Top 9 things to consider before exporting

• Blog
• Top 9 things

Top 9 things to consider before exporting

Expanding the horizons beyond your local market has clear advantages for your company: increases global market share, diversifies risks, compensates for seasonal demands, expands lifecycle of a product, gives an opportunity to sell excess production, creates potential for company expansion and gain new knowledge and experience. As with anything else, it does not present itself free of risks. Any company interested in selling abroad should first assess the advantages and risks of exporting before committing resources to this new venture. Below is our list of nine things to consider before exporting to help you in your assessment:

1. Where should your business expand overseas?

In the last decade, traditionally top-performing global economies have stagnated while emerging economies have experienced explosive growth. By looking at a number of factors key to a country’s success, like infrastructure, education and technology, you can easily see not only what the competitive landscape looks like today, but also where it will likely be in the future. There are public available resources from government and public offices to access top line information at country level:

https://www.export.gov/ccg
http://www.intracen.org/itc/market-info-tools/trade-statistics/
http://tradecommissioner.gc.ca/country-information-pays.aspx?lang=eng

Some banks such as HSBC and Santander provide market information to their customers, check with your local bank to gain free access.

Trying to export to several different countries can be very expensive, instead, it's usually best to focus on selling to one or two individual markets. Many new exporters choose to start by exporting to markets that are relatively easy to deal with. For example, the practicalities of dispatching goods to countries within the European Union (EU) are relatively straightforward. Many trading practices, regulations and standards apply throughout the EU, and key tasks such as accounting for VAT have been simplified. This can be a good way of building your export skills.

Or you might choose to target a market where you have some links - eg through your family, personal contacts or employee knowledge.

2. Are your products right for your target market?

There is no such thing as universal appeal when it comes to food. Even global brands had to adapt their recipes to tailor consumer’s taste. Understanding your consumer’s needs beforehand will save you time and money in the long run. Consumers behave differently in each country and they value product attributes differently. What influences customers' purchasing decisions? Asian consumers for example have a sweeter tooth than most other countries, consumers in Germany are very conscious of the provenance of the food they put on their plate and consumers in the United Kingdom buy mostly with their eyes.

What price can the product profitably sell for? This will influence your pricing and marketing decisions and whether or not you need to make adjustments to your product to achieve a specific selling price.

Think also about how customers purchase. Do they buy from local markets and groceries, big supermarket chains, online? How often and what quantities do they buy in each occasion? Do they drive to do their shopping? Do they get it delivered? The way the product reaches the consumer will have a big impact on how your product should be displayed and ultimately sold.

3. Do you have the necessary resources to start exporting?

Exporting is usually a way of growing a successful business, rather than an easy way out for one that's in trouble. If you're struggling with limited finances or overworked employees, you may not have the resources to take on the extra work.

Once you have planned your exporting activities, you also need to devote extra resources to handling your exporting business. Marketing to overseas customers tends to be more demanding than selling within the local market. Exporting also needs special skills - such as organising international transport and handling customs clearance.
Many businesses find that the best way to get started is to buy in the services they need, and build in-house skills and resources later. For example, you might use a local agent to sell, and a freight forwarder to handle deliveries.

Exporting can also be financially demanding. Customers often want credit from the time they receive the goods. For a long distance shipment, this could be weeks after you produced and shipped the goods, so you get paid later than you would by a customer in the local market. At the same time, you may have to meet extra costs like transport and insurance.The more successful you are, the greater the demands placed on your business will be. It is worth planning ahead to be sure you have the capacity to handle the extra production, selling and after-sales support.

4. How do you plan your market entry strategy

The best way to sell into an export market depends on your circumstances and local market conditions. You also need to think about how to promote yourself. It's important to take local culture and regulations into account. For example, it might be illegal to advertise your product to children, or the name of your product might have an unwanted meaning in the local language.

These days, the internet is a good way of marketing to customers overseas, or even selling directly to them. E-commerce can be used in different ways depending specific business needs and marketing strategy:

• Pre-sales, using your website to generate sales leads
• Direct sales
• Post-sales support, using most frequently asked questions option on your website
• Trade visits can also be an important part of creating awareness, building relationships and making sales.

Preparing for export: Like any sales contract, the agreement should make it clear who is at risk if the goods are lost or damaged at any stage during delivery. It's good practice to use internationally recognised Incoterms in your contract to set out the responsibilities for transport and insurance. Whatever you agree, it's important to be sure that you can handle your responsibilities. International trade paperwork can be complicated, and mistakes can be costly. You may want to use specialist help such as a freight forwarder.

5. How do you classify goods?

How different goods are classified largely determines what duties and controls apply to them Whether or not you have an agent who handles customs entries on your behalf, you have a legal responsibility to ensure the correct classification is applied. Incorrect classification can lead to delays in clearing goods, overpayment of duty and possible penalties. Member states of the EU hold commodity codes in the TARIC. Commodity codes and other regulations are updated daily, which ensures that importers and exporters can rely on the same standards and treatment throughout the EU. The UK Trade Tariff uses the daily updates of the TARIC directly, so that Tariff users have access to consistent accurate information.
In order to classify your goods you'll need to make use of the Integrated Tariff. The commodity code is a ten-digit number, although an additional four digits may apply to certain products.

