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Exporting Basics

CHAPTER 1. Is Exporting for me?
  Risks of Exporting: How Can I Reduce Them?
  Self-Inflicted Risks

Don't try to run before you crawl. You could make costly mistakes in haste or inexperience. Here are some common mistakes to avoid. Donít pursue too many markets at once, or the wrong markets. Donít use sales literature that unwittingly offends. Donít apply your marketing methods in countries with different business practices. Donít appoint incompetent overseas representatives that can't be terminated. Donít fail to protect your intellectual property. Donít agree to payment methods or terms that leave you at undue risk. Donít try to handle all the shipping and documentation yourself. Crawling is safer until you gain more experience. Do seek export counseling, attend export seminars, conduct market research, adapt to the market, and use specialists to handle the details.

If you're a start-up intermediary, you can be overwhelmed if you try to find immediate "matches" for trade leads you've uncovered. Don't assume that every supplier would welcome an export sales opportunity, or would want you to represent them just because you found the lead. Even if they might, they'll want more details about the lead, the buyer, the market, and you. You'll need to convince them the lead is viable, the market warrants their attention, you are familiar with their product and industry, and you're equipped to handle their export business. You'll need knowledge of the market and experience in export mechanics and procedures. If you're just a start-up, you might face rejection or make mistakes that could harm you as well as your clients.

Financial Risks

Your main concern is non-payment after you've shipped the goods, either because the importer can't or won't pay. You can largely avoid default by selling on a Letter of Credit (L/C) basis. Irrevocable, confirmed L/Cs virtually assure payment because the buyer must deposit the money in advance at his bank, and a correspondent bank in your country then takes on the obligation to pay you. However, many foreign buyers want delayed payments: for example, by open account or sight draft within 30-120 days after the goods arrive. These terms are customary when you know and trust the buyer. You might also extend credit if your competitors are offering these terms. Doing so increases your risk, particularly if, by payment time, the buyer's local purchase costs have increased due to depreciation against your currency. You can protect yourself with export credit insurance available commercially or from a government agency (e.g. U.S.Export-Import Bank).

If buyers won't pay, itís usually for one of two possible reasons: you haven't complied with the terms of sale in their view, or they're dishonest. You must comply with the terms of sale specified in the L/C and the shipping documents. With reasonable precautions, you can recognize dishonest buyers. The Internet has detailed profiles on many foreign companies. Banks and credit-reporting firms can do background checks onoverseas firms. Government export assistance agencies in some countries offer asimilar service. In the U.S., for example, the Commerce Departmentís International Company Profile (ICP) service provides detailed financial and commercial information on the foreign companies you specify, including an opinion on whether the firm would be a suitable partner for U.S. firms.

Business Risks

Take elementary precautions to learn about potential business partners. Beware of deals that are "too good to be true." Among these are scams that promise rich rewards for up-front advances, such as ďguaranteedĒ access to lucrative government contracts. In many countries, graft and corruption are common. The line between what's customary and tolerable, and what's excessive or illegal, is not always clear. Seek advice from a lawyer or a country specialist in a trade assistance organization.

Watch out for firms out to copy your technology once they get a product sample or your first shipment. Take special care to appoint suitable overseas agents and distributors. Some may already represent your competitors, or be so busy they can't do justice for your products. They may not have the qualifications or capabilities they claimed, such as the ability to stock, install and service your goods. In some countries,once you sign an agent/distributor agreement, it's almost impossible to terminate.

Legal Risks

Every country has its own business laws and regulations, and you're presumed to know them. Many may be similar to your countryís laws or follow international standards. Some vary widely by country, affecting import procedures, agent/distributor agreements, treatment of intellectual property, rights to own businesses or land, tax liability, currency trading, health and technical standards, and even what is allowable to eat, drink or wear. Failure to comply could trigger fines or worse. Information about these matters is readily available from Internet country guides and other sources of foreign trade laws and regulations. Take the time to do market research and seek legal advice as needed.

Political Risks

Political upheavals can cause dramatic changes, including major shifts in economic policy, nationalization, expropriations, loss of personal rights, and physical danger. Political strife can prompt foreign reactions in the form of economic sanctions, boycotts, and embargoes. Be alert to what's happening in the world. Most common are the shifts to the economic right or left that often come with elections. Some shifts can favor exporters. For example, ongoing shifts toward privatization and trade liberalization in many previously controlled countries continue to offer opportunities for the worldís exporters.


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