ExportPro Inc.

Questions & Answers

Questions and Answers. Sample concentrates of information from the book: Export & Import - Winning in the Global Marketplace, ISBN 978-0-9681148-1-0

Domestic vs. International Business

Q: What is the difference between international and domestic business?

A: Here are some key differences:

Q: What do we have to adapt or change in our company to be successful in international business?

A: You have to remember that you are the foreigner. Learn about the local culture and how to do business in the export country and then adapt to these local customs. Successful international business is very much a mental attitude. If you understand the local way of business and culture, then you have 80% of the basis for your success.

Q: Do we have to teach our staff something special?

A: Exporting requires considerable teamwork. You have to involve all your staff and teach them the new rules. They need to understand not only the different ways of doing business but also what is expected from them.
In our book “Export & Import - Winning in the Global Marketplace”, ISBN 978-0-9681148-1-0, those topics are covered in depth
Copyright Export Pro Inc. Canada. www.exportpro.com

Selecting Markets 

Q: As a new exporter how do I select a market?

A: You first have to ask yourself a few questions.  How fast do you want a return on your investment in the new market? Do you want to achieve quickly or are you willing to wait for a long-term result?  What kind of markets will your products fit into? 
Geographical distances are not so important. The “mental" distance is more critical. Select a country where the way of doing business is similar to your domestic market.  Make sure the market is expanding because this allows your business to grow.
 
Q: How do I select markets for the long term?

A: Look for markets with potential for expansion, where your products will fit in and where you can achieve long term results. Where they are in their development – do they use shovels or computerized equipment? You may have to wait until they are ready for your products. If you are selling telecommunication equipment, look at countries with a low percentage of phone users, but where you know they plan to expand their telecommunications system. China is one example, India is another.  
In our book “Export & Import - Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 these topics are covered in depth

Export Distribution & Pricing

Q: Which kind of distribution channels should I select for a foreign market?

A: How much control do you want and what will you be allowed to do in the country. For full control, you need to establish your own subsidiary. However, some countries do not allow majority foreign ownership and you would need to find a local partner.
If you select a local representative or distributor, you will delegate much of the responsibility to them. It is important to select the right ones and activate them. The advantage of selecting a local representative is that they already know the market and have the client networks that will enable you start up quickly.
Your choice of solution depends on the country, your resources and how fast you want to be up and running. If you are not familiar with a country and the ways of doing business, ask someone with experience there for advice.

Q:  What are the pros and cons of having your own foreign operation?

A:

Pros

Cons

Under your control

High start up costs

Easier communications with HQ

Could be difficult to find good local people

Profit stays within the company

Could be costly and risky.

Will increase prestige in domestic and international markets

If not successful, can have long-term negative impact

More freedom for implementing ideas

Can demand a larger administrative organisation than if using local distributor

An independent legal entity separate from HQ

May have too narrow a range of products to be profitable

Better feedback from market

Foreign investment can be influenced by risks (Economical and Political)

For larger contracts, a definite advantage to own the operation

 


Q: How to select the right foreign distributor?

A: First contact the end user (customers etc.) and ask them to suggest companies they want to buy from. If you are a small company it is easier to work with a small distributor. Note, however, that larger multinationals such as car manufacturers have lists of preferred suppliers. If you want to sell to them, you have to a pre-approved supplier.

In our book “Export & Import - Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 these topics are covered in depth

Q: How do I set my export price for a specific market?

A: The market price is always the basis for the export price and not your manufacturing cost. Find out the net selling price. Then calculate backwards, taking into consideration the different distribution margins, freight, customs duty, etc., to end up with an export price.  If that export price does not give you enough profit find other solutions of distribution such as shortening the number of distribution levels between you and your end user.

Q: How do I proceed with inter-company pricing if we own the foreign operation?

A: You should treat your own company as you would any distributor. They have to make money and you do too. Some companies want to sell to their overseas operations at a lower price to prevent high duties in the foreign market. Some want to keep the profit at home, so they charge a higher export price.  Local Customs authorities also influence pricing in a market, so you have to use market pricing. If you sell at too low a cost to your own company, the local authorities can charge extra duties or accuse you of dumping. Charges of dumping can have severe consequences. Ask for advice if you are not sure.

Q:  How do I set the value of a down payment and royalty for a license?

A: When you sell a license, you sell the right to produce and market your products. What you charge the licensee for a down payment and royalty is part of profit sharing. First, find out what the product will sell for and the local manufacturing cost. Calculate the gross margin the licensee will receive. Then, decide what is reasonable as your share. That will guide the amount of the down payment and the percentage or $ value of the royalty.
Remember that in most countries you cannot just bring home the royalty. There is normally a local withholding tax. If there are tax treaties between the countries you can deduct that tax at home.
In our book “Export & Import - Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 those topics are covered in depth
Copyright Export Pro Inc. Canada. www.exportpro.com

Payments & Currencies

Q: How do I make sure to get paid in the foreign country?

A: There are different payment methods and different cultural practices that guide when and how payments are made.  The range is from payment in advance to sending products on consignment. The first very safe, and consignment gives very little security.  You can also provide open credit, factoring, Cash Against Document, Documents against Acceptance, Letter of Credit and different types of bank guarantees. There are many banks and government programs that can insure your payments. You have to select what is most appropriate for the client and country. Note, however, that a very secure payment may be good for you but could limit your distributor’s expansion (reducing their cash flow). You have to evaluate which best suits each. Don’t assume you can use the same method, in a new country as at home. Investigate what is used in that specific country.