Tariff classification in the EU is based on the harmonised system which defines the first six digits. Although many countries subscribe to the same Tariff classification system, actual classifications may differ.

Where to find the Tariff

The EU Trade Tariff is available from this website free and online for most of the information you'll need to import or export. It also includes helpful tools for managing your Tariff information as well as other useful information such as tariffs, quotas and other legal requirements.
http://madb.europa.eu/madb/euTariffs.htm

Individual countries also have their own online advice, in the UK you can access information on https://www.trade-tariff.service.gov.uk/trade-tariff/sections. Check for resources available from your home government, most have online free access.

6. Do you need a licence?

Whether you need a licence can also depend on where the goods are coming from. Exporting or importing controlled goods without the right licence is a criminal offence, so it's important to check first. Above websites are useful tools to gather information on specific requirements to EU, also you can find additional information in:

https://www.cbi.eu/market-information/
https://www.food.gov.uk/business-industry/imports/importers/importsuppliers

7. What are the risks involved?

Whenever you sell there are risks but doing business with a customer in a different country, and perhaps using a different language and a different currency, can create extra risks and complications. Your customer's country can present risks. For example, the country might be economically weak, politically unstable or prone to natural disasters.
Goods generally take longer to deliver overseas, adding an extra delay from when you incur costs such as raw materials to when the customer receives the goods and pays for them. This can increase your financial burden so it's important to check that you can afford to tie up working capital in exports.
If you quote or sell in foreign currency, it's a good idea to protect yourself against the risk of changes in the exchange rate.

Minimizing risks: There are several products and services available to businesses to reduce the risks of trading internationally. The type and level of insurance that will best suit the needs of your business will depend on a number of factors, such as the size and length of the contract and the amount of risk involved.

• Partnership with a credit insurer: This is a tailored service, where the insurer identifies and assesses your business prospects and covers the risk on your exports.
• Individual insurance policy per deal: This is a tailored policy and is ideal for one-off contracts that you would not need to insure regularly.
• Managed credit insurance: This scheme provides a full research service, providing country information, verifying customer details and credit limits, debt collecting and management as well as making claims. It is the preferred service for new or smaller exporters looking to contract out the risk.

8. How do you ensure you will get paid?

Ensuring you get paid for overseas sales is a combination of assessing risk, settling on acceptable payment terms and methods and considering insurance to protect yourself against problems. Timely payment is essential for your business.
To minimise the risks of non-payment, you should research the market conditions in your target country and the credit worthiness of potential customers before you start trading.
Understand country risks: Start by building an overall picture of payment practices in your customer's country:

• Political situation - war, civil unrest, and corruption or security issues might affect payments. Changes in government could lead to embargoes or the introduction of tariffs.
• The economic situation - stability and sustained growth in the local economy will mean more potential customers are solvent. Check there are no problems with the supply of money in your target market.
• Foreign exchange and banking conditions - you will be exposed to foreign exchange fluctuations when selling overseas unless your customer agrees to pay in sterling, thus taking on the risk. A historically stable currency will minimise your risk.
  Understand buyer risks: It's essential to carry out a credit check on potential overseas customers. This will indicate how they have kept up with their liabilities in the past.

Payment terms for overseas customers

• Payment in advance: be aware than very few customers will agree to pay in advance in full it could be a percentage in advance and the remaining with another type of payment.
• Documentary credits: Your customer arranges a letter of credit with their bank, which pays to your bank once you complete the necessary paperwork, the goods have arrived at their destination city, and the documents are accepted without any discrepancies. This is one of the safest ways to get paid from overseas although more expensive than other methods.
• Documentary collection: payment becomes due when your customer accepts ownership of your goods. You instruct your bank to draw up a bill of exchange, which allows you to keep control of your goods. An overseas bank, acting for your bank, will release the documents allowing your customer to take the goods once they accept the terms of the bill. There is a risk that the bill of exchange will not be accepted, but you retain ownership of the goods - although they'll be in your customer's country. There is still a risk of non-payment unless your bill of exchange has been guaranteed by the bank. You will have to pay commission to your bank and the overseas bank.
• Open account: This is similar to offering credit to a local customer. You supply the goods and invoice the customer, stating when you expect to receive payment. This option has the highest risk of non-payment and you should only use it when you have an established relationship with your customer.

Managing your overseas customers' payment performance

You need to have efficient credit control procedures when selling overseas. Payment for most export transactions takes time, and you will have to finance your export activities until you are paid.
Many processes and best-practice principles for effective overseas credit control, such as offering discounts for prompt payment, are the same as in your home market.

