsWhat are documentary credits?

Also known as "letters of credit", documentarycredits are amongst the safest methods of paymentin exporting (other than payment in advance). Yourcustomer arranges a letter of credit with its bank(known as the "issuing bank"). In this letter of creditwill stand all the instructions that you must followand documentary evidence that you must supply to

a correspondent bank (which will normally bespecified in the letter of credit) in South Africa(known as the "advising bank"). The correspondentbank may be a different bank to your own bank (it isin fact the local representative of the overseasissuing bank) As the exporter, you will receive acopy of the letter of credit, as will the South African

advising bank.The need for accurate documentaryproof

Once you have dispatched the goods and attendedto all of the requirements as stated in the letter ofcredit, you can approach the advising bank and

submit to them all of the documentary evidence(such as the shipping documents, phytosanitarydocuments, inspection certificates, etc.) of what youhave done and as is set out in the letter of credit. Ifyour documentary evidence exactly meets the


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requirements as specified in the letter of credit, theadvising bank will pay you as per the paymentinstructions (which may be immediately, or after a

certain period of time or on a specific date). It isimportant, however, that the documentary evidencethat you supply to the advising bank meets therequirements as stipulated in the letter of credit,exactly - even a spelling mistake or a missingcomma can result in their refusal to pay.

Irrevocable and confirmed letters of

credit

Letters of credit can also be both "irrevocable"and/or "confirmed" An accurate and authentic"irrevocable" letter of credit, verified by your ownbank (not necessarily the advising bank), carrieslittle credit risk. As long as your documentary

evidence is accurate and in keeping with therequirements of the letter of credit, the issuing bankguarantees to pay you within the stipulated time. By"confirming" the letter of credit, your bank agrees topay you even if the issuing bank (i.e. the importer'sbank) defaults. Your bank will charge a commissionbased on how creditworthy the issuing bank is. Ofcourse, letters of credit can also be unconfirmed

and/or revocable, but these options are much morerisky for you as the exporter because it allows theimporter (or his/her issuing bank) to renege on thepayment.


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Term credits and financing

A letter of credit can specify any credit period thatyou have negotiated with your customer. A letter ofcredit that that incorporates a payment after a giventerm (e.g. 60 days) is known as a term credit. Aterm credit will require you to finance the gapbetween delivery and payment.

You can use a valid, current letter of credit to raiseadditional finance in a similar way to using a bill of

exchange. Your customer is responsible for thecost of issuing the letter of credit. The customermay want to pass these costs on to you as part ofthe price negotiation. Documentary credits aretypically used for exports to customers you havenot sold to before and for customers and countriesthat present particular credit risks.

Introduction to EMIA Scheme

Background

EMIA stands forExport Marketing and InvestmentAssistanceand this is aincentivescheme introduced and

administered by Government (or more specifically theDepartment of Trade and Industry - thedti). The purpose ofassistance under the EMlA scheme is to partiallycompensate exporters for costs incurred in respect ofactivities aimed at developing export markets for SouthAfrican products and services abroad, and to recruit new


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foreign direct investment and potential customers intoSouth Africa.

Any assistance provided under the EMIA schemes is at

the absolute discretion of the Deputy Director-GeneralofTrade and Investment South Africa(TAISA) whosedecision will be final. No EMIA incentives are available forthe period from 10 December up to and including 10January of each year.

EMIA is broadly divided into two types, individual

participation schemes and group schemes. Individual ParticipationIncentive Schemesadministered by TAISA include:

Individual Exhibitions(lE) andIn-Store Promotions(lP) Primary Market Research(PMR) andForeign Direct

Investment(FDI)

Individual Inward-Bound Missions(IIBM) Group ParticipationIncentive Schemes administered byTAISA include:

Group Inward Buying Trade Missions(IBM) Group Inward Investment Missions(IIM) National Pavilions(NP)

Outward Selling Trade Missions(OSM) andOutwardInvestment Recruitment Missions(OIM) Sector-specific assistance(SSAS)