Q: Is a Letter of Credit (L/C) a good payment method?

A:  Yes and no.  It is a safe way to get paid if it is the right type of LC, issued properly and the rules are followed according to the contract. However, it is limited in its flexibility and costs both parties money.  It is normally recommended for larger shipments, especially if there is a long time between order and shipment. If the local payment methods are questionable, you will want an irrevocable letter of credit payable at your bank.

There is also a revolving Letter of Credit allowing for continuous shipments. If the supplier does not completely comply with the LC, it is worth nothing. If you ship more or even less than the LC stipulated, it is considered void. If the LC states no transhipments and you do not follow that rule, the LC will be void.

Q:   How does Cash Against Document (CAD) or Documents Against Payment (D/P) work, are there any drawbacks?

A:  Cash against document means that you ship the goods to the foreign country. The documents (Bill of Lading and invoices) are sent to your client’s bank. The client must pay for the goods before the documents are released.   This will work in countries where you can trust the banks. The advantage is that the client does not get access to the goods without paying. The drawback is that if they change their mind and do not want the goods, you have to bring them back and pay for the shipping.

Q:   What currency should I use when exporting?

A: You would most likely want to get paid in your own currency. However, the local distributor wants to buy in their currency. Make the price list in their currency if they have a steady and acceptable currency, like the EURO, British pound or US$. If the country does not have a stable currency, like Russia and Zimbabwe, use a neutral currency like the US dollar.

Q: How do I make sure I don’t lose money on currency fluctuations?

A: Let’s assume you are a US company and invoice in EURO. There are a number of ways to make sure you would not lose too much money.

I am sure that your bank will be more than willing to discuss the different options with you.

In our book “Export & Import - Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 those topics are covered in depth
Copyright Export Pro Inc. Canada. www.exportpro.com

Representation abroad 

Q:  What do I do with a foreign representative who does not perform?

A:  There are usually two reasons why they may not perform:  You selected the wrong one or you have not activated them. Both are your fault.   If you did not take the time to select the right partner, you most likely will have to start all over again to find a new one
If you did not activate them, that is, by making them hungry to earn money, supporting them fully, etc., they will not perform well. If it is not too late, try to reactivate them.   Do not try to get them to sell like you do on your domestic market. Adapt your activities to the local market.  Make sure they can make money and give them the assistance they need. Then you will see sales results.

Q: We sell our equipment to different customer groups. Should we use different distribution channels?

A: Yes. As long there is no conflict between the distributors that is fine. So as not to confuse the end user or if there is a risk of conflict, sell the products under different names and perhaps use different colours.
 
Q: My distributor wants to sell under a private brand. Should I allow that?
 
A: There are pros and con with this.  If you want to get the product known on the market, use it. If the distributor does not perform, you can use someone else for distribution. A well-established brand or trade name is a good marketing tool. However, if your distributor has a good name already and that will help your sales, be open to using it.

Q:   My distributor wants to use my company name when selling my products. Is that OK?

A:  Yes. However, hopefully you have registered your trade name in the distributor’s country. If that is the case, you have to register a license allowing them to use the name. The registration allows you to withdraw permission to use your name if the arrangements do not work out.

In our book “Export & Import - Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 those topics are covered in depth
Copyright Export Pro Inc. Canada. www.exportpro.com

Adapting products and sales material

Q:  Do I need to adapt my products for the foreign market?

A: Yes. Here are just a few things to consider:
Electrical voltage and plug configuration could be different. Climate could influence your product. Local laws can force you to change the products to suit the market or to get them approved in advance. Local measurements and codes must be complied with. 

Q: Do I need to adapt my sales materials?

A: Yes, you have to. The way you sell products/services will vary depending on the country. While a German client wants plenty of technical data, the North American wants a product to show profitability and performance. Paper sizes can be different and product labels from Sweden will not work well in Japan. You have to use the local language. Don’t just translate the text. You need someone local to write it for the local market using the right wording to sell benefits.

Q: Does colour have anything to do with adapting the product?

A: Colour means different things. White in one country can mean cleanness and in another country, death. Green can mean happiness in one location but in another country it means the complete opposite. You need to take this into consideration both for the product and sales material.
 
Q: Do I need to adapt the product name?

A: There are number of reasons you may be forced to change your product name.
It may already be registered by someone else, so you can’t use it. When your product name is translated, it could mean something negative in the foreign language. Check first. If you want to use a name in a foreign market, register it to protect it.

In our book “Export & Import - Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 those topics are covered in depth
Copyright Export Pro Inc. Canada. www.exportpro.com

Legal questions

Q: Do I need to sign a contract with my foreign distributor?

A: It is recommended that you specify in writing what you have agreed upon.


Q:   Should I use my lawyer or a foreign lawyer to create the contract?

A: You can always use your domestic lawyer to set out the main content in a contract. However, legislation differs from country to country and they likely would not be aware of local requirements. Have a lawyer in the foreign country provide advice and adapt the contract to the local rules and business culture.

Q: How do I treat a trademark in a foreign country?

A: Register your trademark also in the foreign country. If your foreign partner will be allowed to use your trademark, register a license allowing them to use it. Make sure that it allows you to cancel the agreement when you no longer do business with that foreign partner.
 
In our book “Export & Import - Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 those topics are covered in depth
Copyright Export Pro Inc. Canada. www.exportpro.com

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