Specific considerations for exporters

Ensure you have the skills and manpower to run an effective credit control operation for overseas customers:

• Language. Can your staff communicate with overseas customers? If not, chasing payment can be difficult.
• System knowledge. Payment terms, such as letters of credit, can be complex. Do your staff have sufficient training?
• Time zones. When trading overseas, your customers' working hours may differ from yours. Could you arrange to contact them in their working hours?
• Communications infrastructure. How strong is the communications network in your customers' country? What are the implications for speed of communication and payment?
• Cost. Chasing overseas debt can be time-consuming and costly. Have you got the resources to fund this?

Outsourcing credit control: If you are not confident about managing your own credit control procedures for overseas customers, or do not have the resources, you can outsource them. Managed credit insurance schemes will obtain country information, check customer details, set credit limits and chase overseas payments for you. You will have to pay for this service, usually as part of a premium for credit insurance cover. Some banks also offer this service for a fee.
You could also sell your invoices to a debt-factoring house, which will take on the work of recovering the payments. You can also raise money through invoice discounting, but you remain responsible for recovering the debt.

9. How do you label and package goods?

One of the main tasks facing any international trader is to make sure that goods reach their buyers and their final consumers in perfect condition. The key is to get your export packaging and labelling right, whether moving your goods within the EU or to other countries. There is a huge range of packaging options you can use - from cartons and drums to wooden pallets and metal containers. As well as making sure your goods are securely packaged, you also have to check that they're appropriately marked or labelled to ensure they're handled properly while in transit.

Factors to consider when choosing export packaging

You might need help deciding which option is best for you. A good place to start is by asking people with experience in this area, such as business contacts, your packaging supplier or trade association, or a freight forwarder if you're using one.
Factors that will influence packaging decisions:

• Protection: Avoiding damage to your goods is the main purpose of export packaging. One of the reasons that containers and pallets have become so standard is that they combine efficiency with excellent cargo protection.
• You need to take steps to prevent goods being stolen or tampered with. Containerisation helps with this, and using container seals makes tampering even less likely. Shrink-wrapping and secure straps also act as deterrents. Export packaging should be kept as plain as possible - providing details of the contents, eg brand names, encourages theft.
• Mode of transport: This may influence your packaging. For example, bulk ocean shipments of liquids and grains don't need any packaging. And goods transported by air generally need less protective packaging than those sent by ship.
• Cost: It's a false economy to try to cut costs by using sub-standard packaging. The standard options (eg cartons grouped on pallets and then loaded into containers) have become the standard because they're reliable. Unless your goods require special care, you're unlikely to gain much by opting out of above-standard packaging. You can buy, lease, or hire most types of packaging (eg shrinkwrap, pallets or containers), so it makes sense to shop around. You can also commission custom-made packaging, and hire a packing firm per consignment to make sure your goods are packaged correctly, which may work out less expensive.
• Waste legislation: Many markets abroad have waste regulations that favour packaging which can be easily recycled or has a minimal impact on the environment when disposed of. In many export markets, there are stricter rules on packaging waste and collection, eg the 'green dot system' in Germany. You must comply with The Packaging (Essential Requirements) Regulations that aim to minimise the amount of waste packaging businesses generate and ensure that packaging can be reused, recovered or recycled.
• Wood packaging requirements: International regulations and wood packaging standards exist to control the spread of forest pests and timber diseases. You may also need an import licence from your destination country to import packaging that is made of, or contains wood. You may find it cost-effective to consider alternative packaging.

Once you have decided what kind of packaging you need, check if there are any further issues you should consider including:

• Information and labelling – certain information has to be clearly marked on your export packages (see details below).
• Rules in your export markets - check that your consignments comply with local regulations. Certain markings may be required and in some countries certain packaging materials, eg straw filling, are prohibited.
• Load securing - even adapted packaging has a limit to the vibrations it can withstand before it collapses. Make sure your packaging can be secured in its container and/or vehicle.
• Insurance - your transport insurance cover may be adversely affected if it can be shown that your goods were damaged due to poor packaging.
• Contracts - to avoid disputes in case goods are damaged in transit, consider including packaging specifications in your contracts with buyers.

Identification marks on outer boxes

Every package in your consignment should be clearly identifiable. Ensure the following details are provided:

• the country of origin.
• destination - the port or other place of destination is sufficient, rather than a full address - check for places.
• seller's name and order number.
• sequential number of each package and the total packages in the consignment, eg 'Package 7 of 20'.
• the size of the case if there are multiple boxes or containers.
• weight and volume
• special handling instructions: Make sure your markings are clearly visible. Packages may have goods stacked around them so include handling instructions or labels on multiple faces. A set of internationally recognised symbols is used to indicate how cargo handlers should handle packages, eg: a picture of a wine glass indicates fragile goods, sets of cross-hairs on two sides indicate centre of gravity. These symbols are contained in the standard ISO 780.

Check regulations in the destination country both for primary and secondary packaging. Useful websites:
https://www.export.gov/article?id=European-Union-Marking-Labeling-and-Packaging-Overview
https://www.gov.uk/food-labelling-and-packaging
https://www.gov.uk/guidance/comply-with-marketing-standards-for-fresh-fruit-and-vegetables
https://www.food.gov.uk/enforcement/regulation/fir/labelling

By Luciana Vecco