To learn more about each of these incentive schemes,please click on the link in question as provided above!
http://www.exporthelp.co.za/modules/9_financing/EMIA/IE/0_introduction_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IP/0_introduction_IP.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/PMR/0_introduction_PMR.htmlhttp://www.thedti.gov.za/trade_investment/emia_primary_exporters.jsphttp://www.thedti.gov.za/trade_investment/emia_primary_exporters.jsphttp://www.exporthelp.co.za/modules/9_financing/EMIA/IIBM/0_introduction_IIBM.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/TM/1_introduction_TM.htmlhttp://www.thedti.gov.za/trade_investment/emia_inward_investment.jsphttp://www.exporthelp.co.za/modules/9_financing/EMIA/NP/1_introduction_NP.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/TM/3_OSM_TM.htmlhttp://www.thedti.gov.za/trade_investment/emia_outward_investment.jsphttp://www.thedti.gov.za/trade_investment/emia_outward_investment.jsphttp://www.thedti.gov.za/trade_investment/emia_ssas.jsphttp://www.thedti.gov.za/trade_investment/emia_ssas.jsphttp://www.thedti.gov.za/trade_investment/emia_outward_investment.jsphttp://www.thedti.gov.za/trade_investment/emia_outward_investment.jsphttp://www.exporthelp.co.za/modules/9_financing/EMIA/TM/3_OSM_TM.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/NP/1_introduction_NP.htmlhttp://www.thedti.gov.za/trade_investment/emia_inward_investment.jsphttp://www.exporthelp.co.za/modules/9_financing/EMIA/TM/1_introduction_TM.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IIBM/0_introduction_IIBM.htmlhttp://www.thedti.gov.za/trade_investment/emia_primary_exporters.jsphttp://www.thedti.gov.za/trade_investment/emia_primary_exporters.jsphttp://www.exporthelp.co.za/modules/9_financing/EMIA/PMR/0_introduction_PMR.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IP/0_introduction_IP.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/0_introduction_IE.html


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Please note, as the ExportHelp web portal is aboutexporting, we do not provide any information on this siteabout the various investment schemes mentioned above.

If you are interested in any of these investment schemes,please click on the link provided above and you will beredirected to thedti web page dealing with that particularscheme.

Definitions and terminology

Export Trading House (representing at leastthree (3) SMME's)

An Export Trading House (ETH) is a business, whichfocuses on the promotion of export-trade through themarketing of products from different manufacturers. Theprinciple/manufacturer is not allowed to participate

simultaneously with the agent.

Commission Agent (representing at least threeSMME's)

A Commission Agent (also referred to as CommissionedAgents) must have an agency agreement with a local

manufacturer for the promotion of the manufacturer'sproducts in the export market. The principle/manufactureris not allowed to participate simultaneously with the agent.

Small, Medium and Micro-Sized Exporters -SMME's


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SMME's must be privately, independently or co-operativelyowned and managed, and must comply with any two (2) ofthe following quantitative criteria:

Total annual turnover must be less than R40 million Total assets excluding fixed property must be less

than R15 million Less than 200 full time employees

Historically DisadvantagedIndividuals/Businesses - HDI's

For a business to qualify as a historically disadvantagedbusiness, it must: be an SMME where at least 51 % of thebusiness must be owned by black person(s), women ordisabled person(s) of South African nationality.

Other businesses

Businesses that do not qualify under the definition of anSMME as stipulated by the EMIA Scheme, are classifiedas "other businesses".

Registered exporters

Exporters registered with the Commissioner of Customs &Excise.

Qualifying organisation

This term refers to Trade and Industry organisationsrepresenting specific sectors of trade and industryrecognised by EMIA. These organisations include:


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Chambers of Commerce, Industry Associations, ProvincialInvestment Promotion Agencies (PIPA's), Export Councils,Official Provincial and Local Government Trade Promotion

offices (TPO's), and thedti.

Value-added product

A value-added product is a product by which a SouthAfrican business has increased the value of a product ateach stage of its production, excluding initial costs such asindirect labour, commissions, taxes, and duties, but

including raw materials and packaging, by 35%.

Subsistence allowance

The daily subsistence allowance is provided in order tocover aportionof the hotel accommodation, meals, taxifares, telephone calls, etc. No supporting documents arerequired with the claim.

HS-Code (Harmonised System Code)

This is an international code used to classify products thatare imported and exported. The HS-Code (HarmonisedSystem Code) or Tariff Heading can be obtained fromCustoms & Excise - Telephone: (012) 4224000.

Black-owned EnterprisesThe balanced score card approach is followed whenmaking reference to an entity's affirmative action recordand status:


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Black Owned Enterprise - 50.1% ownership andsubstantial management control

Black Owned Entity - 25.1% ownership and

substantial management control Black Women Owned Entity - 25.1% representation

by a black woman within the black equity andmanagement portion

Exhibition costs in respect of NationalPavilions

The exhibition and related costs in respect of NationalPavilion relates to all costs for services provided byexhibition organisers, sub-contractors and experts toensure the success of National Pavilions.

Preferred Service Providers (PSP's)

These are suitably qualified firms who have been

appointed, through a tender process, to providespecialised air travel and freight forwarding services toEMIA customers. In order to improve the efficiency of thescheme and to provide increased service levels tocustomers, thedti has appointed Preferred ServiceProviders (PSP's), to the EMIA scheme, for the provisionof Travel and Freight Forwarding services.

Third-party payments

For the purposes of EMIA, third-party payments will bedefined as a payments made by an entity other than theapproved company or by any person other than the


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proposed traveller or director of the company. Any invoiceor proof of payment made in another name will beconstrued to be a third-party payment.

ndividual Exhibition Assistance Scheme

Introduction

The objective behind this EMIA scheme is to providefinancial assistance to individual exporters to exhibitproducts at recognised/established exhibitions abroadwhere Trade and Investment South Africadoes notprovidefor a National Pavilion. Exhibitions are a powerful way ofpromoting your firm and its exports in foreign markets. Notonly do foreign exhibitions enable you to promote yourfirm/products, but you can use the exhibition as a way ofgaining valuable insight and research data about your

prospective target market. Recognised and establishedinternational exhibitions represent a one-stop shop whereboth buyers (importers) and sellers (exporters) cometogether to meet and to do business, with everythingtaking place under under one roof. This saves you thehassle and cost of having to travel around a particularcountry or region and because the exhibitors are also

displaying their products, you get a chance to see whatthe competition has to offer. We at ExportHelp stronglyrecommend that you consider making use of foreignexhibitions and trade fairs as a way of entering a potentialmarketplace. To this end, we therefore suggest that youalso read up on the following:


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Selecting potential foreign markets to enter Using exhibitions and trade fairs to promote your firm

and its products in foreign markets

More detail about the scheme

To learn more about the individual exhibition assistancescheme, click on the following links:

1.General qualification criteria2.Limitation of assistance provided3.Scheme-specific financial criteria4.Steps involved in applying for assistance5.Application documentation and other requirements6.Claim documentation and other requirements

Eligible enterprises and general qualifying

criteriaEligible enterprises

The following enterprises qualify for assistance oncondition that they have been operating and trading formore than one financial year:

South African manufacturers of products includingSMME, HDI and other owned businesses who areregistered with the South African Revenue Services(SARS)
http://www.exporthelp.co.za/modules/9_financing/EMIA/IE/1_general_qualification_criteria_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/1_general_qualification_criteria_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/1_general_qualification_criteria_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/2_assistance_limitations_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/2_assistance_limitations_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/2_assistance_limitations_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/3_scheme-specific_qualifying_criteria_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/3_scheme-specific_qualifying_criteria_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/3_scheme-specific_qualifying_criteria_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/4_steps_applying_for_assistance_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/4_steps_applying_for_assistance_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/4_steps_applying_for_assistance_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/5_application_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/5_application_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/5_application_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/6_claim_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/6_claim_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/6_claim_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/6_claim_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/5_application_documents_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/4_steps_applying_for_assistance_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/3_scheme-specific_qualifying_criteria_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/2_assistance_limitations_IE.htmlhttp://www.exporthelp.co.za/modules/9_financing/EMIA/IE/1_general_qualification_criteria_IE.html


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South African Export Trading Houses representing atleast three (3) SMME or HDI-owned businesses

South African Commission Agents representing at

least three (3) SMME or HDI-owned businesses South African Export Councils, Industry Associations

and Joint Action Groups representing at least five (5)South African entities

General qualifying criteria

The Department of Trade and Industry expects applicants

to meet the following qualifying criteria:

Export readiness of applicant Export/production performance of the applicant Export/marketing competence of person visiting the

foreign country Potential available/accessible production/export

product capacity Extent of export marketing planning Type of product for export and local sales

performance Level of labour absorption, location and technological

requirements Industry in which the venture operates or is planned Submission of general and specific qualifying

documentation and adherence to general and specificcriteria as stipulated per each EMIA offering


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